Stand-Alone Hospitals Wrestle With Financial Challenges

Make-or-break decisions about the future face financial executives from independent hospitals—insight from the HFMA ANI conference.

Last week at the Healthcare Financial Management Association's ANI conference in Orlando, I listened to a panel of executives from stand-alone hospitals talk about the financial challenges they face while trying to remain independent in an environment that is—and has been for years—consolidating at a rapid rate. More than most healthcare leaders, financial executives at stand-alone organizations face make-or-break decisions in the next few years.

"In some ways, our challenges aren't that different from any other health system, but as a small, stand-alone hospital, we have to execute really well if we want to stay where we are. … We have to be slightly quicker and be as good or better on everything from a quality standpoint," said Michael Allen, CFO and treasurer at Winona (MN) Health.

"From an operations point of view, the biggest challenge is probably around physician recruiting and retention. It's harder to attract folks who want to come to a small facility in a small community, and our physicians are our sales force," he added.

Harold Dupper, vice president, finance, at Platte Valley Medical Center in Brighton, CO, agreed that physician recruitment and development top the list of challenges.

"The challenge is around physician development and medical staff development to have the right depth in that area," he said.

Another big issue stand-alone hospitals encounter is that commercial payers sometimes do not feel it is necessary to include them in their product offerings, Dupper said.

"The challenge is being able to have enough size, clout, and influence in the way commercial payers structure their products to recognize a hospital that is on the fringe of the market, as we are. … We're 15 to 20 miles from other hospital providers, but the payers still see our patient population as being willing to travel to seek some services."

Myron Machula, CFO at Enloe Medical Center in Chico, CA, said one of his organization's biggest dilemmas centers around the shift to value-based purchasing.

"I wonder if we really understand how we can achieve greater quality with less cost. Last year was one of our most successful years ever with 7% or so margin. I think as we move toward trying to figure out how to produce value, we are just infants in being able to accomplish that at this point."

With all the financial pressures straining stand-alone hospitals, it's natural for a board of directors to consider the idea of consolidation, the panelists said.

"The board does ask the question, certainly, but we are looking at clinical affiliation efforts as opposed to financial," Dupper said. "We don't think we have to do an ownership or balance sheet affiliation. Clinical partnerships would be the best for us and our community. Good stewardship has put our organization on a solid financial foundation. … The question is about whether we can continue to be relevant and provide the services needed in the community and participate in commercial payer products."

"I don't believe that where we are we can avoid looking at other kinds of associations, short of full mergers," Machula said. "Enloe has started conversations with four hospitals in the region to have discussions about sharing data … but before we get there, we have to discuss what the model will be and who is going to suffer the costs."

At Winona Health, the current strategy is to maximize vendor relationships to stave off the need for consolidation, Allen said.

"[The board] didn't want to take a hand-the-keys-over approach, so I went to our key vendors—in IT, in particular—and went deeper with them, and through that, I am getting scale. I'm becoming part of a larger organization that has scope and scale and talent. … I'm building the infrastructure that is needed to make ourselves operate larger without becoming larger."

James Doyle, executive vice president and CFO at Elmhurst Memorial Healthcare in Chicago, represented the sole hospital among the panel that has decided to enter into a merger. Elmhurst will join with Edward Hospital and Health Services in Naperville, IL, on July 1.

"Chicago is really turning fast to consolidation," Doyle said. "I don't think there are many stand-alone hospitals left thinking they are going to survive. We've hit a tipping point in the last couple of years. In a way, that is late considering what has been happening in the rest of the country, but I don't think it can be reversed now."

Doyle said that in his opinion stand-alone hospitals are "chum for the big systems."

"We can exist and thrive, but we can't really compete," he added. "Strategically, the game is getting bigger, at least in Chicago."

Despite Doyle's doomsday words, the other panelists took a more optimistic approach to their future, saying their organizations can offer one critical element that the big systems can't: personalized care.

"Enloe Medical Center is celebrating its centennial year. … That ought to tell you something about the community pride that exists around the services we are able to provide," Machula said.

"I think healthcare in America is still personal, and people prefer to have a personal relationship with their providers. I think we can offer [that]," Dupper said. "In 10 years, the people we serve are still going to want us to provide high-quality care, good outcomes, and personal relationships with their providers, I can tell you that."