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Standalone Hospitals: An Endangered Species?

 |  By Philip Betbeze  
   July 30, 2010

We found out in 2008 that hospitals aren't immune to recessions. Along with the rest of us, they had to try to do more with less: They had to lay off workers. They had to cut out or delay capital projects.

Like the rest of us, their investment portfolios took a huge hit. But they bounced back hard in 2009, as those portfolios recovered, and the economy took a turn, albeit a tepid one, for the better. The recovery in the hospital sector has been documented, as Standard & Poor's released a report this week that while not glowing, showed the prospects for standalone nonprofit hospitals certainly isn't bleak.

Citing sharper expense management and revenue cycle improvements, the report used terms such as "improvement in operating metrics" and "signs of stabilization" and "overall improvement in balance sheet medians," all of which is fancy finance talk for "things are looking better."

Still, long-term stressors remain.
In the short term, hospitals are still waiting for word from new CMS chief Donald Berwick on whether they will get relief from the proposed 2.9% reimbursement cut from Medicare, known as the "coding offset." Further, they are dealing with long-term structural issues that many predict will leave much less room for standalone hospitals in the near future as healthcare consolidates under payment and IT stressors that leave smaller facilities unable to compete with their better-financed, bigger brothers.

If your hospital is attractive financially, has a good payer mix, makes a margin, and dominates its local area, it's a fat target for larger systems that see growth and scale as the way to thrive under healthcare reform.

If your hospital doesn't have those attributes, well, you might be out of luck to either remain independent or be acquired. Something has to set you apart from the crowd to gain the kind of advantage that will drive patients to your door. But even that might not be enough. Nationally, we worry about the skyrocketing cost increases for healthcare. Nothing we try seems to stop it for long. But that doesn't keep people from trying.

Experience tells us that the cost of healthcare doesn't go down, no matter how many roadblocks legislators, companies, and health plans try to throw at it. Managed care was successful in holding down prices, but was an abject failure at building any support from the actual patients it was designed to cover. That's because people want as much healthcare as they can get. It's human nature.

I say all this because the many people who are calling for the wholesale demise of the standalone nonprofit hospital may be right when they say it's different this time. But I'm thinking they're more likely to be wrong. That doesn't mean there won't have to be adaptations by the ones that hope to thrive in the coming decade or so of healthcare reform legislation.

As a wise individual who has observed and been a part of the healthcare industry for more than three decades once told me, people still need and want healthcare close by. Despite all the worry and financial troubles of many nonprofit hospitals, "how often do you actually see one close?" he once asked me. "Not very often," he said, answering his own question.

That's true today, and I'll be surprised if it isn't still true 10 years from now.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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