While many hospitals continue to struggle, some have weathered the storm, and now is the time to look at options for growth, analysts say.
With some hospitals seeing improved finances, it’s time for organizations to look at strategies for growth, analysts say.
“I think proactive from the position of strength is the best way to do options,” says Anu Singh, managing director of Kaufman Hall, a healthcare consulting firm.
Kaufman Hall advises hospitals and health systems on mergers and acquisitions. Analysts, including Singh, are projecting an increase in hospital merger activity in 2024.
Some hospitals may want to pursue mergers or acquisitions, while others may not need to go down that road, Singh says. But hospitals should be looking at ways they can improve their revenues.
Many hospitals continue to struggle financially, but some are seeing better operating margins, even if they remain modest. The median year-to-date operating margin was 2% in November, still below the healthier range of 3% to 4% for nonprofit hospitals, according to Kaufman Hall.
Now, healthcare leaders need to look at managing with an eye on growth and enhancing services, and also meeting more needs for consumers, through telehealth and artificial intelligence. (Anu Singh talks about planning for growth in this video. The story continues below.)
“This is a period of transformation. And if anyone's paying attention to what's going on in the industry, we've been saying that for a while, transformation comes in different waves and forms. And what happens in your market can change your transformation agenda,” Singh says.
He says the most critical advice he can offer hospitals and health systems is to customize their “bespoke point of view of where you're going to play in this transformation.”
As Singh says, “What is it that you're going to define as your core service and geography? What are the elements of your strategic plan that are going to allow you to execute on that? What are the things you're going to organically grow? What are things that you may have to look to the outside, inorganically, to look at either acquisitions or partnerships to make that strategic plan work?”
Health system leaders should look at “threshold levels” of their own performance or changes in the market that could trigger the need to go in a different direction and revise strategies.
“Those threshold items are really important,” Singh says. “What are the gauges in the inventory of things that when those triggers are hit, we reassess where we are? So I think that body of knowledge is something that not only has to be done, but because transformation is happening so fast, that has to be pretty continually revisited. And that would be the best advice I give to organizations of any and all size, characteristic or type in the market right now.”
Hal Andrews, CEO of Trilliant Health, tells Chief Healthcare Executive® that hospital leaders need to focus on areas where they stand out. He also says hospitals should consider moving away from services with lower volume.
“The reality is that nobody's good at everything,” Andrews says. “That's true in healthcare. It's true for hospitals.”
“I think that in this environment, you have to start thinking about, what are the two or three things at which you excel? And how do you drive volume to those two or three things, and how do you sort of give up the ghost on the things that you don't do so well.”
Rick Gundling, senior vice president of the Healthcare Financial Management Association, also points to the need for hospital and health system executives to be able to adapt to changes in the marketplace.
“Stay nimble,” Gundling says.
While there are a host of challenges for hospitals, Gundling says, “There's so many opportunities as well, I think in the health equity space, being able to address your community health needs.”
Health systems need to focus on keeping people healthy, and Gundling says they need to do a better job of sharing their efforts with the community.
Hospitals also need to continue to focus on their digital transformation, including the use of artificial intelligence, particularly in reducing bureaucratic headaches, Gundling says.
“I think we'll see AI mature in the use and healthcare,” Gundling says. “There’s lots of concern about the use of AI. There's probably really good uses, certainly around administrative simplification efforts and prior authorizations, and all those kinds of aggravating points that we have in our health systems, that maybe AI could help alleviate, on the caregiver side.”
Some say hospitals and health systems may need to think about moving forward with construction or improvement projects that have been delayed by the COVID-19 pandemic.
Suzie Desai, a credit analyst for S&P Global Ratings, told Chief Healthcare Executive® in a December interview that more systems are likely to move forward with capital projects.
“We have seen that average age of plant kind of creep up a little bit,” Desai says. “So at some point, we believe that hospitals and healthcare systems will have to maybe pick up a little bit on spending.”