It seems that every other week we read about another hospital closure. In fact, the current pace is 30 – closures per year, according to analysis conducted by Morgan Stanley as reported by Bloomberg News in August. The analysis, led by Vikram Malhotra, studied data from about 6,000 U.S. private and public hospitals. It concluded that 8% are at risk of closing and another 10% are considered “weak”. In follow up commentary, Mr. Malhotra said that shutdowns are likely to increase for the coming 12 to 18 months. Therefore, nearly 1000 U.S. Hospitals are at risk of closure or forced consolidation in the near future.
This observation is supported by research conducted by the Health Resources & Services Administration who in October reported that “Hospitals located in rural areas have been closing their doors more frequently and at higher rates than urban facilities in recent years – and a pattern of increasing financial distress suggests that more are likely to falter.”
The scenario, according to the HRSA, is particularly bleak for some smaller community and critical access hospitals, whose financial woes include leaking roofs, antiquated power supplies and aging clinical equipment. These financial stressors may be in addition to insufficient patient populations, high rates of uninsured patients, dwindling cash flow and physician shortages. In short, many of these hospitals’ markets don’t generate enough volume and/or revenue to sustain a hospital that’s capable of meeting its operating costs, industry regulations and rising patient expectations.
This list must be expanded to include rising patient bad debt – which affects all hospitals in the country. Patients now bear personal responsibility for an average of 35% of the healthcare industry’s revenue, representing its third largest revenue source behind only government and commercial payers, and growing much faster than any payer segment by far. Patient collections vary considerably from place to place, but can often amount to pennies on the dollar relative to the aggregate value of a hospital’s patient receivables. For a hospital struggling to keep the lights on, the performance of their patient-pay portfolio can be the difference between surviving and failing.
Bloomberg reports that, along with patient bad debt contributing to high negative margins, and a lack of negotiating power, these providers’ operating margins are threatened by technological improvements that attract patients elsewhere, allowing them to get more surgeries and imaging done outside the hospital. These competitive threats are exacerbated by the growth of retail providers (CVS/Aetna) and, potentially, employer-sponsored initiatives like Apple’s and Amazon’s; and other disruptors on the competitive horizon.
The plight of these providers is the product of simple demand/supply economics in an environment where the demand (driven by demographic, technological, economic and social change) has evolved and supply has failed to keep pace. But there are ways for hospitals to overcome these challenges. One is through reinvention, which may also include the second strategy – consolidation.
We addressed consolidation specifically in a previous article titled Mergers and Acquisitions in Healthcare – Don’t Forget About the Patient. In it, we pointed out that the most important strategic outcome of a merger is market competitiveness – becoming the provider of choice for patients and prospective patients in the market(s) a provider serves. All other deal attributes (reduced costs, expanded capabilities, etc.) must lead to that end. In many instances, an acquired or acquiring health system or hospital is looking to a merger as a way to reinvent itself. But whether they merge or not, the mandate for change (reinvention) is inescapable.
The Innovation Imperative – Staying Relevant in a Changing Marketplace
Reinvention means shifting or diversifying away from the traditional inpatient hospital model to models that more effectively reduce costs and can often improve care. In a Wall Street Journal article titled “What the Hospitals of the Future Look Like”, these models are listed to include “investing in outpatient clinics, same-day surgery centers, free-standing emergency rooms and micro-hospitals which offer as few as eight beds for overnight stays. They are setting up programs that monitor people 24/7 in their own homes. And they are turning to digital technology to treat and keep tabs on patients remotely from a high-tech hub.”
The Journal goes on to point out that “patient preferences for how they get care and a national focus on more prevention and wellness are also driving the new models.” The following themes, excerpted from the Journal article, are identified as the principles driving reinvention in healthcare.
Implied in most of these themes is the importance of the patient experience in an increasingly consumer-driven marketplace. “Patient Experience” (PX) as a professional discipline and organizational strategy recognizes every dimension of care – the clinical and the financial. So, we are amending the list above to include the following:
From the patient experience perspective, reinvention of the financial dimension of care can have profound near- and long-term impacts on patient choice and provider financial performance.
One of the first things a consumer of healthcare considers before seeking care is cost. Providers that offer pre-procedure pricing transparency earn a reputation for delivering financially-friendly access to care. As such, they have a compelling market advantage – with patients, payers and employers. Additionally, PX-driven patient financial engagement enhances a patient’s overall care experience, improving patient satisfaction and stimulating patient referrals.
A PX orientation to patients’ financial experiences is essential for health systems and hospitals, regardless of the health of their balance sheets. At-risk hospitals and health systems that are looking to improve their chances for survival must start by evaluating the economic realities and forward-looking trends in the markets they serve. Then consider changes, however radical they may seem, to remain relevant and economically viable. The providers who survive, indeed thrive, will be those who win patient loyalty by meeting and exceeding patient expectations in every dimension of care.
Kevin Fleming is the CEO of Loyale Healthcare.
Loyale Patient Financial Manager™ is a comprehensive patient financial engagement technology platform leveraging a suite of configurable solution components including predictive analytics, intelligent workflows, multiple patient financing vehicles, communications, payments, portals and other key capabilities. Loyale Healthcare is committed to a mission of turning patient responsibility into lasting loyalty for its healthcare provider customers. Based in Lafayette, California, Loyale and its leadership team bring 27 years of expertise delivering leading financial engagement solutions for complex business environments. Loyale currently serves approximately 2,000 healthcare providers across 48 states. Loyale recently announced an Enterprise level strategic partnership with Parallon including deployment of its industry leading technology to all HCA hospitals and Physician Groups nationwide.