The evidence is tough to ignore. Compared to 20 years ago, hospitals face enormous business headwinds, as we've chronicled in HealthLeaders magazine over the past eight years and in this space more recently. The development and popularity of alternative sites of care, periodic reimbursement cuts, hospitals' seeming inability to collect from delinquent patients...the list of business challenges to hospitals goes on and on.
The number of total hospitals has dropped by more than 1,000 since 1980. Inpatient admissions per 1,000 in population have been falling for 25 years. Employer-based healthcare coverage has been declining for eight years, from 69 percent in 2000 to around 60 percent now. Add to that a president and, to a lesser extent, a Congress who seem intent on holding the line on Medicare and Medicaid reimbursement despite the pain that hospitals are feeling.
I went to a Nashville Health Care Council meeting a couple weeks ago where a panel of Wall Street analysts trotted out these statistics to an audience that had surely heard them before. The council brings in five or so healthcare analysts every January to talk about their prospects for the healthcare sector. They don't exclusively focus on hospitals, of course--the healthcare universe is much more inclusive--but it seemed they all had something negative to say about the industry's near-term prospects. Wayne Smith, the plain-spoken and jocular CEO of Community Health Systems and the chairman of the board at the council, looked on in dismay, it seemed. But looks can be deceiving.
You can miss some signs of success by gazing at the big picture.
Despite all these headwinds, Community's results and its bullishness on the long-term prognosis for the hospital industry is evident not by what the company says, necessarily, but by its actions. Community clearly sees this period as a time of retrenchment, but also of opportunity. The company snapped up Triad Hospitals for $5.1 billion last summer and assumed $1.7 billion in Triad's debt to boot. It leveraged up to do so. A CEO who wants to succeed long-term doesn't buy assets that he thinks will decline in value, and he certainly doesn't borrow money to do it.
The public markets don't buy it, however. Community's stock has declined by around 25 percent since the deal was announced amid a general economic downturn. But the public markets have been wrong before. Clearly, those who know something about acquiring and successfully operating hospitals see value that most others don't. HCA borrowed to get away from the public markets, paying $33 billion, and leveraging its balance sheet severely about 18 months ago to concentrate on its knitting, so to speak, and bide its time until the markets are more receptive and the business climate for hospitals turns more hospitable. Its leadership has done this before to great success, and I wouldn't bet against them this time.
There's more.
It took a little more than six months for the old Triad management team to resurface with its old business model--partnering with nonprofit hospitals in a joint venture model that Wall Street clearly hadn't bought into--a business model that partly forced its sale to CHS last summer. At Legacy Hospital Partners, James T. "Denny" Shelton and his former team from Triad have an initial $500 million stake to play with from private equity firm CCMP Capital Advisors LLC, and new debt will push that figure to $1.5 billion. They don't plan to sit on that money. And a relatively new hospital company, Capella Healthcare, recently spent $315 million to buy nine hospitals from CHS. Tom Anderson, Capella's president, tells me that the "opportunities are significant."
Yes, the opportunities are there. Despite all the headwinds that hospitals face currently, there is a tipping point where hospitals as a sector turn around. Savvy investors aren't saying much with their mouths, but their money is doing plenty of talking. Hospital companies, their leaders and their numerous investors are putting their money where their mouths aren't, betting that tipping point is closer than the rest of us think.
Don't forget the operations planning. Sometimes hospital leaders get myopic when they build. They focus on the new and neglect to plan for how the facility will be most efficiently used. Frank Kittredge is a senior principal and national practice leader for the Facility Planning Practice at the Noblis Center for Health Innovation, where he helps develop and implement enterprise strategy, clinical service strategy, facility solutions and stakeholder alignment. Frank and I talked about his focus on ways to bring more robust operational planning into facility planning. The way he put it to me is that hospitals planning to spend tens or hundreds of millions on new construction often conduct only a cursory review of how the hospital or other healthcare entity is going to deliver care more efficiently or more effectively once the bricks are laid. Of course, by then, it's largely too late.
Mayo Clinic and IBM have created the Medical Imaging Informatics Innovation Center, a collaborative research facility aimed at advancing medical imaging technologies to improve the quality of patient care. The center is an extension of a Mayo-IBM research collaboration announced in 2007, the results of which have given physicians the ability to register medical images up to 50-times quicker and provide critical diagnosis in seconds instead of hours.
Cleveland Clinic has chosen a Web-based hospital residency program designed by Ann Arbor, MI-based MedHub, Inc. to be distrbuted throughout the hospital system. MedHub Inc. designed the technology for teaching programs to provide information to accrediting bodies and to help hospitals avoid errors that can result in lost Medicare reimbursements.
Lumberton, NC-based Southeastern Regional Medical Center has contracted RadarFind to install an asset-tracking system that uses active RFID tags. The tags communicate with readers that plug into standard AC outlets and have a design that keeps both outlet sockets available for use by other devices. The hospital hopes the system can help it reduce its spending.
New investment in Medicaid Management Information Systems by state and local governments will drive growth in annual spending on health IT, according to a study released by market research firm Input inc. Input predicted the MMIS market will hit $4.1 billion in 2012, accounting for $2.6 billion of the annual growth in the health IT market of $3.9 billion. Overall the health IT market will expand at 8.6 percent annually, according to Input.
Paul E. Berger, MD, has donated $1.5 million to the Research and Education Foundation of the Radiological Society of North America. The gift will endow the Derek Harwood-Nash Scholar Grant, which will focus on opportunities for international educators and investigators, said RSNA representatives.
KLAS has published an inaugural study that investigates the successes and challenges providers have had incorporating digital mammography into their hospital or clinic. The study focuses on the digital mammography market as a result of provider demand for user feedback. According to the report, despite tremendous market growth, there are currently relatively few full-field digital mammography vendors with FDA approval, but several more are poised for entry. Areas of concern from users surrounding the top vendors centered on their need to scale to the growing demand.
Legislation to accommodate the electronic exchange of patient data between health facilities and systems will soon be introduced in the Wisconsin Legislature. The legislation addresses key barriers to patient data exchange contained in two statutes, one dealing with the rights of the mentally ill and another pertaining to the release of health information. Backers have drafted legislation and hope to get it passed in the forthcoming session of the Legislature that is expected to conclude by the end of March 2008.
