Does HC Survival Require Expansion?

Posted on April 22, 2011

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A couple articles I read recently in online journals, and one of the general sessions at last month’s 2011 PDC Healthcare Summit offered some difficult-to-stomach suggestions for today’s hospital CEO in regard to hospital expansion. Some of the nuggets:

  • Hospital scale + integration = survival
  • How big is big enough?
  • Too integrated creates conflict of interest
  • 10-15% cost elimination from organization is essential—i.e. ‘if you can’t make it on Medicare payments, you can’t survive’

Another troublesome notion:  existing hospital infrastructure is not adaptable to an accountable care organization (ACO)…which means physical restructuring of some sort is imminent for most hospitals who seek to comply with ACO requirements.

Dr. Wayne Myers of the Rural Assistance Center had these thoughts in a recent article regarding how hospitals have gotten into their current financial hardship regarding expansion:

  • Federal economic recovery has provided cheap money at 4.25% interest
  • PPACA promises needy / underserved patient populations
  • Competitors are expanding
  • Healthcare’s spending reduction emphasis creates a ‘now or never’ mindset for construction projects

More specifically on the last point, the cost to build a building now is the cheapest it will ever be…and this is always a fact; costs are never going down. Build now to save.

With the mindset of ‘better, faster, cheaper, more flexible’, it is easy to get caught up in adding capacity.  Hospitals will do one of two things:  see healthcare reform as an opportunity for new things, or be paralyzed and hoard resources. Time will tell whether conservatism with resources is smart or, as the old saw goes for accumulated wealth, you should spend it now because ‘you can’t take it with you when you go.’  Or in healthcare parlance, cash will do you no good if you end up closing your doors anyway.

So much is at stake, and capital projects are so expensive, it seems an impossible task to see into the future to determine whether standing still means you will sink.

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