Growth is essential for hospitals and health systems, but the way executive teams think about growth has changed significantly over the last five years.
Many nonprofit systems are still battling tight margins as they recover from the pandemic and inflation of the last few years. The transformation to more value-based care, focused on better outcomes and lower costs, is pushing care out of the inpatient hospital and disrupting the traditional business model.
An article written by Courtney Midanek, John Poziemski and Max Timm of Kaufman, Hall & Associates, and originally published in The Governance Institute's BoardRoom Press newsletter, outlined health systems' new growth imperatives.
"Leading organizations no longer measure success through traditional measures such as inpatient volume share alone," the report states. "Successful growth strategies will be measured against metrics such as acquisition of covered lives, increased influence over the spending of healthcare dollars, and direct (and downstream) impact on the total cost of care and experience."
Health systems are focused on organic growth strategies including new care models for value-driven care or expanding into additional markets, according to the report. They are partnering with outside organizations and relying on technology-driven solutions to achieve their goals and dig deeper into incentive-based and / or risk-based payment models. New care models may include outpatient facilities or virtual care efforts, such as hospital-at-home.
Nonorganic growth is also an increasingly important aspect of health system strategy. Executive teams are evaluating acquisition and partnership strategies.
"A significant number of large organizations are seeking partners that have complementary capabilities, needs, and perspectives after a pause in activity during the pandemic," the report states. "At the same time, many midsized or smaller organizations seeking to gain those capabilities have shifted their perspective on independence."
There were 20 hospital and system transactions in the first quarter, the highest volume since 2020. While the financial challenges for hospitals and need to grow market share contribute to the increased activity, another surprising factor is also driving consolidation: a talent gap. The report notes many hospitals experienced significant staff and leadership turnover in the last four years and the weaker talent pipeline has incentivized partnerships and acquisitions.
The most effective partnerships have been with specialty providers and startups, according to the report. Payer-provider affiliations are also realizing value, driving patient access and increasing the premium dollar, according to the report.
"At the same time, many organizations are repositioning or even considering exiting some lines of business that may not offer the same opportunities for long-term success (e.g. senior living/skilled nursing, outreach laboratory, or behavioral health)," the report states. "While many of these services are critical to the continuum of care, organizations are finding new and improved ways to partner with specialty organizations to ensure continued access outside of an ownership model."