Despite dire predictions for their financial well-being, most healthcare systems made money on operations in their latest fiscal years, a new survey shows.
Nearly eight out of 10 respondents in a survey of healthcare systems nationwide reported operating performances that ranged from break-even to margins of more than 8%.
The survey was the fourth annual study conducted for MODERN HEALTHCARE by Arista Associates, a Northbrook, Ill.-based healthcare consulting firm. Fairfax, Va.-based Decision Support Systems and Services tabulated the survey results.
On a more sobering note, 71% of the systems reported their operating margins had fallen, compared with the previous fiscal year. The survey report did not give a range of how much margins fell.
A total of 129 systems participated in the survey, giving it a response rate of 31%. However, the number of responses varied by question. Virtually all of the systems responding-94%-were not-for-profits.
This is the first year the survey posed questions about system operating profitability.
"I think it bears out a lot of the anecdotal information we've heard about how systems are struggling," says Steve Hatch, a partner at Arista.
Like partners in good marriages, most of the systems surveyed show a desire to stay together for the long haul. Almost 70% say their health systems have existed for more than five years.
Despite their general longevity, systems have shed parts or plan to do so. Thirty-six percent of respondents say they recently underwent some dis-integration or are considering dropping part of their systems.
More than one-third of the systems-39%-dumped a health plan, and 33% shed a physician group. Some 28% dropped a home health company and 15% divested a hospital.
In a comment section of the survey, systems say they made the changes for reasons ranging from reduced reimbursements mandated by the Balanced Budget Act of 1997 to the fact that health plans were no longer central to their missions. Some say such action was a prudent business decision.
One of the systems that eliminated parts of its organization is eight-hospital Advocate Health Care, based in Oak Brook, Ill. Two years ago the system sold its 28,000-enrollee HMO, Health Direct, to Humana for $20.5 million (June 9, 1997, p. 12). Advocate also has sold three nursing homes.
Richard Risk, Advocate's president and chief executive officer, says times have changed, and so have systems' own-everything mentality.
"Now we are discovering you don't need that to do well in the managed-care environment," Risk says.
Although many systems have cut ownership ties to physicians, doctors are still recognized as crucial to the success and development of a system, according to 77% of the respondents.
Physician employment with incentives is the model most often used. According to the survey, 79% of systems used that arrangement to increase their physician integration.
The next most widely used model is partnering with a physician practice management company, which is the preferred tool of 55% of the responding systems.
But when it comes to problems with organizational integration, physicians are catching much of the blame. Systems cite two main problems with doctors: physician inertia, or reluctance to change-cited by 57% of the systems-and physician distrust-cited by 56%.
Last year, 71% of systems said physicians' reluctance to change was a barrier to integration, while 52% of systems said physician distrust was a problem. However, keep in mind that a strict comparison between years is impossible because the survey respondents differ.
Doctors also get blamed for shortfalls in clinical integration within a system, according to this year's survey.
Fifty-nine percent of executives say a lack of physician support was a "significant barrier" to clinical integration. That's an improvement over last year, when 70% of systems said it was a problem.
But physicians aren't the only barrier to successful clinical integration, the survey indicates.
Some 40% of the responding systems blame both a lack of technology and a lack of skilled leaders as other barriers to clinical integration. In last year's survey, 34% of systems cited a lack of technology, and 57% complained about a lack of skilled leaders.
Despite medical staff challenges, more physicians are becoming involved in system management and governance. Of the systems responding, 50% say the percentage of practicing physicians on their boards was less than 20%, which is an improvement over previous years when as many as 88% of the responding systems reported having less than a 20% physician presence on their boards.