Wednesday, August 13, 2008

Competition and Collaboration

I’m sure that many of you have read the recent article published by the American Hospital Association in which they predict that 1,200 of the 5,200 hospitals in America will most likely go bankrupt in 2009. One would expect our first response to that news to be elation, in that some of these hospitals may be in our markets and this would eliminate our competition and make our Journey to Excellence easier.

However, this first impression may not, in reality, be the ultimate effect of these closures. In CHRISTUS Health, we are living out this experience in real-time as hospitals in two of our regions in the U.S. have announced bankruptcy, and one of the two is being auctioned off in the next several weeks.

Obviously, during this period of time, the institutions are rapidly downsizing their census, and many of their patients are being seen in our facilities. But because both of these hospitals are in two of our most challenged regions where the number of uninsured or underinsured is extremely high, the shift of patients to our facilities is not paralleling a significant rise in collectible revenue, but is increasing our expenses significantly. Consequently, these closures are ultimately having a negative effect on our bottom line. It seems that this scenario will be the most likely one playing out in all of the markets where these bankruptcies may occur, given that bankruptcies are most likely to take place in challenging markets that have a higher-than-average number of uninsured and therefore a large bad debt.

If, then, our response is not elation and we expect negative results, what should our response be? First and foremost, in good times and bad, we should always work to develop open communication with our competitor to make sure we are meeting the needs of the community in the best possible way. In fact, if collaborative planning was always a high priority for health care delivery systems, perhaps the appropriate services could be separated into each of the facilities in a community, preventing unnecessary duplication and causing each hospital to be much more profitable or at least to absorb fewer losses. Unfortunately, most economists and governmental officials in the U.S. seem to believe that a competitive model that works in other industries will successfully work in health care, which is truly a service industry open 24 hours a day, 365 days a year, where all those who seek treatment must be served (at least for emergencies).

Unfortunately, because of the highly regulated nature of health care, the fact that the majority of our payments are provided by the cumbersome governmental entities of Medicare and Medicaid and the polarity between physicians/providers and hospitals/health systems, theories from Economics 101 have never and will never work. In fact, the competitive nature that has resulted between different providers in the same community all over the country has caused an extreme duplication of services and technology, which ultimately do not create profitable product lines and may even result in the overuse of treatments and procedures.

Although we offered to collaborate with the hospitals in the two regions I mentioned above, our offers to have those conversations were never accepted, and the resulting outcomes are evident. Therefore, we are now faced with the closure of these hospitals, and must determine the best way to quickly absorb an increased number of patients and hopefully develop efficiencies and effective processes to do this in a way that will minimize our losses and eventually produce business stability along with these increasing volumes.

But because this cannot be done in a proactive way over a defined period of time, but rather has to be done in reaction to a crisis, bankruptcy or foreclosure, often the initial solutions create short-term challenges which require significant effort to turn into positive values in the long-term.

The reality is that what might seem like a joyous occasion initially actually becomes a significant issue and often a burden when the realities of the situation are fully understood. So as we stand here in this moment in time, it would be best to reflect upon the best ways to prevent these foreclosures and bankruptcies from occurring, rather than being forced to stand idly by while the additional nearly 1,200 closings occur.

1 comment:

Jeremy Barclay said...

This was interesting hearing about your prospective of the industry's current state.

By the way, I met with you as a grad student in my MHA and you were a tremendous amount of knowledge and I appreciated your time.

Jeremy