The CFA Perspective

Has Consolidation’s Time Come?  80% of Surveyed Health System Execs Think So

Posted by John W. Meyer, LFACHE, and Charles W. Franc

5/20/21 11:26 AM

Service-line consolidation has always been a challenge – theoretically feasible, strategically supportable, even desirable (particularly from a health system perspective), yet fraught with practical and political roadblocks.  Has the pandemic and the financial stress it has placed on the American health care system made consolidation more likely in the years to come?  Eighty percent of system execs have said so in a new poll.  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.  While this opinion focuses on money-losing services and programs, it can apply to whole service lines and its components.  Thus, it would be an oversimplification to say that this opinion is largely driven by financial performance; it goes beyond mere money.

It is demonstrable fact that the overall volume of cardiac surgery has decreased, thus the number of low-volume cardiac surgery programs has concomitantly increased.  Remarkably,  the number of hospitals offering cardiac surgery has continued to increase until recently.  Go figure!

Our Own Experience

Cardiac surgery program consolidation is a hot topic.  In our own consulting practice, we are currently working with two Western U.S. hospitals, both part of larger regional systems, with thriving cardiovascular service lines, that are debating the issue of consolidating their cardiac surgery programs into larger system hospitals.  It would be easier to address the issue of consolidation if both these hospitals (one low volume, one moderate volume) were losing money on cardiac surgery, but even at low volume, that is not the major issue or precipitating event that launched the discussion.  Both hospitals, in different markets, are facing unique challenges (primarily, but not exclusively physician staffing) and subject to corporate pressure to seriously study the issue. 

Why Consider Consolidation?

While consolidation considerations are often triggered by low volume, there are a myriad of other interrelated issues that are often present.  These can include the need for greater efficiency, better clinical outcomes, lower costs-per-case, physician and other staffing-related issues, reduction in unnecessary variation, better overall patient experience, appropriate distribution of specialty services within regions, the need to optimize resource management, a leadership or physician staffing crisis, value creation, and overriding corporate strategy.  Increasingly, systems are trying to create optimized “system-ness” and well-integrated service lines to appeal to value-driven payers and referring organizations.  Service line integration and rational distribution can also integrate hospital strategy with physician group strategy for a more coordinated system-wide marketing position.  Many systems with regional hospital assets have adopted a “hub-and-spoke” approach to specialty service lines, with full-service cardiovascular programs based in larger, regional referral facilities with community hospitals relegated to a less-comprehensive array of services.  Physician referral patterns are difficult to shift, and attitudes will often reflect “winners’ and “losers” among hospitals and clinical staff.  Optimizing hub-and-spoke service lines is often particularly challenging without sound leadership and strong centralized program direction and overall development.

The continuing development of both interventional cardiology and electrophysiology as cardiac subspecialties at the community hospital level, have implications when considering divesting lower-volume cardiac surgery programs.  “Complex” PCI is routinely performed in community hospitals and the percentage of complex cases as a percent of total cases continues to rise as the population ages.  While the emergency conversion of all PCIs to surgery remains extremely low, most interventional cardiologists are biased towards performing such procedures in facilities with on-site access to cardiac surgery.  The same holds true for many electrophysiologists performing complex EP ablation procedures, again, an increasing percentage of their work.  Divesting cardiac surgery can have serious consequences and the attitudes, opinions and clinical patient and procedural mix of cardiologists must be seriously considered in any divestiture project.  In one specific low-volume divestiture project we are aware of, corporates’ attitude was that divesting cardiac surgery would have an unacceptably negative impact on both the hospital’s existing and continuing growth of cardiology and electrophysiology business, and was therefore “discouraged” for this sole reason. 

It is important to note that any consideration of consolidation has broader impacts than simply on the program or the service line itself.  Cardiac surgery, for example, impacts many other clinical areas of the hospital, its physician staff and clinical team.  Additionally, it reflects directly in the hospital (and health system) market positioning, value-based managed care considerations, public perception, EMS interface and even philanthropy.  All of these constituent bodies need to be considered when contemplating the addition, and particularly the deletion, of any special program.

Strategizing the Consolidation Decision

Strategizing the consolidation decision is consequential and thus must be thorough, market-driven and fact-based.  With that in mind, it is realized that such decisions go  beyond clinical considerations and can be very political.  Involving all stakeholders, both inside and outside the hospital, will be critical.  Corporate pressure to consolidate is commonplace, as is local system hospitals reluctance to forfeit any service line program or service that it has built, promoted and resourced over long periods.  Alternatives to cardiac surgery such as providing PCI without surgery on site, available in many (but not all) states can be considered a viable alternative in some circumstances.  

The Importance of Process

If a decision is reached to divest, it is critical that the effort be process-driven, all-inclusive, and thoroughly planned through a comprehensive team implementation approach.  A good case study describing the process involving two hospitals consolidating their cardiac surgery programs is featured in (NEJM Catalyst, Cardiac Surgery Consolidation – Improving Value in Care Delivery, Volume 1, Number 2, February 19, 2020).  They emphasize the need to include all affected constituents, including those beyond the institution’s walls, the need for a comprehensive process involving multiple work teams, and the critical need for administrative and physician champions to support a significant change such as this.  Additionally, they strongly emphasize one point – “don’t rush discernment.”  Consolidation issues are rarely time-critical and thus should be given the thoroughness required to mitigate unexpected issues or areas of resistance that will often appear.

Summary

In summary, changing markets and continuing financial stress will force hospitals and health care systems to evaluate the optimal, market-based, service line provision of individual services and programs.  Cardiac surgery, in particular, should be strongly considered a potential candidate for divestiture or consolidation under specific/unique circumstances, but will require serious study and understanding of the pros and cons of such a decision.  These decisions can have wide-ranging community repercussions beyond the more obvious inside-the-walls hospital consequences.  Thorough analyses and well-planned implementation of subsequent decisions will be critical.

 If you are interested in learning more about rationalizing and consolidating cardiac service lines or other areas of cardiac services strategic development, service expansion and/or other programmatic needs for cardiovascular or other services, please contact CFA at (949) 443-4005 or by e-mail at cfa@charlesfrancassociates.com.