Tough, but possible: Seven ways that community hospitals can find success

M&A isn't the only option

Sam Bernstein, Daily Briefing

Community hospitals are a cornerstone of the health care system—but they are facing financial and market pressures like never before. Here's what Advisory Board experts say they need to do to succeed.

The trends facing community hospitals are grim. They tend to face declining inpatient volumes; large, well-integrated competitors; a challenging reimbursement environment; and spotty access to capital.

But for every story about a community hospital closing or scaling back, another hospital is finding unexpected success. Cape Cod Hospital (CCH), for instance, which has one of the busiest EDs in Massachusetts, was named by Healthgrades as a Distinguished Hospital for Clinical Excellence in both 2015 and 2016.

So community hospitals can thrive, but achieving success requires a clear-eyed understanding of their challenges—and their unique opportunities to leverage their close relationships with their communities.

To get a better sense of how community hospitals can achieve success, I spoke with Health Care Advisory Board researchers Trevor Goldsmith and Andrea Martin, who shared seven steps that community hospitals can take today to get on the right track.

Focus on outpatient growth—because that's where most of the growth will be

Goldsmith notes that patients and payers are increasingly prioritizing outpatient options, so community hospitals should do so, too. At the same time, he says, "the slogan 'Go Outpatient' is not nearly specific enough."

The key is to acknowledge that community hospitals have a small revenue base that makes it difficult to support new service lines at scale. "It's pretty hard to hire half a urologist," Goldsmith says.

Instead, community hospitals need to invest carefully in high-yield areas where there is demand from the market. Here, community hospitals have a key advantage, Martin says: They have a close relationship with the people they serve, "so they are well positioned to understand what investments will have the greatest impact on patients."

Embrace partnerships that preserve independence and provide two-way value

Plenty of approaches to partnerships don't require mergers or acquisitions, including affiliations with health systems that have widespread name recognition, forming alliances of community hospitals, and creating service line affiliations.

But community hospitals should proceed cautiously. "In our research, 53 percent of community hospitals say their affiliations are 'sometimes' successful, which is hardly a ringing endorsement" Goldsmith notes. The key is to build two-way value: Too often, Goldsmith says, the larger partner gets what they want—such as higher volumes—while the 'junior' partner, the community hospital, "gets the short end of the stick."

To guard against that outcome, community hospitals will need to ensure they can articulate what they're bringing to the table and clearly communicate how a partnership would be mutually beneficial. 

Keep costs low to be more attractive to payers and consumers

The first imperative is for community hospitals to actually know their costs. "You can't do strategic planning if you don't have real cost data," Goldsmith says. Fortunately, community hospitals may have an advantage in this area because of their smaller scale.

Next, community hospitals should identify savings opportunities. Improving clinical efficiency represents a major opportunity for medium- and long-term savings, while operational efficiencies, such as supply costs and purchased service contracts, can offer some easy wins.

Take a cautious approach to population health investments

"Even the biggest and most sophisticated systems have struggled with population health," Goldsmith says, so community hospitals should understand their limits and vulnerabilities.

What community hospitals shouldn't do is ignore the shift to value. The right approach depends on hospitals' local market conditions and appetite for risk, but the take-home message, Goldsmith says, is to go slow and make limited investments to start.

Creatively engage and enhance the physician workforce

Doctors at community hospitals are more likely than those at other organizations to believe that top executives' values are aligned with physician interests, according to research from Advisory Board's Physician Engagement initiative.

But to thrive, community hospitals need to capitalize on that advantage and be even more transparent with employed and independent doctors to keep the referrals coming. "Physicians want to know what they are contributing to your bottom line. They also want to know that your hospital is on sound footing and that they won't need to go looking for another job in a couple of years," Goldsmith explains. "Transparency is key."

Get the physician communication toolkit

Reach out to consumers and independent physicians—because they often underestimate what community hospitals can do

"Community hospitals often don't have the resources or managerial bandwidth to communicate effectively about their organizations' performance on cost and quality," Goldsmith notes.

However, it's crucial that community hospitals trumpet their strengths to rally consumers and other providers around the viability of local care delivery. Still, Goldsmith says, if you have room to improve, say so. Consumers will appreciate the transparency.

If you need to sell, get ahead of the market.

Sometimes, achieving a hospital's goal of providing high-quality care for the community might mean integrating fully with a larger health care system. If a community hospital is considering a partnership, it should start looking for potential senior partners while the hospital is financially stable. If it delays until imminent insolvency, the hospital risks making agreements that favor the senior partner at its expense.

Go deep and understand your community hospital advantage

Although many community hospitals are questioning whether they can survive the transition to value, they actually have many potential competitive advantages that can provide superior value to the market.

Learn more about the seven tactics that community hospital leaders are using to lead their organizations through the transition to value.

Get the full white paper


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