The composition of many healthcare markets has dramatically changed as hospital consolidation into systems continues unabated. The American Hospital Association reported that 835 hospitals engaged in merger or acquisition transactions from 2007 to 2012, with significant increases in consolidation occurring during the last 3 years of that period. For many organizations and systems, merger and acquisition present opportunities for greater geographic reach, enhanced clinical capacity, increased care coordination, economies of scale, and a more robust asset base. The momentum behind consolidation is unlikely to ease, as the vast majority of hospitals plan to pursue alignment arrangements in the future.1
Consolidation may offer a cover of security – whether real or perceived – but it creates a crowded clinical environment for multihospital systems that have acquired affiliates with overlapping services. Expanding reach and access are key priorities of any health system; redundancies are not. Accordingly, systems are increasingly evaluating the distribution of clinical services within given markets and exploring alternative service configurations, including closures. Enter regionalization. Regionalization is re-emerging in this climate of consolidation and generally refers to centralizing or collocating similar service offerings within a given market. This strategy often involves relocating services from a distributed to a more consolidated system platform. The intent is to contain costs and optimize resource utilization while providing high-quality care in the most efficient manner possible. Eliminating duplicate services may seem an obvious choice. However, decisions to regionalize or close services are infrequent due to a complex and potentially volatile array of financial, operational, strategic, cultural, and political considerations.
Here we discuss the challenges that accompany service regionalization strategies and offer valuable guidance for systems in determining the extent of regionalization that may be appropriate and attainable in a given market.
Regionalization of Health Services
Primary care services need to be readily available and in close proximity to where people live and work. Conversely, organ transplantation should be centralized on a regional or multiregional basis. The ideal distribution of the majority of specialty health services falls somewhere between these extremes and requires multihospital systems to delicately balance care quality, organizational efficiency, and patient convenience in analyzing how services are dispersed across facilities.
Regionalization is a demanding, time-intensive effort that requires complete analysis, a well-defined strategy, and influential champions for change.
Regionalization strategies take many forms (see Figure 1) and are theoretically designed to address issues related to declining patient volume, cost containment, quality, and other challenges, as well as distinct local circumstances. Systems offering similar services at proximal locations simply may not have the patient volume, resources, or infrastructure to support duplicate programs. For example, managing two medium-sized cardiac surgery programs within close proximity may have been practical in a fee-for-service payment environment. However, in a value-based environment, where volume may have fallen 30% or more from peak levels, two programs is decidedly less realistic. Variations in practice and outcomes across facilities may further warrant centralizing services to better control for consistency and quality.
Regionalizing services offers no guarantee of desirable outcomes. In fact, few systems can claim to have done so with absolute success. It is a demanding, time-intensive effort that requires complete analysis, a well-defined strategy, and the ability to cultivate influential champions for change. Therefore, thoughtful and thorough examination is vital to ensuring that a system has the need, support, and enduring commitment to implement and maintain reconfigured service models.
Why is This so Hard?
Redistributing services across a system is exponentially more intricate than planning for a single acute care hospital (see Figure 2).
The road to regionalization is long and pitted with potential strategic, financial, operational, cultural, and political potholes. Many healthcare systems are reluctant to venture down this path for fear of disrupting care and alienating important constituencies. Relocating services tests patients’ loyalty and willingness to accept change while also provoking competitors to capture reluctant patients and unhappy physicians. Financially, regionalization necessitates a complete examination of the true costs associated with the services in question, as well as the direct and indirect impact on related services. Regionalizing service lines may incite a cascading economic effect on related services throughout individual organizations and entire systems, testing their understanding of complex cost and revenue dynamics.
