Developing a Regional Hospital Strategy: Key Lessons and Takeaways

At the Becker's Hospital Review Annual Meeting in Chicago on May 10, Michael Ugwueke, executive vice president and COO of Methodist LeBonheur Healthcare in Memphis, Tenn., and Valinda Rutledge, former KentuckyOne market leader and president of Jewish Hospital in Louisville, Ky., and former director of patient care models group for CMS' Center for Medicare/Medicaid Innovation, discussed the process of developing a regional hospital strategy. Lindsey Dunn, editor-in-chief of Becker's Hospital Review, moderated the session.

Mr. Ugwueke helps lead Methodist LeBonheur Healthcare, which is the largest hospital system in the Memphis area with seven hospitals, including the only children's hospital in the market area. Ms. Rutledge formerly oversaw six KentuckyOne hospitals as Louisville market leader, which was a total of 1,400 beds and $1.2 billion in net revenues.

Lindsey Dunn: You can't talk about regional strategy without talking about consolidation. Do you think [the current rate of mergers and acquisitions] will continue? What impact does that have on providers' strategy?

Michael Ugwueke: Consolidation is here to stay, quite frankly. Small rural hospitals can't survive without ways to align themselves with additional cash flow. Part of the consolidation movement is not just about gobbling up hospitals, but to survive.

Valinda Rutledge: I think there are several reasons for continued consolidation. First of all, the markets have returned. So many systems have many days cash on hand now. The balance sheets have significantly improved, and the interest rates are low. As Michael said, in terms of the struggles of a standalone [hospital], there are a couple other things I'd like to reinforce. As you enter risk sharing arrangements like accountable care organizations and bundled payments, the larger you are, the less [chance] you have for adverse risk.

Second [are the] exchanges. Many of you, I think, have heard that Aetna and United [are] coming out [with predictions for] their involvement in exchanges. They're anticipating more narrow networks, and Aetna said they anticipate 25 to 50 percent of [their] current providers in those networks. As we see exchanges, we'll see either volume changes or a hit to revenue. Moody's and Standard & Poor's have had negative outlooks on non-profit hospitals.

LD: What's your strategy in terms of acquisitions? Are you actively looking?

MU: We are actively looking for opportunities to acquire physicians within the market area and outside the market area. We do have some strategic partnerships that are not acquisitions. We also have a strategic partner that was challenged financially. We were approached [and began] looking at potentially acquiring that hospital. After going through due diligence, [our] board felt the hospital in its current location [wasn't ready for a full merger]. What we'll try to do is decide over the next three years whether to move that hospital.

LD: Valinda, what are your general thoughts on post-acute, other types of acquisitions?

VR: I think it's interesting, because when you asked [earlier] — "Do you think consolidation is a good thing?" — my answer is it depends on the perspective. From a hospital provider point of view, absolutely. From a government point of view, provider consolidation is worrisome. In March, MedPAC gave its annual report to Congress. One of the comments was provider consolidation leads to an increase in spending, but payor consolidation leads to a decrease in spending.

I think any executive has to ensure they're not just adding hospitals to add hospitals. You could be adding unnecessary capacity that will limit you from putting that money into an IT system or looking at population health. I think a more effective strategy is looking at post-acute care. Everyone is recognizing that, as you get into risk arrangements, it's the post-acute variability that will be the [biggest cost-savings] opportunity.

LD: Your thoughts on population health?

VR: Intuitively, you think the larger the system you have, the better you'll do from a population health standpoint. You have more intellectual capital, [can] hire a CMO to focus on population health and can put more resources into population health IT. But what's unfortunate is research has shown that with the rise of market consolidation and large regional systems, there is not an improvement in population health. I've done a lot of thinking about why isn't this happening? You get market leverage with payors, but you do not get an increase in quality or improvement in population health.

A lot of people are [asking], "If we have market consolidation, why isn't population health moving forward?" A big reason we're not seeing success is we are not focusing — when systems come together — the first thing you do is look at [financial] synergies. At the end of the day, it can't be about that for population health. How do we put a culture together as much as we put together the documents to improve financial [capabilities]?  

We're not jumping into it too quickly. We're trying to ensure we have the right infrastructure in place. From an IT standpoint, we're looking at a number of IT [tools] and at the health information exchange as a means of integrating outpatient and inpatient services we provide. The good news is we have strategic locations throughout the community for [improved] access.

More Articles on Regional Hospital Strategy:

Ties Between Non-Profit, For-Profit Hospital Systems: Trends and Observations
5 Health System Executives Share the Guiding Force Behind Their Systems' Strategy
What's Behind the Rash of New Hospital Brands?

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