Organizational Independence: Mission Impossible?

Philip Betbeze, June 16, 2016

Adherence to a strict interpretation of the goal of independence can be a critical barrier to positioning the organization for a value-based environment.

This article first appeared in the June 2016 issue of HealthLeaders magazine.

Rachelle Schultz
Rachelle Schultz

In a vacuum, the idea of independence carries positive connotations. It has a ring of both possibility and responsibility, of being in control of your own destiny. This is true especially in rural and small communities that are sensitive to being dictated to by larger entities. The argument for organizational independence for community hospitals is just that: All healthcare is local, so leadership of the healthcare organization should also be local, allowing the community to maintain control of one of its greatest assets and to deliver what's best for the community based on community members themselves. 

The problem is that making such judgments is anything but easy—or final—given the challenging operating environment for such organizations.

In a time of upheaval, a prudent leadership group considers all options, and under careful consideration, more and more organizations are determining that it doesn't make sense to continue as an independent, given the financial distress that's afflicting some community hospitals as they struggle to deal with a changing business model, lower reimbursements, and the need to invest in both labor and infrastructure.

The reasons independent organizations are experiencing financial issues are myriad, but they add up to an "elevated" level of M&A activity for nonprofit hospitals with less than $500 million in annual revenues, according to a June 2015 report by Moody's Investors Service. Moody's cites increasing consolidation pressure due to declining reimbursement, shifting patient volumes, and necessary IT upgrades, and says it expects many smaller organizations to continue to heed to that pressure through agreements to merge.

In the aggregate, that might be true, but other less draconian partnerships may also be a workable option for many organizations.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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