Hospital CEOs expect a two- to three-fold increase in competition over the next three years from freestanding facilities such as ambulatory surgery centers, surgery hospitals and imaging centers, according to a new white paper released today by the Governance Institute, La Jolla, Calif.
"This issue has come up on the healthcare radar screen faster than anything I've ever seen," Richard Allen, president and CEO of Mercy Health Center of Manhattan, Kan., told the institute.
"Two years ago it wasn't even on the AHA's list of top issues," added Allen, who was quoted in the report. "Last year it got a mention, and this year it's one of the top five issues."
The CEOs see specialty hospitals as the most rapidly growing threat, according to the report, titled "The New Competitive Landscape: Board and CEO Strategies for Dealing with Emerging Threats."
Larry Stepnick, vice president and director of the Severyn Group in Ashburn, Va compiled the report.
While 16% of the CEOs say they view the independent facilities as an important source of competition today, 52% expect them to be so in the future, it says.
The report says the long-term solution to this growing competition would be to alter "flawed reimbursement policies" that make certain services very lucrative for the competition.
For example, it says current rates allow huge margins for open-heart surgeries but little or no margin for treating pneumonia.
But in the short term, the report suggests that hospitals use a combination of the carrot and the stick with on-staff physicians who invest in the new facilities or staff them.
While seeking tougher legislation and regulations and threatening to remove them from the medical staff, hospitals also can work with doctors to better understand their needs, it says.
"Competition with the medical staff is the biggest issue we face right now," David Vellinga, president and CEO of Mercy Medical Center-Des Moines, Iowa, told the institute.
The white paper is based on phone interviews with questionnaires filled out by 150 CEOs and phone interviews with 130 of them, the institute reports.
Some of its findings were:
- 77% of respondents believe the threat is more than moderately important, with 41% deeming it "vitally important" and 24% suggesting it was the most important issue they face. (Other issues of equal or greater importance were reimbursement, labor shortages and access to capital.)
- 23% say they have lost 5% to 10% of net revenues to competitors, while 13% have lost more than 10% to them.
- 37% say that more than 10% of their net revenues are currently at risk because of competition from the outsiders.
- 64% say that due to the competition, more than 10% of their net revenues will be at risk within five years, including 37% who say that more than 20% of net revenues will be at risk in that time frame.
The white paper gives the following reasons for the growth in ASCs and other facilities:
- Improvements in technology that obviate the need for an overnight stay.
- Physicians looking for new sources of income.
- Physicians' disgust with "a hospital environment plagued by frequent surgical delays and other problems, including cases being 'bumped' due to emergencies or complications."
- Consumers' disgust with hospital amenities from "inconvenient parking spaces to the seemingly never-ending walks in poorly marked hallways, to the long waiting times and frequent delays, to the less-than-pleasant physical surroundings."
- The new facilities' growing access to "aggressive entrepreneurs who sense an opportunity to make money."