Are independent rural hospitals destined to go the way of the dinosaur (extinction)? No matter what state you look at, be it New York, Texas, or others, independent rural hospitals are merging or getting bought by larger entities or IDNs. While there are different drivers and benefits for this phenomenon, the core issue relates to the pressure faced by these rural entities.
It is no secret that rural entities have always been challenged in hiring physicians. Many physicians don’t wish to work in remote regions away from how they define quality of life services like theater, fine dining, high-end educational opportunities, or enticing shops. Also, most entities cannot compete from a salary perspective with the larger metropolitan areas. Add to that a lack of family practitioners, hospitalists, or other specialty providers, and you have providers who are forced to take more calls, work longer hours, and just deal with greater levels of stress. Without the provider basis to support independent rural entities, they are significantly under pressure to generate the referral revenue so badly needed.
Along those same lines comes pressure from tertiary care partners who often get downstream patients but don’t return patients for care that could be provided locally. For instance most small hospitals can’t supply invasive cardiac care but could take on local (more cost effective and patient friendly) rehab services, yet the tertiary care facility schedules that care in their entity harvesting as much of the total encounter dollars as possible.
Another huge pressure comes from regulatory overhead adding significant administrative overhead cost to independent facilities. From the IT side, you have HIPAA, ARRA, and ICD-10, then add to that accountable care, bundled payments, disclosure requirements, state reporting, federal reporting, countless audits, and a host of other requirements — at what point are they unable to keep up or perform more administrative functions than they do provide care?
There is also pressure from patients. Many independent rural entities have been struggling for years with either supplemental grants from the state keeping them afloat or barely breaking even. With that limited revenue comes capital challenges, and their bricks and mortar ends up antiquated, with little to no single patient rooms, older imaging equipment, or other challenges negatively impacting the patient perception of quality or care preferences.
While I can go on and on expounding on the challenges the independent rural entities face, the real question is, how does moving under the umbrella of a larger entity help them? Let’s just take solutions or what belonging to larger organizations provide to the above problems. Taking on the physician recruitment challenge, belonging to a larger organization can provide numerous benefits. The first is reduced back-office overhead related to the actual recruitment process. That economy of scale is increased if a parent organization provides financial, IT, and other back-office support.
Next, belonging to a larger organization, especially one where the host entity has clinical accolades, awards, or is a teaching facility, can add significant attraction for physician recruitment. If the parent hospital is a teaching facility, it can cycle residents to the rural entity, providing additional support and the ability to the rural entity to market their benefits and quality of life offerings. For instance, if you are in northern New York, there is still much nice land to be had for $500 an acre, provided you don’t mind the country life. It would be very affordable for a provider to own a 100-acre farm or homestead. These are just a few of the benefits joint or hosted physician recruitment can provide.
When looking at revenue loss, a partnership or merger into an IDN or parent entity can look at financials in a different light and focus more on collaboration than competition. This can be extremely valuable to all, especially under the new ACO or home health models of care. It can also significantly add to patient satisfaction by finding ways to provide care locally and reduce driving time/expense associated with care at tertiary facilities.
Help with meeting regulatory mandates can provide huge economies of scale by reducing IT costs, redundant reporting, assistance with audits, or other template services. Most importantly, that economy of scale model can, when properly implemented and supported, significantly reduce the total administrative overhead associated with meeting state and federal requirements.
In regard to patient pressure, there are times when belonging to a larger entity provides needed capital or an infusion of equipment. Realistically though, reducing administrative overhead for the rural entity should end up providing greater profit margins equating to additional available capital for brick and mortar improvements. Also, belonging to a larger purchasing group can end up buying entities more for their money, especially in larger group purchases of medical, IT, furnishings, and other equipment.
These may all be reasons that independent rural facilities are merging or being bought by larger entities in unprecedented rates. Don’t get me wrong — it can be a gamble for rural entities. Some have seen themselves end up in closure of the facility, and others have lost significant autonomy and discretion in how they are run or in their ability to meet the desires or needs of the local communities they serve. Others have seen a decline in their size or service offerings without any real notable benefit to the community. Some have not seen the promised benefit of back-office consolidation or savings.
The situation, though, is the same for all. What do you, as an independent rural facility, have to offer in a partnership, merger, or buy-out, and what does the acquiring party stand to gain? You don’t want to end up as the last party without a dance partner, but to be chosen as the first may not be palatable either. Like being a fighter pilot, “speed and nose position is everything.” That is just as true when looking at the hospital playing field and stacking yourself against the competition. If you go too fast, you fly-buy and find you were too aggressive, and if you go too slow, you can miss the boat altogether.
While I am not arguing for or against merger, acquisition, or other partnerships, I am asking the question of how long can independent rural entities can survive under the pressures of today’s overly complex healthcare market. No matter if they chose to go it alone, form some partnership relationships, merge, or get bought, what is the end outcome for the rural citizen and will they patient benefit or loose in the deal? While only time may tell, one thing is for sure: this year, there are fewer independent rural entities than ever before, and we are likely to see less in the future. My one hope is that whatever happens to the industry, the 40 percent of Americans considered rural citizens don’t end up worse off than where they are today.