Every trend meets its end. That's what appears to have happened to the merger craze that gripped the hospital industry during the 1990s.
Compared with six years ago, a new survey shows, a growing number of hospital chief executive officers expect their hospitals to remain independent.
In 1994, fewer than one in five CEOs thought their hospitals would remain stand-alone; nearly half of CEOs feel that way today.
The survey says the number of stand-alone hospitals has remained stable at about 60% over the past four years.
Those are among the findings in the eighth edition of the Deloitte & Touche biennial report, 2000 U.S. Hospitals and the Future of Health Care Survey. For the first time, MODERN HEALTHCARE co-sponsored the survey.
"We clearly see a bit more optimism than we've seen in the past from people in the hospital industry," said Raymond Cisneros, national healthcare partner in Deloitte's Philadelphia office.
Deloitte sent questionnaires to 5,015 acute-care hospitals, about every hospital in the U.S. About 20% answered the survey, a typical response.
Besides taking the long view of the hospital industry, the survey looks at key trends in a number of areas, including managed care, consumer needs, regulation and legislation, and operational and strategic issues.
The survey finds that CEOs' faith in remaining independent is so strong that a majority would restructure, eliminate clinical services and downsize facilities or staff before pursuing a merger if they thought their organization was in financial trouble.
"Evidently, the CEOs of independent organizations feel they have as good a chance to make it as a stand-alone entity as they do as part of a larger system," the survey concludes.
Feeding this optimism is that CEOs appear to be more confident about the financial health of their hospitals.
The survey finds that only 25% of CEOs believe their hospital could fail in the next five years. A decade ago, 43% of the CEOs surveyed had a fear of failure.
"They're doing a little bit better financially. Not great, but better," Cisneros said.
Another reason stand-alone-hospital CEOs are choosing to remain independent is that they see few benefits in merging.
The survey finds that "many of their merged colleagues are not reporting significant cost savings benefits from their decision to join a larger organization."
"They've seen a lot of them flop," said Tom Hochhausler, a partner in Deloitte's Los Angeles office.
The survey points out that only one in three hospitals that are part of a larger system have merged their patient-care services. Administrative services usually wind up being consolidated.
Another factor behind the CEOs' optimism is the relatively short time many of them have been in their jobs.
"With an average tenure of seven years, the majority of current CEOs were not in their present positions a decade ago, a time of great pessimism in the industry," according to the survey.
Hochhausler said these newer CEOs have more confidence in their ability to deal with tough issues.
Managed care. As for managed care, the explosive growth CEOs expected never materialized.
Today, 24% of hospitals report that HMOs account for 20% or more of their business. That's only a slight jump from 1998 when 22% of hospitals had more than 20% of their business tied to HMOs.
That's nothing when one considers CEO predictions of only two years ago. In 1998, 38% of CEOs believed that HMOs would account for more than 20% of their business by 2000.
CEOs expect the slow growth of both HMOs and PPOs to continue.
Also hitting the brakes is capitation as a payment mechanism.
According to the survey, almost two out of three hospitals have no capitated contracts. Hospitals that do have capitated contracts are usually in suburban and urban markets.
Contrary to conventional wisdom, the survey finds, hospitals with capitated contracts are not seeing a decline in revenue.
In fact, revenue from capitated contracts is rising. The average percentage of revenue from these contracts has climbed from 9% in 1998 to about 12% in 2000.
"Predictions for 2002 suggest that capitation will continue to penetrate slowly into hospitals that are not now exposed to it, while revenue from existing capitated contracts will remain relatively stable," the survey says.
That doesn't mean hospital CEOs are satisfied with the performance of managed-care companies. When it comes to issues of payment timeliness, level of reimbursement and administrative cooperation, CEOs don't rank payers high. Nor do they expect performance to improve.
However, CEOs no longer just take these problems in stride.
Hospital bosses are increasingly willing to cancel problematic HMO contracts. Nearly three out of 10 hospital chief executives say they have canceled an HMO contract.
Larger hospitals are much more likely to pull the plug; 50% of hospitals with more than 300 beds say they have canceled a managed-care deal.
