At the Helm

Community hospitals can survive—if they have the right partners

The rate of rural hospitals closing every year across the nation is alarming—16 just last year according to the North Carolina Rural Health Research Program, and 283 more are on their endangered list.

With such high stakes—and limited resources to invest in change—how can community hospitals shift their focus from short-term survival to long-term growth?

Explore partnerships on your terms

While independence these days is possible, isolationism is not. To survive, community hospitals must consider formal partnership and affiliation opportunities with larger systems. They will have to decide what assets they still need, but can’t manage alone. These can include elements such as more specialized services, advanced IT systems, and population health management capabilities.

The best case scenario is when a hospital can be selective and choose a partner that’s truly committed to the organization’s mission and long-term vision. Those larger partner systems can add value to the local brand, help recruit high-quality physicians, and broaden the array of local services available to patients.

Our research team has identified several key characteristics that health systems should consider when thinking about a partnership—and the ability to add measurable value and control underlying cost structures is at the top of the list. Unfortunately, we’re seeing that if a hospital fails to demonstrate that value with low-cost delivery models, strong local market share, top-notch operations, and healthy margins, their appeal to the larger networks—and thus their negotiating power—diminishes. In these situations, we tend to see merger deals that are less optimal for the local hospital.

Get your house in order

To secure a partnership deal that’s ideal for the hospital and for the community, some fundamental changes to operations can make a big difference in demonstrating value.

My team is working with a community hospital that was facing insolvency just 12 months ago. They were losing around $5 million annually, and their cash on hand was just enough to cover payroll and a few critical vendors.

This is common for community hospitals that have been among the hardest hit by rising health care costs, decreasing reimbursement, and declining volumes. And it left this particular organization in a very vulnerable state. So I asked my colleague Marc Lory, Advisory Board Vice President and the hospital’s Interim CEO, to share some of the areas he and the board of directors have focused on to turn this hospital around:

"Since cash was at a dangerous low, we immediately began addressing issues within the revenue cycle. We found early on that there were gaps in billing from poor documentation, and the hospital wasn’t collecting nearly enough revenue for the services provided. By getting that under control, the hospital has already seen an increase of $4.6 million.

Another critical initiative was to reform the care delivery process to reduce length of stay, help with the case mix index, and improve patient satisfaction. As an example, we redesigned the operating rooms and achieved more efficient scheduling, a reduction in overtime hours, and a more productive workforce.

Another very important activity for this hospital was integrating its two campuses. There were two full-service operating rooms and other duplicative services within a half mile, in a town with a declining population. We’ve started working towards a single operating license between the facilities, and expect to see around $13 million in savings from a more efficient structure."

With limited resources to invest in new initiatives, Marc and the staff identified the efforts that would offer the biggest bang for their buck, aiming to increase efficiency across the organization before making any big moves. Their next step will be finding a larger partner to align with.

Schuylkill Health: Bouncing back from the brink of closure

With only 17 days cash on hand, this community hospital was nearing insolvency; but by quickly implementing margin improvement strategies, and improving the surrounding culture, they are now on the path to success.



The field guide to partnership and affiliation models

View definitions, benefits, and drawbacks of different types of hospital partnerships.

Download now