Health system execs prioritize service line consolidation


Provider executives are increasingly looking to downsize and consolidate service lines as they trim costs, according to a new survey.

Nearly 80% of 79 health system, hospital and physician group administrators surveyed in early February said they are more likely to accelerate service rationalization over the next year, according to a poll by Optum’s Advisory Board. Meanwhile, executives were far less likely to lay off additional staff or cut their pay and benefits compared to May 2020.

Many health systems have already closed smaller one-off clinics as well as administrative offices during the pandemic to stabilize finances and centralize operations. That strategy hasn’t been enticing given the political and internal backlash that often comes with paring down services and workforces.

But now that administrators have taken the leap, coupled with the fact that staffing and pay reductions and meaningful supply chain reductions seem less feasible, they will likely continue that strategy, said Christopher Kerns, vice president of executive insights at Advisory Board.

“Most of the opposition to closing down unprofitable service lines comes from physicians who don’t want to travel longer distances or have crowded schedule time blocks. Hospitals that employ them generally want to keep them happy, but during the pandemic’s lock-down economics it was more doable,” he said. “Research shows that you just get more scale and profitability and frankly better performance when you cluster physicians and related service lines.”

Service line consolidation, along with the associated real estate, has often been overlooked in the merger and acquisition integration process. Administrators are often confrontation-averse, especially when it comes to the organization’s physicians. Many health systems also haven’t had the data analysis capacity to determine which sites should remain open and which should close.

But, like many other instances across healthcare, the pandemic has made the “untouchable” more accessible, Kerns said.

Labor costs would typically be in the cross hairs during economic recessions given that they typically make up about half of a provider’s expenses. But unlike the Great Recession, a smaller portion of healthcare providers are willing to make those cuts.

Only 31% of those surveyed expected to lay off or furlough additional staff and only 21% were likely to cut pay or benefits over the next year, down from 79% in May of last year in both cases. Pursuing mergers and acquisitions was also lower on their priority list, according to the survey.

“We’re not only seeing huge waves of retirements among nurses, but also physicians. When you look at the pandemic’s impact on caregivers, it is not burnout, it is trauma,” said Kerns, who expects more health systems to offer sabbaticals. “Systems are saying they are backed into a corner on cost — they can’t cut staffing, so there has been a big push onto supply chain contracts and rationalization of services.”

The latter typically has more significant long-term savings potential compared to labor cuts, Kerns added.

The ongoing staffing shortfalls will likely push broader adoption of telehealth as well as team-based care that features advance practice practitioners, he said.

Still, replacing those who have left the workforce will likely drag providers’ finances, said Jeff Goldsmith, founder and president of healthcare consultancy Health Futures.

“The pandemic has given baby boomers who were thinking about retiring a huge push. That is a big looming issue,” he said.

Adjusting the decisionmaking process has also seemed insurmountable for many healthcare organizations. But administrators and caregivers are streamlining the vetting process by eliminating redundant steps and consolidating meetings.

“You don’t have to take 18 months to make a decision, healthcare organizations have learned they can pretty much do it on the fly,” Goldsmith said. “There should be a fundamental rethinking of how a place operates.”


Source: modernhealthcare.com

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