Your Move: Hospitals are Predicting, Adapting to Change

Gienna Shaw, October 14, 2010

The business models that will emerge in the era of healthcare reform are still unclear, but leading hospitals and health systems are already positioning themselves to adapt when they do come into focus. They're taking the first steps toward becoming accountable care organizations even before anyone knows for sure what an ACO will look like—or even if they'll ever come to fruition. They're figuring out how to reduce costs while improving quality and efficiency ahead of reimbursement changes. And they're looking to strengthen their market positions through partnerships, collaborations, or mergers and acquisitions. Why? Because even though it's not yet entirely clear which strategies will be most successful in the next five years, organizations can't afford to take a wait-and-see approach.

"The ones who are not feeling the pressure [to change their business models] right now are going to be the last ones in, but eventually everyone will feel some pressure. It's just a matter of what they can tolerate," says Peter A. Pavarini, partner at the Columbus, OH, office of the law firm Squire, Sanders & Dempsey LLP. "If you are going to survive in an accountable care world, you have to have a degree of coordination that only comes from affiliation. You can't have it in the free market."
Hospitals that do not conform, collaborate, and work together will suffer, says Frank M. Lee, MD, vice president of medical affairs at The Exigence Group, an Amherst, NY-based urgent care and ED management firm. "And you'll see some close, just like in any industry," he predicts.

An eye to the future

The good news is that there is opportunity ahead for all healthcare organizations—from small community and critical access hospitals to large integrated systems. Among the many changes experts predict will take place in the new healthcare landscape: increased collaboration, even among competitors; an uptick in partnerships with alternative care, ancillary service providers, and outpatient clinics; more mergers and acquisitions of hospitals and other healthcare organizations, such as long-term care facilities; a trend toward specialization; and hospitals and health systems that are no longer the center of the healthcare universe but instead work with patients and physicians as those patients move along the continuum of care.

To take advantage of those opportunities, however, healthcare organizations will have to take some risks-changing or modifying business strategies based on predictions about where the market will go. 

"The real question is, what do you want to be ten years from now?" Pavarini says. An independent hospital with geography in its favor can survive, with a caveat: "Some of those will have a longer timeline to determine where they fit, but they, too, will reach a point where independence is not a long-term strategy."

The healthcare industry, of course, is not known for its ability to swiftly implement change-let alone make those changes in advance of final government rules. "Disruptive innovation" might be a trendy topic, but can hospitals and health systems really shake things up in any significant way?

In healthcare, change tends to be incremental, says Stephen Wunker, managing director of New Markets Advisors, a consulting firm in Washington, DC. In some respects, incremental improvement has worked extraordinarily well for the healthcare industry--such as improving operational efficiency and safety.


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