How Many Hospital Beds is Enough?

Hospital leaders, pressured with steering their organizations toward better care at reduced costs, may be inadvertently heading toward a financial precipice.

Follow this thought to its logical conclusion and you can see that achieving those aims would essentially put the most successful hospitals out of business.

Of course, healthcare executives deal more often with the daily realities of running a hospital, rather than abstract theories. Practically speaking, there will always be patients in need of hospital beds, no matter how efficient we collectively get at practicing medicine.

But the fact is that the number of beds needed is falling. In 2009, the average number of hospital beds was 2.6 per 1,000 people. In 1999 the national average was 3.0—a 13.3% drop. Length of stay stats are dropping, too.

Through investments in technology and care coordination to prevent readmissions, efficiencies are being gained at an accelerating pace. In California, already significantly below the national average, the rate fell from 2.2 to 1.9—a 9.13% drop between 1999 and 2009. And further cuts are coming.

Jim Lott, executive vice president of the Hospital Association of Southern California said in an LA Times article last week, "Everyone is scrambling on the hospital side to prepare for fewer patients…It does change the paradigm."

But how low can the numbers go?

Everyone understands the costs of associated with oversupply: In a word, waste. But undersupply is trickier; it can erode both quality of care and revenue. There is, for every organization, a "Goldilocks number" of beds—neither too many, nor too few, but just enough to serve the needs of the community and the hospital's mission.

Forecasting what that number will be in 3, 5, or 10 years is complicated by a number of variables: the needs of the newly insured, the needs of an aging population, the needs of a population that is increasingly obese and diabetic, and the staffing needs of a nation facing a physician shortage.

But one thing is sure. Arriving at the "right" number of hospital beds is the shared responsibility of all senior leaders. Finance leaders must be able to identify the early warning signals emanating from waning revenue streams, and they have a responsibility to help guide senior leaders toward optimal operational conditions and new and sustainable streams of revenue.

We know, for example, from data collected in the HealthLeaders 2012 Industry Survey, that 20 % of finance leaders expect revenue growth exceeding 6% in their geriatric and ortho service lines. And we know that more patients than ever are being treated in outpatient settings.

It's the CFO's job to help preserve and enhance revenue—before his or her organization is hypothetically hyper-successfully managed into obsolescence.

Related:
8 Reasons Why Hospitals Should Reduce Bed Volume
Belt Tightening Gets Tougher for Hospitals
In Financial Forecasting, Time to Plan for the Worst
A Hospital Prevents Readmissions, but Threatens Revenue