Hospitals are more focused than ever on finances—here are 3 suggestions from the physician services world

Over the last few years, hospitals have had no choice but to shift much of their focus to finances and to their bottom line.

Last year, in 2022, hospitals had one of their most difficult years ever. Billions of dollars in government support from the CARES Act ran out. Yet, hospitals still had to manage covid surges, pent-up surges of other viruses, plus a huge run-up in staffing costs, capped by inflationary pressures on everything from food to janitorial supplies.

It’s not clear yet whether this year will be better—only that there are additional headwinds. Chief among these is the millions of people losing Medicaid coverage as a result of the end of the Public Health Emergency.

But it’s not just difficult circumstances. There’s a fundamental problem with the way the hospital business works in America, essentially that hospitals are non-capitalist organizations operating in a capitalist system.

On the cost side, hospitals are subject to market forces just like anyone else. Over the past two years, they have had to pay more for doctors, nurses, and their other frontline workers.

But, unlike most normal businesses, hospitals cannot simply raise prices to cover costs. Their reimbursements are either entirely determined by regulators or heavily influenced by them. And while some hospitals are in competitive urban markets where they can gain or lose market share, many are not. Many are just struggling to get by.

A good example of this is the hospital administrator who told me that the Target superstore down the road was paying more than $20/hour for their front-line, entry-level workers while they were struggling to pay $12/hour for roles requiring similar education levels. Target can absorb that cost through automation and increased prices while hospitals have trouble with both.

A quick survey of recent news reveals hospitals are in trouble nearly everywhere:

• Roll Call: Rural hospital closures throughout the southeast might be accelerating again after a brief, government-backed respite in 2021. With the end of the Public Health Emergency, millions of Americans are now losing Medicaid coverage, meaning increased charity care for hospitals and lower revenue per patient.
• Ascension reported a $1.9 billion loss in Q1, citing “ongoing business conditions impacting healthcare providers,” including “higher operating costs coupled with sustained revenue challenges.”
• CommonSpirit lost $1.85 billion in 2022 and $658 million in Q1 of this year. A FierceHealthcare headline noted the “dual challenges of staffing and inflation.” And Common Spirit’s filing said “staffing remains a pressing issue across the industry.” The health system added that staff resilience and workforce expansion were “key strategic priorities” going forward.

“Margins are stable, but hospitals are on ‘dangerously thin ice,’ according to a recent Syntellis Performance Trends-Healthcare report. “Healthcare leaders are finding ways to meet evolving patient needs and grow revenues, but relentless expense increases and other economic and industry challenges threaten to plunge them back into the red at any time,” said Syntellis EVP Steve Wasson.

So ok, we know hospitals are struggling. But what can be done about it?

The American Hospital Association is currently mounting a national campaign to get its members to lobby Congress for more financial support. But reports are that Congress is more interested in cutting the money spent on hospital care than helping out. As Paul Lee, a senior partner in Strategic Health Care, told Roll Call: “The environment and the attitude about hospitals is probably the worst I’ve ever seen it, period, and I’ve been around a long time.”

Meanwhile, we who work in physician services and partner with hospitals on a daily basis are in a position to help. In fact, it is our responsibility to offer solutions.

Hospitals are struggling—what can be done?

There are no silver bullets, but there are three things I want to highlight that I think all health systems and hospital administrators should be thinking about now when it comes to their EM or HM partners.

1. Getting the incentives aligned

There are some groups out there who might tell you they’ve “solved” alignment because of their model. But the truth is I’ve seen alignment materialize at sites where you’d think it might be hard, or fail to materialize even when intuitively you’d think it should work.

Several years ago I was the medical director of an 80k visit ED. We were the outsourced EM group and there was no subsidy. So our services were essentially free to the hospital. This meant that it never made a lot of sense for the hospital to support us with, say, additional techs or other resources. In fact, it made sense to do the opposite—shift as much burden as they could onto our shoulders. The incentives were not aligned and we got the expected non-optimal results.

Another case would be a hospital-employed model. Here, everyone is on the same team—but the problem is that this rarely works in practice the way you’d hope. Every employed model I’ve ever seen is more expensive than the outsourced version would be.

First, hospitals are just not set up to do revenue cycle as well as outsourced groups. They are good at collecting payments for big, expensive procedures, not chasing down the $100 or $300 payments that are an EM group’s bread and butter. (P.S., if you are a hospital that likes your employed model but just wants help with rev cycle, we’ve got a solution for you. Email me).

Second, employed models typically end up over-staffing physicians, because that’s what the physicians who are in charge want. On top of that, without an external partner needing to prove itself month in and month out, hospitals struggle to implement the kinds of process improvements that can reduce cost and improve quality.

The best way to get the incentives aligned is either some form of cost-sharing or to contract based on a set margin. As a physician services group, we want our hospital partners to feel the expense or savings of whatever we do—because ultimately, our fates are tied together. Especially in the ER, everything we can do to improve quality and increase efficiency depends on the hospital as well.

Which brings me to the next point.

2. Being a good partner to your EM or HM group

I’ve spent a lot of time writing about how Core Clinical Partners is committed to true partnership with our hospitals. But how can a hospital be a good partner in return?

A stable, high-quality nursing staff always helps, but really it all comes down to this: we need the right leadership at the table to help drive change. Core could be the best, most flexible, quality EM or HM group in the country, but if we don’t have an executive sponsor on the hospital side who can hold people (and the other ancillary groups) accountable, our efforts are less likely to succeed and be sustainable in the long term.

Hospitals are enormously complex, interconnected systems—it’s why we’ve set up our operational leaders to have fewer partnerships to manage than is the norm at other groups. We believe in giving our leaders the time and mental bandwidth to execute and actually sustain high-quality EM and HM programs. But we need the leadership on the other side to be there as well.

3. Getting more venture-oriented

One of the less-noticed trends in hospital finances in recent years has been the growth of hospital-based venture arms. When managed well, these ventures can have huge benefits for both the health system and the companies they invest in.

Core Clinical Partners happens to be the perfect size right now for just such an investment. With more than 30 emergency medicine and hospital medicine programs spread across the country, we are big enough to start up a multi-site system (as we did at seven sites in Oklahoma City recently), but we are still small enough that a health system that wanted to make an investment and help us scale could 3x or 4x its investment.

Many health systems have found opportune moments to create such partnerships with other physician groups—now might be just the time to do so with us.

“We want a real partner”

Finally, I’ve had so many conversations with hospital administrators where they tell me: “I’m tired of these vendors who always say they are partners, but they’re really not… We don’t like these relationships, they’re too transactional.” Then they always tell me, “We want a real partner.”

These conversations are always tough because I want to say: “That’s us! We are a real, true partner!”

But the truth is everyone says that. Every group out there will tell you that they offer real, true partnership. So that sometimes leaves me with a tough gap in trust to bridge.

But I can offer two points. First, since all our growth is organic, all of it depends on the quality of our existing partnerships, because those are our referrals. Our goal is for every single administrator at every hospital we partner with to think so highly of us that they can be references on the RFPs as we aim to win more business.

And second, Core was built to be as flexible as possible to meet hospital challenges whatever they are and whatever might be coming next. Our flexibility comes both from the time and bandwidth we give our operational leaders and from the lack of a private equity partner (and thus the lack of crushing debt loads or outside decision makers). This leaves us entirely focused on whatever is needed to make the partnership successful.

In today’s environment, that focus counts for a lot.