This article was provided by contributor, Marty Richman.
Paraphrasing the rationale for the formation of UCSF Health explains the trend in healthcare - Academic medical centers and large healthcare systems are forging partnerships and affiliations with community hospitals and physicians to take advantage of each other’s strengths, increase access to a wider patient population, share risks and reduce costs.
A briefing by the San Benito Healthcare District’s Strategic Planning Committee, Friday, dealt with the early exploration of options for a merger, partnership or affiliation to improve services, ensure financial stability and the availability of hospital-level healthcare to the community. The district is often called Hazel Hawkins Hospital, although it consists of a lot more than that.
Keeping a small hospital open and viable has become a real battle. Of the more than 70 public healthcare districts in California, 33 have no hospitals and 16 have either closed or leased their hospitals to not-for-profit or for-profit agencies.
The nationwide rate of significant healthcare mergers and acquisitions (M&A) have risen sharply; from 2000 to 2009 M&A averaged 60.5 annually while the average rate from 2010-2017 was more than 97.5 per year. The impetus for all of this is the difficulty of small hospitals to support themselves financially due to costs and changes in healthcare. Small hospitals cannot economically offer revenue generating third-level care such as cardiac surgery. More than 75 percent of the U.S. hospitals involved in M&A in 2017 had annual revenues of less than $500 million.
In some ways hospitals are victims of their own success. The number of hospital admissions have dropped dramatically, including locally. The population is healthier, budgets are tight, and new or improved treatment regimens keep patients out of the hospital beds. Additionally, our limited population means that the district has little or no clout when it comes to negotiating better reimbursement rates with commercial insurers. As for government funding, the reimbursement rates often do not cover the cost of care in areas with high labor costs such as ours.
Affiliation is the other tidal wave in healthcare. A quick Internet search shows the prevalence of affiliation; Stanford Healthcare offers 55 primary care choices, 393 specialty care choices, and 40 specialty service operations located all over the bay area extending down to Santa Cruz. Several other large healthcare systems such as Kaiser are extending southward in search of the most profitable segments; the more they take the less is left for the small systems.
Another issue is branding and assistance, affiliations are important because the major systems backstop the local healthcare provider including teaching and training. The trick is to maintain a robust level of local hospital-level care and control and have the bigger system help the district obtain higher reimbursement rates, especially from commercial insurers.
You’ll be hearing a lot more on this subject before decisions are made, but be aware things are changing rapidly and keeping the doors open always requires a balance of costs and revenues.
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