Is Independence Still an Option?

In HSG's strategy work with hospitals, a frequent topic of discussion is alignment with a healthcare system. Sometimes, our team needs to evaluate alternative partners while other times we are advising clients on whether they should join a large healthcare system or not.

The push for consolidation is an obvious focus in the industry, with AHA data indicating more than 250 independent hospitals that have joined systems in this decade. There are passionate voices that believe there is no choice but to join a system. When talking with CEO's and hospital boards, there is frequently an equally passionate desire for local control.

Often, the decision to try to stay independent is the simplest route for a hospital as it does not create political controversies. But remaining independent is not easy. Hospitals that wish to remain independent must have a robust bottom line if they have any hope of building the war chest needed to survive. It requires a focused strategy with a bias toward profitable growth and a leadership team adept at implementing those strategies.

From our perspective, there are at least seven strategies that must be considered if independence is your goal. The mix and prioritization of these strategies, defined in a strategic planning process can create an outline for long-term independence and success.

1. Primary Care: A robust primary care strategy is essential if you are to capture the local market, provide community access, and grow your referral sources. It also provides the resources needed as you move to manage population health.
2. Building Specialty Capabilities: To retain patients and keep them within your system, strong specialty capabilities are essential. Key elements include aligning with or employing high caliber physicians and building supporting capabilities around those physicians through strong service line investments.
3. Increase Geographic Reach: Expanding your market through strategic primary care and outpatient investments provides another area of focus. As the inpatient market declines, hospitals must grow the geographic patient base in order to sustain an inpatient presence.
4. Develop Physician Leaders: No organization will be able to navigate the complex, changing market without engaged physician leaders. Having strength in this area, and support from your broad physician network, will be essential to the organization that wishes to stay independent.
5. Enhance Care Management: To thrive under a fee for value system, management of care must improve. Most organizations struggle with care coordination across the continuum of care. Advocating and leading this effort is a key role of physician leaders.
6. Direct Contracting:. The locally employed are the source of all your hospital's profits. They are also your most mobile patients, willing and able to travel to the organizations they perceive will do the best job. Beginning to develop relationships with employers will help build relationships with these patients. Likewise, it will help with financial performance needed to preserve a healthy bottom line.
7. Engaging in Accountable Care Models: Working with physicians, your organization must begin to learn about these models, the requirements, and the pitfalls. If you can build competencies, your network will be attractive to other, bigger networks with ambitions of serving a broader geographic region. This creates an opportunity to partner with other systems at the CIN level vs. through merger.

Other strategies worth mentioning include reinvestment in facilities and marketing of services. Communicating to ensure potential patients know your capabilities is simple yet critical to autonomy..

In addition to selecting strategies, the relationship between the CEO and the board is critical to a successful plan. This relationship must be based on trust and confidence, and if it is not strong, the chances for success as an independent entity are minimal. The task the board is assigning to the CEO, preserving independence and community control, is fraught with financial risks. The board must understand those risks and recognize the complexity of the task at hand.

In our white paper, "Preserving Your Hospital's Independence," we outline our experiences positioning hospitals to remain independent. With a good focused strategy and great leadership, it is possible. But it is difficult and we always caution client hospitals to give serious consideration to all of the options; be open to consolidation if or when that becomes best for the community.

We hope this document is helpful in thinking about how your organization moves forward. If you have questions or comments, or need help defining your strategic plan to remain independent, please call. In discussions with boards and CEOs, we always learn and gain new insights.

Click here to read the full white paper, including case studies and the reasons you should merge, as well as review our planning checklist.