The Times They Are a-Changin: Why Hospital Strategies Need to Adjust

By 2020, reimbursement yields for hospitals and health systems will be 10 to 30 percent lower than they are today, and hospitals that don't adjust to this reality will see debilitating results.

At the Becker's Hospital Review 4th Annual Meeting in Chicago on May 10, Sanjay Saxena, MD, vice president and partner of the North American hospital and health system practice at Booz & Company, discussed why hospital strategies need to better fit with the financial realities of today and what models hospitals should be watching.

Dr. Saxena said there are several trends that are driving down reimbursements: more baby boomers, set reductions to Medicare, state fiscal problems with Medicaid and commercial rate declines. Over the past several years, hospitals have resorted to a strategy of consolidation because as the saying goes: There's safety in numbers.

However, Dr. Saxena isn't sure that's always a sure-fire strategy. "Our data suggest that strategies of simply consolidating for the sake of getting bigger isn't always a good thing," he said, noting that of 220 hospitals that were acquired over the past few years, 18 percent went from a positive margin to a negative margin within two years of being acquired. "Mergers that are done for purposes of capability acquisition as opposed to 'we need to get larger' have tended to yield more success."

In order to better align with today's healthcare goals of improving access and care cost strategies, Dr. Saxena highlighted five types of major strategic operating models.

1. Scaled portfolio. Hospitals that benefit from a replicable operating model. Example: LifePoint Hospitals in Brentwood, Tenn.

2. Geographic cluster. Build a concentration in a reasonably contiguous regional market. Example: Steward Health Care System in Boston.

3. Hub and spoke. Expand the footprint, and drive to the central tertiary hub. Example: Northwestern Memorial HealthCare in Chicago.

4. Clinical innovation. Apply innovative care delivery, and brand globally. Example: Cleveland Clinic.

5. Fully integrated. Becoming a fully risk-bearing institution. Example: Kaiser Permanente in Oakland, Calif.

More Articles on the Becker's Hospital Review 4th Annual Meeting:

ACOs: The State of the Union
Using Six Sigma to Bolster Infection Prevention
3 Topics for Community Hospitals to Consider

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