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Life or Death for Small Systems?

Philip Betbeze, for HealthLeaders Media, February 13, 2014
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"With a smaller war chest, you have to be pretty thorough in your due diligence," Phelps says.

The risk for hospitals in the near future, particularly smaller ones, is that they become marginalized. What may happen is a winner-take-all dynamic by which larger players gain market momentum due to their "network effect" and smaller hospitals begin to lose critical mass on the commercial side.

The answer could lie in some form of specialization, which culturally is difficult for hospitals, especially those that see themselves as providing comprehensive acute care and those that don't have businesses that extend outside the four walls of the inpatient facility. But there are strategies such hospitals and systems are using to turn business dynamics back to their favor.

Growth bets

Phelps, for one, says the niche he's hoping to carve out isn't based on limiting services, but on dominating his local market.

"We have everything larger systems have, just smaller scale," he says.

But with many organizations behaving through acquisition and partnership as though scale is the chief variable in determining future success among healthcare providers, Phelps is betting against the herd.

Scale isn't the only way to succeed, he argues. Home market growth can also yield big dividends, he contends, citing his system's debut in 2011 of a freestanding emergency department 12 miles from Ridgeview's main campus. The center sits in a highly competitive market where larger and more well-known health systems represent the competition.

Phelps says the new center is a true freestanding ED, which meets all the requirements of CMS rules such as hospital-based participation and provider-based rules, so it is paid at ED rates. In fact, it is a level IV trauma center, which is similar to small hospitals in the market, he says of the venture, which is paired with an urgent care center, which of course is reimbursed at a much lower rate.

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