Financial challenges again rank No. 1 on the list of hospital CEOs’ top concerns, according to the American College of Healthcare Executives’ annual survey of top issues confronting hospitals. In addition, Moody’s recently confirmed its negative outlook for nonprofit hospitals, citing weak volume, reimbursement constriction, and increased numbers of Medicare patients.
Financial issues are especially challenging for tertiary and quaternary hospitals, whose financial success is dependent upon referrals to their advanced care services. Because mergers can often prove impractical or might even be prohibited, Lumina Health Partners and the law firm Hogan Marren Babbo & Rose have developed a strategy to for tertiary and quaternary hospitals to integrate clinical programs with current or potential referring partners. This approach involves service line integration among hospitals and physicians, focusing on quality and “best site of care” principles.
Some hospitals and health systems are attempting to strategically merge with rural or other local community hospitals for the purpose of cementing their referral base and improving market share. A full merger strategy is often difficult and may even be impossible because the Federal Trade Commission (FTC) remains unsympathetic to mergers among healthcare systems and has been vigorous in its enforcement efforts. Beginning with the FTC’s 2007 decision in the case of Evanston Northwestern Healthcare Corp., which held that a hospital merger in the northern Chicago suburbs violated antitrust laws, the FTC has experienced unprecedented success in challenging hospital mergers.
Operational, financial, and governance issues also interrupt merger attempts. During the due diligence process, many institutions discover significant unanticipated capital requirements or other financial hurdles that scuttle closure of a merger. Moreover, many community and rural hospitals have closely held boards that are ultimately unwilling to give up control of their local hospital.
An alternate solution may be service line integration, which allows for clinical services across several institutions to improve access and quality while reducing cost for patients and payers. Institutions may consider several organizational structures to accomplish the goal of a multi-organizational service line strategy, including joint ventures or CIN affiliations. These structures allow institutions to include physicians as well, so leaders of service lines can take advantage of value-based contracts, including shared savings, episode-based payment such as bundles, and possibly risk arrangements through joint contracting.
Through service line arrangements or joint ventures, investments can be made to upgrade services provided in the community, and appropriate cases can be transferred to the tertiary and quaternary setting. Regardless of the site of service, the patient will be returned home for follow-up care with the data necessary for ambulatory providers to offer the best possible care. Ultimately, seamless care offered at the best site of service has benefits for all service line partners, including increased revenue through reduced leakage, potential reduction in readmission due to highly coordinated care, improved quality metrics from sharing clinical information, and improved patient satisfaction and access.
Service line integration allows the achievement of collaborative goals, including:
The process needs to include operational analysis and protocol development, as well as a data integration analysis and implementation. Lumina and HMBR provide support for the structure, governance, legal compliance, and overall operational build to integrate clinical programs and achieve favorable results.
John P. Marren is a founding partner of Hogan Marren Babbo & Rose Ltd., and Thomas J. Babbo is partner and shareholder.