Hospitals are facing significant financial challenges driven by market dynamics, rising costs and the struggle to recruit and retain talent. As health systems navigate these pressures, leaders are emphasizing the importance of market dominance, cost control and innovation as essential strategies for long-term viability.
One major factor influencing financial stability is a hospital’s strategic position within its market.
"Even within a generally successful health system, strategic positioning in a market is key. If you're not number one or number two in your market, there are real disadvantages, such as difficulty achieving the scale needed or securing fair rates for services," Robert Broermann, CFO of Norfolk, Va.-based Sentara Healthcare, told Becker's. "This can affect the quality of medical staff and create challenges in the market."
Additionally, the market itself matters, with many rural, critical access and safety-net hospitals struggling financially.
"We have a couple of rural hospitals, and that's tough healthcare. While volumes have returned post-COVID, it remains challenging for rural communities to develop the critical mass necessary to support the fixed costs of running a hospital," Mr. Broermann said. "It's also harder for them to attract talent. Recruiting physicians and allied health professionals is difficult, and rural hospitals often have to pay a premium to attract them. They also face staffing challenges that may require relying on locum tenens and temporary nurses."
If you're not well-positioned in a market, or if the market is too small, it's increasingly difficult to compete in today's healthcare environment, according to Mr. Broermann, who noted that about 40% of Sentara's hospitals are close to the breakeven line.
John Beaman, CFO of Roseville, Calif.-based Adventist Health, echoed Mr. Broermann's comments and stressed the importance of market positioning.
"It really boils down to the market. In addition to rural hospitals, safety-net hospitals are also struggling," Mr. Beaman said. " This includes inner-city hospitals with a high percentage of Medicare and Medicaid reimbursement, which operate under a fixed reimbursement structure, compared to other markets that may have commercial payers as their primary reimbursement structure."
What cuts across all of this is the inflation hospitals are seeing in labor, drugs, supplies and other costs.
"Safety-net hospitals, whether rural or urban, often have a fixed revenue base, but face rising variable costs like labor, which have increased 7-10% annually for 2-3 years," Mr. Beaman said. "The dynamic really depends on the market you're in and the payer mix or reimbursement structure. The cost implications, however, are consistent across the board — everything is going up."
Owning the market and adapting to changing economic conditions may be the only path forward for hospitals aiming to thrive in today's healthcare environment, while controlling costs, attracting talent and growing volumes will be crucial for securing long-term financial viability.
"Push yourselves to think beyond the way you've always operated and figure out if there's a smarter way to do it. You've got to own your market. There should never be a person that goes anywhere else but to us to get the high-quality care that they need," Sue Perrotty, CEO of West Reading, Pa.-based Tower Health, told Becker's. "Our focus is to be the best healthcare provider in the markets in which we operate and partner with the best providers that bring new technologies, knowledge and skill sets to provide world-class operations and solutions."