Is Your Hospital at Risk for Disruption? 3 Strategies to Consider

posted on Jan. 17, 2019

 

 

An overwhelming majority of healthcare executives believe the hospital industry faces significant risk for disruption—and 65 percent say their organizations are willing to self-disrupt to prepare for the future, a survey by Hammond Hanlon Camp LLC (“H2C”) and The Health Management Academy found.

 

Among healthcare organizations willing to engage in self-disruption, 76 percent would focus on their delivery model, according to the survey of leaders from the nation’s 100 largest health systems. However, executives admit that the actual roll out and implementation of a self-disruptive strategy will be a slow process.

 

While the types of disruptive risk hospitals face vary by organization, the following stand out.

 

Consolidation. Across the industry, hospitals are becoming more consolidated, with a record 134 hospital and health system mergers and acquisitions (M&As) announced in 2017—and 2018 showed strong activity as well, with larger hospital transactions dominating the M&A landscape. The risk: Hospitals could lose essential inpatient or outpatient market share, physician specialists, or sources of referrals to newly merged or affiliated entities.

 

Technological innovation. Technologies that reduce the need for hospital inpatient services could have a significant impact on hospitals and health systems. Such technologies range from virtual care technologies that provide immediate, ongoing access to care to digital therapeutics.

 

“Technological disruption is so widespread, there are non-healthcare technologies coming in to offer solutions,” one chief nursing officer who responded to the survey said. “Other industries understand consumer experience better than we do, so they’re entering to fill in the gaps.”

 

Regulatory change. An American Hospital Association (“AHA”) study found healthcare providers spend $39 billion per year solely on the administrative tasks associated with regulatory compliance. For the average 161-bed community hospital, this equates to $7.6 million annually, or $1,200 per hospital admission.

 

In recent years, both the level and complexity of healthcare regulatory and compliance audits has increased. The impact on hospitals and health systems is substantial: operational limitations, enforcement and liability risks, and increased costs.

 

How can hospitals bolster their ability to withstand disruption? Here are three strategies to consider.

 

Strategy No. 1: Strengthen balance sheet health. As the rate of growth in expenses among U.S. not-for-profit and public hospitals exceeds the annual revenue growth rate, “A healthy balance sheet provides a hospital with a buffer against unexpected liquidity demands and is a strong measure to credit quality,” Moody’s Investors Service states in a recent research report. That’s why rating agencies tend to give higher ratings to hospitals that have higher levels of days cash on hand. A five-year analysis of days cash on hand by Moody’s shows only Aa-rated and A-rated credit medians meet or exceed median days cash on hand for hospitals (see the exhibit below).