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NFP Hospitals Hit the Wall



Have nonprofit healthcare providers' improvement efforts hit a wall?  Standard & Poor's Rating Services seems to think so, in this story (via Reuters.)   From the story:

"Adding to pressures, inpatient volumes are dropping.
"With pending budget sequestration at the federal level, health reform implementation, and continuing pressure on state budgets, we believe the next several years will be difficult for most providers," said S&P. "Furthermore, we believe that the improvements of the past several years may be reaching their limit and thus will not be able to keep pace with longer-term revenue pressures, especially in light of weaker volumes."

"S&P says more rating downgrades are possible for not-for-profit healthcare systems over the next two years. It noted that the proportion of systems with positive or stable outlooks is shrinking, which "supports our opinion the multiyear trend of improved financial ratios is unlikely to continue."
Sooner or later providers, notoriously risk adverse, will be forced to admit that cautious incrementalism is little more than death by a thousand cuts - a slow death, but death nevertheless.

Many see salvation in mergers and/or acquisition.  Putting a bunch of soon-to-be-crummy balance sheets together doesn't make the collective any less crummy.  And, usually, the consultants, lawyers and integration costs eat up the first 5 years of savings from any so-called "synergies."

Many see salvation in shiny new buildings with private rooms and in-lobby waterfalls.  Few will find the new business volumes to justify more balance sheet leverage (see "crummy" - above.)

And many see salvation in massive IT investments- Big Data, EMRs, portals, etc.  I hope they're right.  I fear they're not, but it'll take five years to really know how soundly these systems were reviewed, acquired and implemented.  Sitting here it's easy to predict more failures than successes.

In the meantime, under either fee for service or risk-based reimbursement, a "low delivered cost" position looks better and better.  It's the only strategy offering a possibility of success regardless of scenario.  But here providers have been far too timid, scrabbling in the dirt for a few percentage points of margin improvement instead of challenging themselves to find 30%, 40%, even 50% savings on an episode of care.

They're not going to achieve that by cutting the marketing budget (again) or designing buildings offering more of the same.

No, it won't happen until providers finally do hit that wall.  Maybe then they'll realize that the only path to survival requires getting radical about lots of things -  including ditching that leadership box in which they find themselves.

(Photo credit: Magdalena Gmur, Creative Commons)

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