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Hospital Growth at Your Own Risk

 |  By Philip Betbeze  
   January 15, 2010

Healthcare has been in growth mode as long as most of us can remember. Part of that is because demand for healthcare services grows along with the population. Healthcare follows demographic trends as much as any other industry. Volume demand also grows with leaps in technology, and some have even posited—with good evidence—that the mere presence of more facilities in which to obtain healthcare services promotes growth in and of itself.

But many experts say that growth is part of the problem. Actually, it's not the growth due to population increases that's the problem, it's the ever-increasing growth in cost per capita that has been outpacing GDP growth and inflation for a couple of decades now, with no interruption.

That's not sustainable long-term, but you knew that already. In fact, that's why healthcare reform has been on legislators' front burner all of last year and into this one. But you knew that too. You also know that your business of providing healthcare is in the crosshairs for cost and quality. Here's something you may not know though. Hospital leaders, at least the ones we talked to for this month's cover story in HealthLeaders magazine, still think healthcare is growth industry.

One reason is that people are still demanding more healthcare, even as it's grown more expensive in terms of their budget. And for all the government's jawboning about cutting costs and improving efficiency in healthcare, the healthcare reform bill is really mostly about guaranteeing coverage for a significant portion of the population that is underinsured or uninsured—not cutting the cost curve. So things might not be as bleak as they seem for your bottom line under healthcare reform. At least for now.

I talked to Dennis Vonderfecht, President and CEO of Mountain States Health Alliance for the story, but that interview ended up on the cutting room floor, so to speak. So I'll share his thoughts with you now.

Much of healthcare's growth in the coming years won't come from the traditional hospital inpatient sector, he says.

"For our system, there really isn't much horizontal growth with respect to hospitals," he says. "However, we have over 200 employed physicians and that number will dramatically grow as physicians and healthcare systems see the need to be a more integrated force."

Another area of growth for Mountain States is the ambulatory and retail side.

"More healthcare organizations are going directly to the patient to sell various items. In terms of our revenue, a bigger percentage will become outpatient versus inpatient."

Vonderfecht says Mountain States is well positioned with its network of ambulatory surgery centers, diagnostic centers, and urgent care clinics.

On the other hand, growth is far from the only method he's using to better compete under a reimbursement system that shows signs it may shrink, despite the lack of focus on cost control in the healthcare reform bills being reconciled right now.

"On the expense side, we're dramatically reducing our costs through a regular review of key leadership in any areas that have opportunities for expense reform—from consolidating two behavioral health hospitals into one to consolidating services or eliminating them entirely."

For Mountain States, one area where significant expense savings can be realized is through elimination of obstetric services in "smaller hospitals that may not need to be duplicated all over the place like they usually are."

So growth is possible and should be pursued, according to some of the top senior leaders at a variety of institutions we've profiled in the cover story, but it has to be balanced by selective cost control where possible, and elimination of services in some facilities that might better be consolidated at one institution.

When I hear about this type of reorganization, I'm reminded that healthcare's not nearly as far along as other industries in taking advantage of economies of scale. Perhaps 2010 will be the year of smart growth through consolidation and efficiency. If so, that's not a bad place to start, and best of all, it doesn't require a legislative effort to achieve.

Note: You can sign up to receive HealthLeaders Media Corner Office, a free weekly e-newsletter that reports on key management trends and strategies that affect healthcare CEOs and senior leaders.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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