A recent conversation with the COO of a large midwestern integated health system produced some interesting perspectives on the impact of the current economic downturn on the industry.
The COO noted that he was under pressure to cut costs and delay capital projects as a result of falling volume and growing numbers of self-pays. Over the short-term, he sees the inevitability of hospitals closing, for-profit ventures going out of business, and physicians merging into larger systems. Within 3 - 5 years he believes market conslidation will leave a limited number of large, multi-state systems with the access to capital to make required investments in technology and the scale to improve quality and drive down costs.
When I asked whether his system would be one of the regional survivors, he candidly admitted he did not know. "We're on the cusp - which means even as we cut costs to survive the current downturn we need to position ourselves for rapid growth when times get better."
Critical to his survival strategy: shedding unproductive services and assets to free up capital that can be reinvested in new products and services that can generate higher margins to fund future growth.
"We've assessed and ranked our service offerings as best we can based on market share, margin, growth potential, and our competitive position in the market", the COO explained. Our intent is to redirect resources from those offerings at the bottom of the list to those at the top. "We'd rather be the clear market leader in key market niches, and generate strong margins to reinvest and protect and grow that position, than to muddle along in the middle of the pack."
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