Key Healthcare Trends

Continuing Stress on Hospitals' Financial and Operating Performance

Healthcare reform is creating continued uncertainty around reimbursement for hospitals. In the meantime, they are facing rising bad debt and increasing charity care as a result of unemployment and increasing populations of the uninsured. Volumes are declining as patients defer non-emergent care. State budget shortfalls are impacting Medicaid payments to providers. The economic impact on hospitals and health systems is exacerbated by uncertainty regarding reimbursement and healthcare reform. The consequence has been a renewed emphasis on cost take-out in revenue cycle and supply chain management. To be sure, the focus will shift toward P4P and bundled payments.

Capital rationing continues -

As hospitals recover from an almost unprecedented loss of investment income and deterioration in liquidity, they have a renewed focus on capital allocation. For those that have recovered more rapidly, capital projects are restarting, although much more scaled down. Internal competition for capital is heating up as rationing becomes more stringent. Electronic medical records are now an imperative, and must be funded. Healthcare organizations with strong credit are seeking third-party funding and diversifying sources of capital to fund new facilty development projects.

Growth through consolidation: M&A will accelerate -

As hospitals drive down costs - sharing of resources, economies of scale, leverage with payers and vendors will become top of mind with every executive team. Market share growth will include consolidation and positioning through acquisition. What has been interesting is that acquisition has been opportunistic, not just for underperformers. While there is integration risk, hospitals should consider there may be a "first mover" advantage ... survival will be more difficult for freestanding hospitals.

Demand and need for new facilities continues -

Care delivery continues to shift from inpatient to lower-cost outpatient settings. Aging facilities are inefficient, and technologies drive different space needs. Patient expectations are increasing, and hospitals need to capture new markets. The impact we're seeing is hospitals are becoming more willing to reevaluate existing facilities and consider a new paradigm for development based upon reconfiguration, size and cost of new facility projects, ROI and efficiency. Hospitals are expanding their delivery model / sites of care to reflect patient types and where they elect to receive care.

Hospital-physician alignment: move toward consolidation -

Healthcare reform is here, and accountable care organizations are top of mind for many providers. This model requires hospitals, physicians and other providers along the continuum of care to take on risk together as one entity. In the meantime, Congress' continued scrutiny of physician ownershing of hospitals and ancillary services, the imperative to convert to electronic medical records, and the continued uncertainty of reimbursement are all driving heightened interest in hospital employment by physicians. This acceleration of employment of physicians by hospitals is resulting in numerous new practice models, all heavily focused on patient centered care, efficiency and productivity.