Remaining Independent: A Viable Option for Community Hospitals

17 March 2014 Health Care Law Today Blog

The environment for independent community hospitals is challenging. Government reimbursement reductions, technology enhancements and other capital demands, preparation for a changing health care system based on population health management, the cost to attract and retain physicians, increased leverage of managed care companies, and challenging capital markets are among the factors that have contributed to this tough environment.

Many consultants have suggested that community hospitals should consolidate with large health systems. Some have even suggested that stand-alone community hospitals are an “endangered species” and have little choice but to combine with larger health systems. The rate of consolidations has increased and the number of independent community hospitals has decreased.

Community Hospitals Should Not Assume That Their Only Choice Is to Join a Large Health System

Board members of community hospitals should critically assess their financial situation, strengths and opportunities and should understand the potential strategies available to improve their hospital’s situation. While joining a health system may be the best course, other strategies are not only available but in many instances should be pursued in the best interest of a hospital and the community it serves. Awareness of the strategic options that are available and that others have successfully followed is important as Board members evaluate proposals brought to them by their hospital’s executive leadership.

There are a variety of strategies available for community hospitals to help ensure their viability. These may include forging innovative relationships with payors, including forming or participating in narrow or tier value-based networks; structuring clinical integration organizations or participating in accountable care organizations; creating ventures with insurers to become risk ready; partnering with other hospitals (including Academic Medical Centers) that are designed to preserve independence, including joint ventures, joint operating agreements, telehealth arrangements, and clinical and management service arrangements; creating one or more centers of excellence; and developing collaborative physician alignment strategies.

There are real life examples of strategies that community hospitals have pursued. In the Southeast, a group of 23 hospitals have formed an alliance to pool resources, coordinate information and manage population health. Creatively acting together has provided an improved opportunity for success. In another situation, a critical access hospital in need of capital assessed its situation, sought out a government credit enhancement vehicle to obtain capital and secured financial support from its local municipality that was interested in preserving the hospital in the community. The creative package solved the immediate need for capital.

These are just a couple examples. Other strategies are available and worth consideration before a hospital decides to give up its independence.

In sum, boards of community hospitals have strategies to consider to continue their independence. They should not just assume that an affiliation/consolidation is their only alternative.

Web Conference

On April 15, 2014, Foley will further explore these strategies in a complimentary Web Conference titled “Can Your Community Hospital Remain Independent?"

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