Community Hospital Corporation works with community hospitals across the United States to improve their performance. In this article, president and CEO Jim Kendrick shares his thoughts on the growing trend of partnership among these facilities.
It seems like more hospitals are merging and forming alliances with other facilities. Is this a growing trend?
Healthcare organizations today face unprecedented challenges. Various economic pressures are causing hospitals to consider the pros and cons of forming relationships with other institutions.
This is a long-term trend that has accelerated over the last few years. Moody’s Investors Services recently published a report stating that hospitals, health systems and providers, both for-profit and nonprofit, are expected to see continued robust merger and acquisition activity throughout 2021.
Why are more rural and community hospitals seeking relationships?
The financial impact of the COVID-19 pandemic on community hospitals has been two-fold and significant. First, the majority of cases are covered by low Medicare payments. Second, the pandemic has also forced hospitals to suspend higher-paying elective procedures. CARES Act funding supported hospitals in the earlier stages of the pandemic, but those funds are now depleted.
Smaller providers in particular have felt the negative impact that the COVID-19 pandemic has had on their financial performance, and as a result, they will likely pursue relationships to gain strength as well as access to clinical, strategic and financial resources. These facilities also want to reduce labor, supply and information technology costs.
There are several catalysts for partnerships that existed even before the pandemic. Some of these include:
- A shift to value-based reimbursement requires investments in population health initiatives that are difficult for community hospitals to undertake alone.
- Increasing regulatory requirements require administrative resources that are not easy to come by for community hospitals.
- The increasing importance of technology in healthcare is increasing the cost and sophistication of healthcare, making it more difficult for smaller facilities to keep up.
- The demographics of rural communities mean residents in these areas are generally older and sicker than the U.S. population as a whole. These communities are more costly to treat and more likely to rely on Medicare and Medicaid for health coverage.
For hospital leaders evaluating relationships, what are some of the factors to consider?
Understanding what you offer and what you need is the best way to start the process. It’s helpful to identify the performance or financial issues that the relationship needs to improve. Also, think about the level of control the board wishes to retain. Remember that the more risk another organization takes on your behalf, the less control you will retain.
What are some of the relationship options community hospitals are considering?
There are many different types of partnership-arrangement options available, short of total acquisition. Clinical affiliation options give community hospitals some additional resources without major operational change. Options that provide more resources and less control include a merger of equals or a management relationship. For hospitals needing the most support, a corporate member substitution or acquisition may be the best course of action.
What is the first step if a hospital is needing to identify a partner?
One of the most important first steps is to enhance your hospital’s standing and maximize your partnership potential. It’s helpful to assess market position along with evaluating operational and financial performance during this exercise. Be sure to engage and educate the board and medical staff to ensure they are involved from the beginning.
How can a hospital attract the best potential partner?
Hospitals that have efficient operations and strong financial performance are far more attractive than those that do not. It can be helpful to focus on improvement initiatives in the areas of staffing, supply chain and revenue cycle to make a significant impact. Many hospitals engage an external consultant to lead these efforts.
What are some of the characteristics to look for in potential partners?
Finding a partner with a shared mission, values and culture is key to success. The relationship should help improve patient care and financial performance. Other potential benefits for a community hospital include increased geographic coverage, expanded services, enhanced clinical talent, and increased corporate support
The financial strain on community hospitals is significant. Aligning with another organization can provide the resources necessary for your hospital’s long-term sustainability. Whether through affiliation, management, corporate member substitution, lease or acquisition, pursuing a partner may make the most sense for the health and well-being of both the hospital and community.