Less tangible, but vitally important, are the far-reaching cultural and political ramifications within and beyond the system. Culturally, there is a strong tendency, especially in recently formed systems, for hospital staff and leadership to gravitate toward a siloed mentality – focused on protecting “my” campus. We see hospital executives fight to preserve the services and relevance of their hospitals without regard for a larger system strategy. In any system, protective tendencies and myopic interests can quickly derail regionalization efforts. Senior leaders must overcome this mind-set by shifting their focus, as well as that of their staff, beyond particular buildings toward what is best for the region, system, and population. Outside hospital walls, systems must address promises and commitments previously made to surrounding communities, local governments, and donor bases that could be challenged by changes to service offerings and availability.
In this climate of consolidation and transition to a value-based payment paradigm, systems cannot afford to tip-toe around tough conversations and difficult decisions. Successfully managing the complexities of regionalization demands that systems establish a framework for how strategies will be developed, executed, and maintained. More importantly, it requires that leadership ask the right questions, set the appropriate cultural tone, and commit to performing a logical, dispassionate analysis of the complex issues that accompany regionalization efforts.
Framework for Regionalization
Service distribution and optimization planning necessitates a deliberate process that encourages innovative thinking and ensures candid discussion of critical issues and available options. The numerous challenges associated with regionalizing health services are more manageable when guided by a well-defined framework. Regardless of how services are redistributed, there are critical elements that should be integrated into any framework for regionalization.
1. Building a system-wide base of cultural readiness. Members of hospital staff are often loyal to and identify with the organization, campus, or building within which they work. Motivating leaders, providers, and staff to think beyond their hospital and more systematically is arguably the most difficult task on this list. Effective strategies for doing so can include:
- Linking regionalization to other strategies that are less controversial, such as population health, reform readiness, and improved outcomes.
- Using uncomfortable facts (e.g., “We have 70% overcapacity in surgery,” “Our unit costs are 40% higher than the competition”) as a rallying cry.
- Bridging silos and spurring clinical integration initiatives by incentivizing physicians to help improve the quality, cost, and access of specialty services at the system level.
- Making a compelling case for why service redistribution is ideal clinically and necessary for success at both the system and organizational levels.
2. Establishing clear ground rules and transparent decision-making criteria. Establishing the decision-making path and criteria to be followed will help communicate an unbiased, stakeholder-inclusive, and system-centric approach to service distribution. It also promotes accountability and systematic rigor in the decision-making process.
3. Organizing efforts by service line; start with those that have greatest potential and build a compelling business case upon cost and quality. Instead of making sweeping changes, systems must deliberately evaluate each service, build a business case for redistributing a service line across the system, and take manageable steps toward implementing regionalization strategies. It is incumbent upon system leaders to present a fact-based case for change and clearly articulated vision for the future.
4. Including and engaging stakeholders at all levels. Staff reactions to regionalization efforts vary, often depending on whether their facility is losing or gaining services. Engaging stakeholders at all levels increases the opportunity to address questions and concerns while creating win-win scenarios for those who are directly impacted. Staff buy-in can be best attained with participation in the discussion and decision-making processes. Additionally, reaching out to the community allows the system to proactively address commitments and agreements that may have been made earlier related to the level of services offered.
5. Setting deadlines for reporting and recommendations. This is not a transition that can be managed periodically or during spare time. Firm timetables and high levels of accountability are critical in tackling the hard work of service distribution. Often, external expertise is critical to success.
6. Communicating system decisions, strategy, and progress on a regular basis. Open and decisive communication with staff and stakeholders regarding plans can mitigate rumor and uncertainty about the system’s health in this climate of change.
Senior leaders must shift their focus, as well as that of their staff, beyond particular buildings toward what is best for the region, system, and population.
Difficult but Necessary
Regionalization approaches have traditionally been met with internal resistance and thus are exercised infrequently. Yet with consolidation continuing as a dominant trend, an increasing number of systems are faced with the reality of addressing overlapping services, declining patient volumes, and high costs. For these hospitals and health systems, regionalization strategies, when properly designed and executed, represent an opportunity to strategically redistribute services in a manner that promotes accessible, high-quality care, and sustainable costs. Though difficult, discussions regarding the regionalization of services are essential as consolidation reshapes how systems approach the delivery and distribution of health services.