Changing pressures Featured

9:33am EDT July 22, 2002

Hospitals, already turned upside down by the merger and restructuring craze that has hit health care during the last several years, are facing more difficult decisions.

According to a study by Deloitte & Touche, financial pressures are forcing hospital CEOs to cancel managed care contracts at a "surprising rate." Overall, nearly one-third of hospitals have cancelled an HMO contract; that number leaps to nearly 60 percent for hospitals with more than 500 beds. The most commonly cited reason for cancelling an HMO contract was poor financial results.

"Despite near-term financial pressures, hospitals are more optimistic about their long-term survival," says Ray Cisneros, the survey's architect and a national health care partner with the firm.

Even though the market environment is challenging and many hospitals are closing, optimism remains high. The survey found that 75 percent of hospital CEOs expect their organizations to still be operating in five years -- up from 57 percent a decade ago. This increased optimism has allowed executives to direct their attention to meeting the needs of consumers.

One of the growing demands of these consumers is alternative medicine.

"Hospitals have discovered that alternative medicine and health care therapies can provide new revenue," says Tom Hochhausler, national health care partner with Deloitte & Touche. "That's resulted in steady growth in the number of organizations offering complementary care, especially among larger urban facilities."

In fact, 25 percent of inner-city and 32 percent of larger hospitals offer alternative therapies more frequently than do their counterparts. The study also found that 24 percent of hospital CEOs use alternative therapies, such as natural and herbal medicines.

What is slow to change is the downsizing of overall acute care capacity, with nearly 40 percent of those surveyed reporting an excess supply of these services in their respective markets. A portion of this excess is being converted to outpatient use, with a growing percentage of CEOs reporting that outpatient care represents more than half of their revenue.

Despite these facts, 40 percent of suburban and other urban hospitals report plans to increase acute care offerings over the next two years.

"While nationally there appears to be an imbalance in supply and demand, some acute care facilities are simply not located where they are needed," says Cisneros. "As a result, we are seeing many hospitals shutting acute care wings while others are adding beds."

Cisneros cautions that hospitals need to keep an eye on the capacity problem and not compete on size without regard for demand. Todd Shryock (tshryock@sbnnet.com) is SBN's special reports editor.