Community hospitals fight for survival amid ‘precarious’ financial outlook


Many of the struggles facing hospitals and health systems are worse for community hospitals that  often resort to drastic measures to keep their doors open, according to the North Bay Business Journal.

Jan Emerson-Shea, vice president of external affairs for the California Hospital Association, called  the financial situation of most community hospitals “precarious at best,” partially because of low reimbursement rates from government payers, such as those made via her state’s MediCal Medicaid program.

“There’s a host of challenges that all hospitals face, but particularly these small, independent hospitals,” said Ms. Emerson-Shea. “Some of these hospitals file bankruptcy, some shut altogether, some are able to go to local voters, and some affiliate with larger healthcare systems that have the ability to keep them open and provide them access to capital.”

Sonoma (Calif.) Valley Hospital, a 75-bed facility, has been busy this year making moves to stay afloat. his year the hospital  closed its obstetrics unit, finalized an affiliation agreement with the University of California San Francisco Health and transferred ownership of its home healthcare service to Hospice by the Bay, a UCSF affiliate.

“It’s become clear that a community hospital can no longer try to be all things to all people, but must refocus on essential community needs,” said Kelly Mather, president and CEO of Sonoma Valley Hospital. “We’re all facing the same issues.”


Viewpoint: Small hospitals should be hopeful and wary of national health systems


With Cleveland Clinic eyeing acquisitions at two locations on Florida’s Treasure Coast — Indian River Medical Center in Vero Beach and Martin Health System in Stuart — residents and hospital workers should be wary but hopeful, according to the local TC Palm.

That a national power in the healthcare industry wants to snap up two independent nonprofit hospitals in Florida is no surprise. The area’s patient population has the trifecta of demographics: aging, wealthy and insured, TC Palm‘s Gil Smart wrote. In an era of increasing expenses, declining reimbursements and growing powers, finding a partner system can give small hospitals more weight in negotiations and help fund capital for investments in growth and change.

Yet as examples have shown, allowing bigger players to come into local markets means change, and not all of it is good, Mr. Smart noted. Unions will have it tougher at the negotiation table and control will change hands.

“Bottom line: There will be a loss of local control. There always is, where the bigger, faraway healthcare system gulps down the local guy,” Mr. Smart wrote. “Yet we shouldn’t let the drawbacks overshadow the potential benefits of having a globally renowned healthcare ‘brand’ set up shop in our backyards.”

The benefits, such as easier, better and more coordinated care, are a lot to be hopeful for. Read the full column here.




The Secret of Success for Independent and Thriving Hospitals?

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Consolidation remains a major trend in the healthcare industry, especially among hospitals. In 2016, there were 102 announced partnership and transaction deals, compared to 66 in 2010, according to a Kaufman, Hall & Associates analysis. In the current climate of declining reimbursements and greater emphasis on value-based care, many hospital executives see mergers as a necessary way of reigning in costs and benefiting from economies of scale. Yet, a significant number of acute care hospitals remain independent and even thrive. A recent article highlighted Marin General Hospital, which separated from Sutter in 2008 but has performed well enough on its own to fund construction of a new $400 million replacement hospital. What do high-performing independent hospitals have in common? An analysis of Definitive Healthcare data suggests independent hospitals with consistently strong operating margins have limited competition from other facilities, high discharge volumes, and a greater proportion of private payers.

Under the analysis, a high-performing hospital was classified as a facility with a median operating margin of at least four percent during a five-year period from 2011 to 2015, as four percent is often cited as the traditional minimum necessary for a hospital to be able to raise capital effectively. 143 out of around 1,450 independent hospitals met this condition, according to Definitive Healthcare data. Of them, 67 were non-profit, 56 were proprietary (for-profit) companies, and 30 were government owned.

A favorable payor mix and higher-than-average discharge volume appear to be the most common characteristics among the selected hospitals. The median payor mix for independent hospitals was 38 percent private/other, 6 percent Medicaid, and 51 percent Medicare, compared to 50 percent private, 6 percent Medicaid, and 41 percent Medicare at hospitals with median margins over four percent. The greater percentage of private payors means higher reimbursement rates per procedure and can reflect the presence of a more affluent patient base. The larger volume of discharges compared to the overall median, 1,662 to 792, also helps explain their higher margins. Despite the trend towards outpatient treatment, inpatient care is still necessary and tends to be more profitable for hospitals. Some facilities actually witnessed discharge increases from 2011 to 2015, possibly indicating a growing area population, but they were the minority and the trend did not always coincide with a stable operating margin.

Geography also appears to be an important factor. Isolated hospitals with limited competition have a natural advantage, being the only source of inpatient care within the immediate area. Some independent critical access hospitals, which by definition are geographically isolated, do have strong margins, but so do many regular acute care hospitals. Of the top 10 non-critical access facilities by median operating margin, eight are located at least 15 miles from the next-closest hospital, making them the primary destinations in terms of convenience and emergency care for local residents.

The company status of independent hospitals is also associated with high profitability. While proprietary hospitals constituted only around 10 percent of all independent hospitals, they were 37 percent of all those with median margins over four percent. In addition, they tended to have the highest margins overall. Of the top 30 hospitals by median margin, only three identified as non-profits or government-owned hospitals. Nearly all were specialty hospitals, which are generally more profitable than acute-care hospitals as they usually have more favorable payor mixes and focus on a single high-margin specialty, such as surgery or orthopedics. Non-profits came next, while government-owned facilities were the least likely to have strong margins. Of course, the margin of a government-owned hospital is less significant due to its ability to leverage tax revenues to support operations.

While financially strong independent hospitals appear to benefit largely from circumstances beyond their control, such as patient income, insignificant competition, and fundamental organizational structure, they are not a guarantee of success. Previous research, such as that here, has identified other characteristics that are equally if not more critical to an independent hospitals’ fortunes. Among them are strong business and clinical planning, high levels of cooperation with both local providers and national institutions (such as those covering specialty consults and clinical trials access), and capable leadership. Obviously, such qualities are easier described than achieved, but if attained, could be enough to create a strong, thriving hospital even in spite of unfavorable geography, payor mixes, or organization type.