INDUSTRY INSIGHTS | FALL 2010 EFFECT

Hospitals and Physician Groups Collaborate in Recovery

by Shannon Lorbiecki

Many friends have eyed me enviously over the years, because they perceive the health care field as recession proof. People still get sick and need medical attention, right? While the burden of illness may remain constant, it is certainly not true that the field is unaffected by the economy.

Demand for elective procedures has dropped significantly. According to information collected by the Thomson Reuters Physician Productivity Database, after years of rapid growth in ambulatory surgery, volume has been flat over the past two years, as demand for services such as laser vision correction and infertility treatments have declined. And high unemployment rates have lead to an increased number of uninsured patients as well as slower payments. Although fewer staffing shortages may sound positive, newly graduating nurses have had difficulty even finding positions when only a year or two ago, they would have had multiple competing offers and possibly a signing bonus. Perhaps most importantly, the recession has reduced access to capital.

Access to capital

Prior to the 2008–09 financing crisis, bonding for hospitals or other health organizations to invest in facility development was relatively plentiful. Successful hospitals were building replacement facilities, new patient towers, and large ambulatory centers. In the past two years, we’ve seen many providers—even those with historically strong balance sheets and favorable bond ratings—forced to delay or cancel significant capital investments and in some cases, integrations. For example, a large hospital withdrew from a merger discussion with a small community hospital because the merger would have diluted its financial ratios in the short term, even though the relationship would have been beneficial in the long term. Emphasis used to be heavily placed on growth—success was equated with growing top-line revenue—and capital investment fueled that growth.

Value versus growth

Successful health organizations of the future will leverage opportunities to do things differently. They will be more focused on providing value than growth.

Leaders will focus on:

• Their missions and the needs of the communities they serve
• Personal care that is highly responsive to patient needs (e.g., chronic disease management programs for those with diabetes or congestive heart failure)
• Creating a culture that attracts staff who value high-quality and responsive patient service
• New care models that create the opportunity to improve quality, safety, and value
• Prudent strategic capital investments and effective operations
• Effective development and application of both clinical and health information technology to improve quality and financial performance
• Monitoring and transparency of quality, safety, satisfaction, and financial information
• Cost efficiency and productivity

Integration required

To thrive in the future, a new wave of integration and alignment of physicians, hospitals, and post-acute providers will be necessary. As the economy continues to strengthen and capital markets are once again accessible, we in the health care, as in other fields, will be held to a higher standard of justification to support bonding. An alliance with a larger system or the integration of two smaller practices (hospital to hospital, physician group to physician group, or physician group to hospital) often makes it easier to access capital. One multi-specialty physician group in a rural community developed a professional services agreement with their local hospital in order to develop an integrated electronic medical record system, support physician recruitment, and remodel the outpatient clinic.

While financial realities may provide the initial impetus for considering a new affiliation, these relationships should, first and foremost, be based upon a shared vision and mission for serving the health care needs of the community.

Like all industries, health care has felt the impact of the recession. However, leaders have come to understand that there will always be opportunities for those who are nimble enough to respond to changes in the environment. In the near future, some of those opportunities may be found in new alliances and care models.