Healthcare Trends In Turnarounds

Healthcare spending is upwards of 18 percent of the gross domestic product. Despite this monumental investment the United States healthcare market has significant areas for improvement. United States consistently underperforms compared with other countries on most performance dimensions, including efficiency, access, equity, costs per procedure and outcomes. It is estimated 34 million people in the United States continue to live without health insurance and access to care outside of emergency departments. 

The most successful healthcare turnarounds are those that have involved a change in management and ownership. This fact should not be a surprise to the reader.  For this is consistent with the turnarounds of other industry sector – a massive change is required for a massive set of problems. A recently released study by Healthcare Transaction Advisors analyzes the financial performance of a large sample of healthcare businesses, including hospitals, before and after major ownership changes.

Healthcare Transaction Advisors studied the financial performance of more than 5,000 hospitals, skilled nursing facilities and home health agencies that reported changes of ownership over a 17-year study period. 

The study indicates that successful hospital financial turnarounds after a change of ownership require sustained growth in net revenues. For the study, a successful turnaround is defined as a business that became profitable by the third year after the change of ownership. Unsuccessful turnarounds are defined as businesses that were still unprofitable three years after the change of ownership.

•    The healthiest facilities are those that bring effective management to the table to take care of the blocking and tackling on a daily basis. It is the execution. “Vision Without Execution Is Just Hallucination.”
•    An entity can be very aggressive with their acquisitions, but if it does not create additional inpatient activity, it is unlikely to improve the business.
•    The 2015 study identifies a strong correlation between increased growth in outpatient services, inpatient psychiatric unit services, intensive care unit services, outpatient clinic, emergency department and SNF services and successful hospital turnarounds. The study also identifies several other correlations with successful turnaround performance. The correlative factors include:
•    Overall inpatient day growth for all payers
•    Ability to restrict building and fixture cost growth
•    Increased movable equipment spending
•    Increased growth in most ancillary service cost centers
•    Enhanced ability to limit medical supplies cost growth
•    There is no correlation between reductions or increases in staffing, building square footage, and costs for operating room, recovery room and physical therapy services with successful turnaround performance, according to the study.

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