Strategic Planning for Community Hospitals: How to Effectively Move to a New Delivery Model

Healthcare reform — a topic that's been on everyone's radar both within and outside of healthcare since President Obama signed the Patient Protection and Affordable Care Act into law in March 2010 — is nothing new, at least according to Bob Vento, senior vice president of operations at hospital consulting and management firm QHR. While the law itself is certainly new and sweeping, "healthcare has been reforming and changing for a really long time," he says. Since CMS implemented Medicare Diagnosis-Related Groups (DRGs) in 1983, the industry has undergone near constant change. And with the introduction of the PPACA and other pressures, the rate of change has recently increased, creating a new impetus for hospitals to assess both their short- and long-term strategy.

As healthcare moves away from fee-for-service and disjointed care toward value-based, coordinated and preventative care, hospitals and health systems of all types will need to adjust their strategy to adapt to this new business model.

According to Mr. Vento, these adjustments may create a larger burden for smaller hospitals than for larger, integrated systems. "They have to do more with less reimbursement," he says. Not only are smaller, rural hospitals sometimes subject to a less-favorable payor mix, but their communities can have greater rates of chronic disease than metropolitan areas. "Medicare is becoming much more complex. Technology costs, information flow — both are a disproportional burden to rural hospitals," he says. Additionally, current medical staff models which favor employment and other contractual agreements can strain a smaller hospital’s finances.

Community hospitals today are certainly in a challenging environment, but that doesn't mean they are doomed. With a forward-thinking strategic plan and an understanding of the value of their hospital to the community, these hospitals can continue to serve an important and unique role in the healthcare delivery system.

Hospital assessment — Get "physical"

Preparing for the new models of healthcare delivery will require a redeployment of resources throughout a hospital. That is, financial and other resources may need to be taken away from certain areas and reassigned to areas that are more critical to the hospital's success under these new models. In order for boards to determine what areas to grow and what areas to cut, hospital leaders need to see the "full picture" of a hospital's strengths and weaknesses.

Just as individuals need annual or biannual check-ups to assess their health, so do hospitals. Therefore, hospital boards and executives must routinely perform a "physical" on their organization, assessing the hospital in the following areas and assigning a grade for each, according to Mr. Vento:

  • Capital needs. Examine physical plant including age of facilities and equipment and determine future capital needs (physical, technological, etc.).
  • Financial performance. Compare historical financial performance to standards/benchmarks for similar facilities. Identify volume, charges and costs by service line to determine profitable and unprofitable services. Also examine outmigration volume to other hospitals and the value of those lost services.
  • Debt. Assess current debt levels and determine ability to obtain further debt for future improvements.
  • Physician/medical staff relationships, including employment and other contracts, overall satisfaction and recruiting.
  • Quality, as determined by various quality indicators, such as process-based measures, readmission rates, infection rates and HCAHPS scores.
  • Market characteristics, including state and local economic performance and healthcare needs.

Setting objectives, identifying all possible options

After completing the "physical," hospital leaders will gain a better "picture" of where the hospital is currently at and what areas are ripe for growth or change, given the future healthcare environment, says Mr. Vento.

For example, does a hospital have enough primary care providers to protect market share and provide coordinated care? If not, that would be a major objective given the move toward coordinated and bundled care. Once these areas are identified, leaders should set objectives around them that align with burgeoning models and reassign resources according to key objectives.

Next, hospitals leaders face the toughest part of strategic planning — figuring out how to meet the objectives. Mr. Vento says that leaders are often unaware of all the different options available to them. He recommends rural hospital leaders explore affiliations or management agreements with both physician groups and other hospitals, joint ventures and the sale of ancillary services. The first two provide outside resources to continue core services, while the latter frees up hospital resources to grow core services that directly link back to the organization's mission.

Returning to the example above about the need for primary care providers, imagine that a hospital has been largely unsuccessful in convincing providers to set up private practices in its community — a common theme for rural providers. The hospital can't afford to employ these physicians which most recruits desire. What should the hospital do?

Leaders may view their options as continuing to struggle with recruitment or throwing in the towel. Mr. Vento explains, however, that other, less extreme, options exist. For instance, Mr. Vento recommends the hospital approach larger hospitals or systems in the nearest metropolitan area to explore an affiliation where the larger hospital's physicians would see patients in the smaller community, and the large hospital would then receive referrals for more complex cases.  

"Take a look at the outmigration data. There's tremendous value in that. Approach the hospitals from the perspective that if they partner with you, they get the benefit of that business," says Mr. Vento. "Having that data engages the hospitals in a much more effective conversation. Essentially you're saying, 'If you really want our community's business, how can you help us get these primary care services to stay in our community?'"

The power of a community hospital

In the end, forward-thinking, proactive boards and leaders who wish to remain independent and maintain local control must think creatively and holistically about all their options for maintaining services for their community.

"Historically, hospital boards have not understood the value of their hospital to the community," says Mr. Vento. "Boards who better understand the value that goes in and out of the community are better positioned to diversify and continue to operate successfully."
Mr. Vento explains this is best achieved by undertaking the strategic planning process as well as dedicating board meeting time in an ongoing fashion to "really looking forward and discussing their options," he explains.

"Without a doubt, engaged governance, leadership and medical staff is the greatest predictor of a rural hospital's success," he says. "When these three elements work together, the facility will be markedly more successful in its day-to-day operations and positioning itself for the future."

More Articles on Community Hospitals:

Turning Community Hospitals Into "Focus Factories"
The Future of the American Hospital: Role and Relevancy in the Next Decade
The Future of Rural Hospitals: Q&A With Desiree Einsweiler, Incoming CEO of Palo Alto County Health System

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