Q&A: An Independent Hospital CEO Talks About the Future
HealthLeaders: Independent hospitals are being gobbled up left and right. What path have you decided to follow at Lodi Health?
Harrington: We have had over the years a number of conversations about this. We're making sure we talk regularly with different consulting groups who can take an assessment of us and tell us the future. Every time we've done that—with different groups over three years—they've told us we don't have excellent numbers, but we're fine. Our [board members] aren't diehard independents, but they believe there are a lot of advantages to being independent. We have the ability to make a timely decision, for example.
But if the landscape changes, it's our job to make sure there's hospital services here, but it doesn't need to be independent. We have a discussion about the landscape about every other board meeting. We've had a bunch of consolidation around us. We've seen different affiliations. We're talking with Dignity about the ACO and we have an ongoing relationship with UC Davis. If we ever needed to get more serious, we could get to a decision pretty quickly.
HealthLeaders: Some say that the time to affiliate or be acquired is when you are at a position of financial and operational strength, as your negotiating position is better. Do you worry about becoming less attractive as time goes on?
Harrington: As long as we're making our money and have capital left over for tomorrow, we're good for two to three years. We've got a pretty good handle on the finances right now. That's why it's constantly on our calendar now. If we see certain ratios on our bond covenants, we project that out two years. Our board members are pretty sharp to look at these numbers. If they see a small tilt, they're quick to say 'What are you doing about it?' We feel like we have a pretty good sense on this, and we're ready to move if things start to deteriorate or if we do see a trend that way.
Fortunately the last few months have been better on those numbers, as we predicted they would be. Last year was the worst on that. We were very close to making a decision on independence, but the board members trust us. We predicted the numbers would get better. The good news is when you say something like that, and it comes true, the trust level doubles.
Philip Betbeze is senior leadership editor with HealthLeaders Media.
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