A poor financial result is the leading reason hospitals cancel an HMO contract, the survey reveals.
Consumer expectations. Not surprisingly, the survey points out, consumers expect hospitals to provide services that reach beyond the mainstream of care to include chiropractic care, acupuncture and herbal medicine.
In spite of the patient interest, most hospitals still don't offer privileges to alternative medicine practitioners, and larger hospitals are the facilities most likely to do so.
Nutritionists are the most likely alternative practitioners to gain privileges. Thirty-one percent of the surveyed hospitals grant privileges to nutritionists, whereas chiropractors practice at only 18% and acupuncturists at 14%.
Only 13% of hospitals provide alternative therapies, such as herbal medicines, to patients.
"For something that has caught on as much, we were surprised the percentage wasn't higher," Cisneros said.
Ironically, the survey points out that hospital CEOs personally use alternative therapies even when their facilities may not provide them.
Budget-act effect. It should come as no surprise that hospital CEOs are reporting declines in net patient revenue as a result of the federal Balanced Budget Act of 1997 and the Balanced Budget Refinement Act of 1999, which providers have criticized as inadequate payment relief.
Nearly three out of four hospital CEOs say the legislation has decreased revenue by as much as 10%, while 23% of hospitals report a decrease of more than 10%.
Hospital CEOs expect the situation to get worse.
Nearly half of the hospital managers expect a 10% or greater decline in net patient revenue over the five years covered by the BBA; implementation began in fiscal 1998.
Federal legislation also will have an effect on other operations areas.
The survey finds that only 39% of hospitals have evaluated the impact of meeting the security and privacy requirements of the Health Insurance Portability and Accountability Act of 1996.
And reminiscent of the Y2K situation, 78% of hospitals have not assessed the cost of addressing HIPAA requirements.
An area where hospitals have made real progress is corporate compliance.
Sixty-one percent of hospitals say they have implemented a compliance program, more than double the percentage in 1998.
Less than 3% of hospitals still need to develop a corporate compliance program, down from 14% two years ago.
Anywhere but here. Hospital CEOs might be in denial about excess inpatient beds. Only 38% of respondents believe they have excess inpatient capacity, in spite of all that has been said about overcapacity in the industry.
CEOs in certain markets, such as in the Mid-Atlantic and along the East Coast, were more likely to acknowledge excess capacity.
The survey finds hospital CEOs are reluctant to make large-scale reductions in their acute-care bed counts.
The situation isn't expected to change much over the next five years, with one in five CEOs planning to increase the number of beds.
Hochhausler said as long as inpatient excess capacity exists, HMOs will have a point of leverage in negotiating contracts.
For hospitals, outpatient services no longer are considered marginal product lines. In fact, at some hospitals, outpatient revenue outstrips inpatient revenue.
Fifty-four percent of CEOs expect that over the next 12 months outpatient revenue will account for 50% or more of total patient revenue. Some 67% of rural hospitals believe this will be the case.
Hospitals also are having to deal with staffing shortages. The majority of CEOs--86%--report a shortage of registered nurses, and more than six out of 10 hospitals need more ancillary service workers.
Hospitals are dealing with these shortages through retraining, redefining jobs and outsourcing. Of those that outsource, 73% say it saves them money.
Outsourcing holds the key, says Cisneros. "The opportunity to save costs is really significant."
Nearly eight of 10 hospitals outsource at least one service. At least 36% of hospitals outsource laundry.
A tough issue for hospitals has been acquiring physician practices. Forty-nine percent have hired or acquired physician practices, down from 54% in 1998.
The survey says the move away from acquisitions amounts to dollars and cents: Only about one of 10 hospital CEOs say their owned physician practices are profitable.
While 51% of hospitals acquired physician practices in the past two years, only 23% plan to do so in the next two years. On the flip side, 19% of CEOs divested practices in the past two years and 33% plan to divest more over the next two.
The survey also looks at CEOs' perceptions of governing board priorities. Public image surpasses financial viability as a concern, according to the CEOs.
Topping the list of concerns was fund raising, followed by quality of care.