The Growth Channel

To close or not to close your OB unit?

by Chelsea Tisosky

Operating an obstetrics program is tough: hospitals face stagnating and risker deliveries, tightening margins, and increased difficulty in recruiting providers. As a result, many hospitals are choosing to close their OB units. In Pennsylvania, for example, 23% have already been closed.

However, you don’t have to cut your losses just yet. We’ve spoken to hospitals across the country about evaluating the future viability of an OB unit. Read on to learn more about three imperatives you need to consider when thinking about closing your OB unit.

Pinpoint solvability of OB unit underperformance

Some challenges OB programs face are more solvable than others. For example, administrators can pursue alternative obstetrics staffing arrangements to overcome local OB/GYN shortages, but can’t change patient demographics that may result in fewer births.

It’s important to identify why your OB program may be struggling—is it due to fewer and riskier deliveries, poor financial margins, or difficult OB/GYN recruitment? The key is to determine the viability of potential strategies (such as midwife recruitment, marketing initiatives, or payer negotiations) in addressing these underlying issues. It may be worth investing in these initiatives to reverse OB underperformance if its drivers are actually solvable.

Identify unmet market opportunity

The decision to close your OB unit usually depends on whether there’s outstanding market opportunity to grow your program. Planners should determine hospital performance and future opportunity by analyzing current volumes and market capture, projected demographics, payer mix, and leakage.

Measure Rationale
Current OB volume and market capture Low market share suggests room to grow activity through competitive strategies
Projected demographic changes Change in quantity women of childbearing age impacts OB demand
Current and future payer mix for OB services Hospitals that serve a high share of Medicaid patients may struggle to remain financially viable due to low reimbursement
Current leaked revenue from local OB/GYNs Improved alignment may result in greater capture of OB activity

If there’s untapped opportunity in your organization’s market, reconsider closing down your OB unit.

Analyze downstream ramifications

Closing an OB unit could impact a hospital’s revenue from other services as well. We’ve identified two critical categories of downstream impacts to consider:  

  • The impact on high-margin programs supported by obstetrics: For instance, hospitals may also have to close higher-margin programs, like gynecology and pediatrics, because OB often feeds these services.
  • The impact on the hospital’s ability to develop patient loyalty: Because many patients’ first contact with a hospital is through labor and delivery, an OB program provides an opportunity to develop loyalty for other hospital services among community residents.

Leaders must determine whether the negative impact on downstream volumes would outweigh the costs saved by closing an unprofitable OB program.

Despite OB units closing nation-wide, there still may be opportunity to grow your OB program. To decide whether you should close your OB program, consider whether the drivers of OB unit underperformance are solvable, identify unmet market opportunity, and analyze downstream ramifications.

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