An independent hospital in Dallas abruptly closed on Friday, exemplifying the ongoing challenges such hospitals face as the industry turns to value-based payment models.
The 100-bed Walnut Hill Medical Center was touted as a fresh, patient-centered approach to healthcare delivery when it opened in April 2014. The hospital closed on Friday, citing a terminated Medicare provider agreement.
Dr. Rich Guerra, a cardiologist and executive board member of Walnut Hill, wrote a "farewell" letter to hospital staff posted on a "Expats of Walnut Hill Medical Center" Facebook page Thursday, which was eventually deleted. No one answered phone calls made to multiple departments Monday morning. Google lists the center as permanently closed.
It had 240 employees, according to a 2016 blog post on the center's website.
"How do I begin? I could start by saying how sorry I am that our journey together is at an end. I certainly am sorry that our Walnut Hill family will be scattering to the four winds," Guerra wrote in the letter.
Guerra and other Dallas-area physicians set out to build their own hospital in the mid-2000s. They partnered with hospital development companies Medistar Corp. and Surgical Development Partners and private equity firm CapX Partners to bring it to fruition.
The number of independent hospitals in the U.S. has dropped by nearly 3% from 5,008 in 2009 to 4,862 in 2017 as many have joined bigger systems, according to 2017 data from the American Hospital Association.
Small hospitals lack the capital to bolster their market share in outpatient facilities and attract patients seeking care in less expensive and more accessible ambulatory settings, which payers emphasize in value-based models. As inpatient volumes decrease, small hospitals are handcuffed by expensive space and narrowing margins. They are unable to pursue payment reforms such as population health initiatives and invest in new technology that streamlines care.
"It's critical to consider all of the impacts of policies like payment reform, compliance, etc., and ask whether they end up harming competition by unintentionally creating an environment where otherwise healthy independents can no longer compete," said Martin Gaynor, healthcare economist at Carnegie Mellon University.
Outside of hospitals, the number of independent physician practices are also dwindling, according to American Medical Association data. Similar market forces have caused the majority of physicians to work for larger practices or under bigger health systems.
"Physician groups that are feeling the squeeze are aligning with bigger systems, which gives them more financial security and acts as a buffer against market forces," said Paddy Padmanabhan, president of Damo Consulting.
Payment reform is one of several headwinds that confront independent providers in a value-based healthcare model, healthcare experts said. Providers that don't have the scale or capital to gain leverage in negotiations with payers, take on more risk, pursue new technology and infrastructure, invest in outpatient facilities, or afford higher compliance costs have a tough road ahead, they said.
All those factors coupled with a lack of consolidation options and dwindling reimbursement levels spell trouble, Padmanabhan said.
"Hospitals that don't have the scale to improve negotiating positions and don't have partnerships with specialized physicians are toast," he said. "They are being squeezed out as reimbursement for fee-for-service models fall every day and when they don't have ability to take on risk."
