For Providers, Competition is Key

For Providers, Competition is Key

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The news continues to be bleak for the healthcare provider market. Inpatient admissions volumes have been dropping since 2009, and a recent report showed a 2% further decline. Hospitals continue to fail, and many non-profit health systems are at risk for going out of business.

The AHA also reported that, between 2012 and 2013:

  • The number of hospitals dropped by 37 to 5,686 from 5,723
  • The total number of beds decreased 0.7%, to 915,000 from 921,000
  • The nation’s average daily hospital census declined 1.3%, to 592,000 from 600,000

But the news isn’t bad for everyone. For-profit hospitals are actually doing quite well.

HCA Holdings, Inc. (NYSE: HCA) recently announced very strong 4th quarter results:
Key fourth quarter metrics (all percentage changes compare 4Q 2014 to 4Q 2013 unless noted):

  • Revenues totaled $9.636 billion, an increase of 9.1 percent
  • Net income attributable to HCA Holdings, Inc. totaled $527 million, or $1.19 per diluted share
  • Adjusted EBITDA was $1.956 billion, an increase of 14.1 percent
  • Cash flows from operating activities totaled $1.627 billion, an increase of 32.7 percent
  • Same facility equivalent admissions increased 5.6 percent, while same facility admissions increased 5.0 percent
  • Same facility revenue per equivalent admission increased 2.5 percent

A recent Modern Healthcare article further highlighted this point:

“Investor-owned hospital chains are enjoying momentum under healthcare reform that isn’t sweeping along their not-for-profit counterparts. Analysts expect another strong year from the for-profit operators because they’ve cut costs and adopted new initiatives to bring in more patients. 

Companies like HCA and LifePoint Hospitals have shown that they’re well-positioned to weather operational challenges and have benefited from increased patient volume under the Patient Protection and Affordable Care Act, according to a report from Fitch Ratings. The report contrasts with the negative outlook Fitch and other credit-rating agencies have placed on not-for-profit hospitals.”

How do you explain that? The only thing different is the business model, yet we see completely different results. The simple answer, competition! For-profit hospitals act as traditional businesses. They need to innovate and compete or die.

For too long non-profit hospitals have just existed and reacted, treated those who came in, whatever the condition or their ability to pay. While I truly appreciate the mission of these providers, it is just bad business.

So am I advocating all hospitals shift to a for-profit model and shun their missions of helping the masses? On the contrary, I think the non-profit model has many advantages.

But non-profit doesn’t mean no profit. It means you invest those profits back into the business rather than distributing those profits to shareholders or owners as a traditional business would.

All providers need to shift to a profit and growth model. Identify where you compete best, provide the highest level of service while making the most money. Driving growth in these areas allow you to invest in your business and support your complete mission and clinical initiatives.

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