Backed by Community Health Systems, Quorum Health aims to improve services at rural hospitals. It will operate 36 small hospitals in 16 states.
The creation of a new company devoted to running 36 small and rural hospitals makes sense for hospital giant Community Health Systems (CHS), say rural healthcare watchers.
On Monday, CHS announced the spinoff company, which will include hospitals with a combined 3,635 beds in 16 states including Georgia, California, and Illinois. The facilities will be partnered with Quorum Health Resources Management Company , an affiliate of Community Health Systems, as a new entity: Quorum Health Corporation.
Prior to the sale, CHS reported owning 199 hospitals.
CHS CEO Wayne T. Smith said in a Tuesday conference call with investors that Quorum Health will have the expertise to improve services at rural hospitals. He noted that challenges include physician recruitment and the payer mix associated with slow job growth in rural areas. "It's a business that requires a lot of attention and a lot of focus on the particular market."
Wayne T. Smith |
Mark Holmes is a professor and researcher who studies rural hospitals at the Department of Health Policy and Management in the University of North Carolina. He agrees that managing a rural hospital is not the same as running a larger hospital. The two types of entities need different strategies to deal with different market pressures.
Bundling the hospitals into a single group "may allow the rural hospitals to benefit from expertise in a particular business strategy that may not have existed in the diverse company."
For the 2013 fiscal year, the median margin at rural hospitals was 2.7%, compared to 5.3% at urban hospitals. In the Tuesday conference call with investors, Smith said the new company will have "tremendous shareholder value."
While rural hospitals have been struggling for some time, the pace of closure has picked up in recent years, Holmes says. Researchers at UNC found that from 2010 through 2014, forty-seven rural hospitals in 23 states closed their impatient units. Of those, 26 remain closed and 21 continue to provide a mix of outpatient care. The closures affected approximately 800,000 people.
The pressures on individual rural hospitals vary, Holmes says. Some have had success in expanding services to meet community needs. Some have formed collaborative alliances. Others have affiliated with larger networks.
He thinks the success of an approach like Quorum's will depend on how the networks, affiliates, and management structure "view the role of the rural hospital in the broader network and the broader system."
The hospitals in the new company are located in cities or counties with populations of 50,000 or fewer and 84% of them are their region's sole inpatient care providers, according to the company's announcement. The Joint Commission rated 74 % of the hospitals as "Top Performers in Key Quality Measures." The hospitals and management company that comprise Quorum Health Corporation generated unaudited annual net revenue of approximately $2.1 billion in 2014.
The company statement notes that: "With an attractive portfolio of high-quality community hospitals, streamlined management structure and independent access to capital markets, Quorum Health Corporation is expected to have an enhanced ability to drive growth by capitalizing on acquisition opportunities consistent with its portfolio, developing facility-specific operating strategies aligned with its community needs, and better leveraging its management and consulting capabilities."
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The spinoff will allow the hospital group to address some of the key challenges facing small and rural hospitals, such as low volume, physician recruitment, and the uncertainties of Medicare and Medicaid reimbursements, said Jim Landman of the Healthcare Financial Management Association (HFMA) said in a written statement.
The hospitals that make up Quorum Health are likely to have "strong local support for their continued viability," he wrote. That, along with the high quality ratings of the hospitals are "strengths that the new company should be able to build upon."
More hospitals groups are using management companies devoted to running rural hospitals, said Brock Slabach, the vice president of the National Rural Health Association. So the pairing of the CHS hospitals with the Quorum Health Resources management group makes sense because Quorum specializes in rural health care. [Slabach was employed by Quorum at one time.]
He, too, noted that expertise is vital for small and rural hospitals. "A small facility is not just a miniature version of a large facility," he said. "So treating them like that can be harmful to their fiscal health."
The Patient Protection and Affordable Care Act offers new opportunities for all hospitals, and the Supreme Court decision on federal insurance exchanges was "a good sign" that the spin-off should proceed, said CEO Smith.
"We think this should be a very successful company going forward," he said.