At a crossroads: Hospital leaders make some of their toughest decisions yet

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Before the pandemic, hospitals walked towards solutions that paid homage to the head and bed model, with its tight margins. They were investing in specialists to bring elective surgeries in-house. They were becoming more efficient on the exit side by moving care beyond their own four walls with trained nurses and moving to home health.

Then came the Covid-19.

Suddenly, hospitals were inundated with acute care patients who were staying for weeks at a time. They were forced to shut down elective surgeries to conserve resources, with patients often afraid to enter their buildings anyway. These tight margins have contracted further.

Now, as the pandemic begins to recede, leaders are at a crossroads. After taking the full brunt of Covid-19, they must decide how to rebuild themselves, relaunch more lucrative businesses and take advantage of all that has changed.

The good news is that a window of opportunity has opened. If anyone wants to capitalize on the moment, the floor is theirs.

Main pivots at your fingertips

In all markets except the smallest, integrating elective surgeries internally may no longer make sense. As inpatient codes move offsite and payers push to cut costs, outpatient surgery centers (ASCs) have captured a growing share of elective activity. This is likely to continue. With reduced overheads and fixed costs, their cost advantage can reach 50%.

In response, we are already seeing massive consolidation among CHWs, with hospitals purchasing outside centers to regain market share and use them as feeding systems. In December, for example, Tenet HealthCare, a system of 65 hospitals centered in Dallas, stated that he would acquire up to 45 ASC from SurgCenter Development. A month later he announced his intention to buy up to 40 more.

There has also been a renewed march towards value-based care, where the commitment of government and payers has never been higher. This is especially true in the management of chronic diseases, which can easily turn into bigger problems if left unchecked.

Some systems are moving dialysis in-house, driven by the incentives of the comprehensive kidney care contract (CKCC) program. Others take the flip side and contract with companies like Strive for health. Strive uses artificial intelligence to predict the progression of kidney disease, provide advanced care planning, and encourage the use of home dialysis. The ultimate goal: to avoid hospitalizations while reducing costs by up to 30%.

Perhaps the biggest lesson from the pandemic is the successful transition to home care. At the height of the crisis, systems responded to the urgent need to free up beds with innovations such as home hospital models for non-Covid-19 patients. Now, the key is to keep this sense of invention, by applying it to the mission of efficiency from the pre-pandemic days, especially with regard to the length of stays.

We are already seeing increased investment in wound care. Hospitals are increasingly focusing on reducing poor outcomes and moving patients home faster, without losing quality of care. As Covid-19 has taught us, this perspective can be applied to a multitude of afflictions. It’s just a matter of taking stock of your system’s performance, deciding where it can be improved, and applying the same sense of urgency and innovation that got you through the pandemic.

The capital dilemma

As a former hospital executive, I know this is all easier said than done. Hospitals are a unique species. Their importance to a community makes them an extensive list of stakeholders; consensus is slow to form. And when you are dealing with a very sick population, fear of disturbance is naturally built into the process.

There is also the very real issue of limited capital. Any move will cost you money, and surgery centers don’t come cheap. For most hospitals, there isn’t a lot of room to play.

Still, it would be a mistake to simply look at the list price without examining the opportunity costs behind it. Buying an ASC is cheaper than building multiple operating rooms on site, especially with the reimbursement changes we’re seeing. And partnerships with companies like Strive require less capital, allowing savings to be shared that you can recoup from the supplier.

These decisions come with a certain immediacy. Preparations for a post-Covid world spark a wave of activity. The window of opportunity is expected to close over the next 12-18 months. If a hospital is hoping to take advantage of it, now is the time.

It may not be a comfortable position for executives. In the past, hospitals had the luxury of being offered offers, rather than the other way around. The need to be proactive was not so pressing. For many, this will be uncharted territory.

For those with limited M&A experience, now is the time to partner with a M&A advisor who can help generate an integration strategy and access to capital. Any decision will require some analytical power and a solid strategic mindset to imagine what a better value-based system might look like.

Even if conditions preclude an immediate move, it is wise to start these discussions now. The playing field is changing rapidly. And at this unique moment in time, the traditional wait-and-see approach of hospitals could soon lead to unwanted costs.

Photo: Getty Images, Mykyta Dolmatov

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