Hospital Closures/Practice Expansion

Rickstown County Anesthesia Associates negotiated a highly successful renewal of their exclusive contract. With a three-year term, the group, which had provided services exclusively at Rickstown County Community Hospital for over fifteen years, was to receive $2.5 million in stipend support annually which would result in a projected per physician income of approximately $490,000. The contract provided the group with virtual control over the O.R. coverage schedule by way of veto power in respect of any expansion in coverage. The agreement was signed in August 2008.

Rickstown County Community Hospital closed last week.

Rickstown County Anesthesia Associates' twelve anesthesiologists are scrambling for work. The anesthesia groups at the two smaller hospitals in the area are not recruiting. Sam Shiller, M.D., president of the group, said that he and his colleagues are caught in the bind of having homes that are not easily marketable and little to no prospect of work anywhere within a fifty mile commute.

The Rickstown story is a simulation, not journalism; however, each year dozens of acute care hospitals close. In fact, according to the HHS Office of the Inspector General, during the decade of the 90's, 440 general acute care hospitals closed. The OIG's report for the year 2000, its most recent, states that 64 acute care facilities closed in that year alone.

So, if you are a hospital-based physician, what's your group's plan to avoid the impact of your hospital closing?

In the past, I have written extensively about the need for hospital-based groups to provide services at multiple facilities in order to gain leverage in respect of contract negotiations. But just as important, groups must expand beyond a single hospital base in order to preserve their existence. Your group simply is not a group if its entire existence depends on the renewal of its exclusive contract or on the continued operation of one hospital.

If you argue that the chance of your hospital closing is small, you've missed the point entirely. The correct analysis is not simply to evaluate the odds of the hospital closing, but to consider both the probability of that event and the extent of the impact that would occur if the hospital closed. One simply has to look at the recent collapse of the financial industry to understand that although a risk might be small, if the attendant consequences are high, there may well be a disaster looming in your practice's future.

Groups that today are simply sitting by the sidelines, thinking that they can wait out the recession, are increasing their exposure to drastic failure.

Groups that today are actively positioning for their expansion (see the Strategic Group Process™ for more information) are exploring alternative income sources both in terms of expansion in depth (at their present facilities) and in expansion of scope (at new facilities).

Times may be tough but there are tremendous opportunities to thrive. Sitting by the sidelines compounds the downside potential: Not only will you continue to run the risk that your facility might close or that you might lose the exclusive contract, you also run the risk that another group with a focus on its future will displace you in the course of expanding its scope to your facility.

Contact Mark F. Weiss for more information.

_____________________________________________