The Intersection of Hospital Profitability, Telehealth Expansion, and Merger Strategies

Ben H.

Ben H.

Aug 05, 20233 min read

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The Intersection of Hospital Profitability, Telehealth Expansion, and Merger Strategies

Introduction:

Efficiency and profitability in the healthcare industry have always been critical factors for hospitals and health systems. In this article, we will explore the relationship between hospital profitability and efficiency, the impact of Amazon's direct-to-consumer telehealth expansion, and the aftermath of a failed merger attempt between Fairview Health Services and Sanford Health. By examining these topics, we can gain valuable insights into the challenges and opportunities facing the healthcare landscape.

Hospital Profitability and Efficiency:

A study published in the International Journal of Health Economics and Management analyzes the relationship between profitability and efficiency in not-for-profit hospitals. The findings reveal that more efficient hospitals tend to be more profitable. The study highlights several factors that contribute to profitability, including size, concentration of output, occupancy rate, and membership in a multi-hospital system. Conversely, academic medical centers, average length of stay, location in a Medicaid expansion state, Medicaid and Medicare share of admissions, and unemployment rate were inversely related to profits. These results indicate that not-for-profit hospitals can increase their surplus by focusing on improving efficiency.

Amazon's Expansion into Telehealth:

Amazon's entry into the healthcare industry is making waves with its direct-to-consumer telehealth marketplace. The company recently announced the expansion of its telehealth services to all 50 states and Washington D.C. This move allows patients to access synchronous telehealth video consultations and message-based asynchronous consultations at affordable prices. With an average cost of $75 per visit for video consultations and $35 per visit for message-based consultations, Amazon Clinic aims to provide accessible and convenient healthcare options for consumers. While the service does not accept insurance, patients can use their FSA or HSA funds for payment. This development raises questions about how payers and consumer plan choices may be impacted.

The Failed Merger Between Fairview and Sanford:

The attempted merger between Fairview Health Services and Sanford Health faced significant challenges and ultimately fell through. Stakeholders raised concerns about an out-of-state entity controlling the University of Minnesota Medical Center, a vital healthcare facility. The involvement of Minnesota lawmakers and the state's Attorney General further complicated the situation. With the merger off the table, industry consultants and advisers predict that Fairview and Sanford will explore other merger partners or potential acquirers. However, new state legislation aimed at increasing merger oversight may pose additional hurdles for Fairview. As Fairview continues to report operating losses, finding a stable financial situation becomes crucial.

Actionable Advice:

  • 1. Prioritize Efficiency: Hospitals and health systems should focus on improving efficiency to enhance profitability. By optimizing processes, streamlining operations, and reducing waste, organizations can increase their surplus and pursue their objectives effectively.
  • 2. Embrace Telehealth Opportunities: The expansion of telehealth services, as demonstrated by Amazon Clinic, presents a significant opportunity for healthcare providers. By incorporating telehealth into their services, hospitals can reach a broader patient base, improve access to care, and potentially increase profitability.
  • 3. Strategic Partnerships and Mergers: As seen in the case of Fairview and Sanford, mergers and partnerships can be complex endeavors. Healthcare organizations should carefully evaluate potential partners, considering factors such as alignment of values, financial stability, and regulatory implications. Collaborations with compatible entities can provide stability and growth opportunities.

Conclusion:

Efficiency and profitability remain crucial considerations for hospitals and health systems. The relationship between these factors, as highlighted in the study on not-for-profit hospitals, emphasizes the importance of improving efficiency to increase profitability. The expansion of Amazon's telehealth services and the aftermath of the failed merger between Fairview and Sanford demonstrate the dynamic nature of the healthcare industry. By taking actionable steps to prioritize efficiency, embrace telehealth opportunities, and pursue strategic partnerships, hospitals can navigate these challenges and thrive in the evolving healthcare landscape.

Resource:

  1. "Efficiency and profitability in US not-for-profit hospitals - International Journal of Health Economics and Management", https://link.springer.com/article/10.1007/s10754-020-09284-0 (Glasp)
  2. "Amazon brings direct-to-consumer telehealth to all 50 states", https://www.modernhealthcare.com/digital-health/amazon-clinic-50-states-dc-video-appointments (Glasp)
  3. "Merger failure post-mortem: What's next for Fairview and Sanford?", https://www.modernhealthcare.com/mergers-acquisitions/sanford-fairview-merger-whats-next (Glasp)

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