Thoughts from Ken Kaufman

A Different Way of Thinking About Hospital Closures

1 minute
Hospital closed sign

For several decades, the economics, demographics, and technology of healthcare have been fueling a trend toward closure of inpatient hospitals.

In the past ten years, from 2014 through 2023, 229 hospitals closed without being converted into other facilities, while only 118 new hospitals opened, according to data provided by MedPAC in its March 2020 and March 2024 reports to Congress. Rural closures have generated significant concern—justifiably so due to the risk of reduced access to care. Of the 229 hospitals that closed in the past decade, 68 were rural, with an additional 48 closing and converting into other types of care facilities, according to the Sheps Center for Health Services Research at the University of North Carolina. Although the number of rural closures is high, the numbers also show that the issue is by no means confined to rural areas.

Continued closures appear to be inevitable. Kaufman Hall’s research shows that a significant number of hospitals have signs of financial distress, with 40 percent losing money from operations and many more with unsustainably low margins. In 2023, almost one-third of announced hospital transactions involved a distressed party—the highest percentage in the past five years.

The circumstances leading to hospital closures are as serious as they are familiar: rising operating expenses, labor shortages, shifts from inpatient to outpatient care, high-cost technology, flattening reimbursement, an aging population, and population migration.

At the same time these forces are driving some hospitals toward financial distress, they can also create clinical and even safety concerns—including inpatient volume that is reduced to the point where quality may be compromised and an inability to maintain aging physical plants.

These forces are inexorable. Attempting to maintain the status quo is simply not a viable strategy. Unfortunately, a desire to protect the status quo is often what health systems encounter when attempting to close a hospital. This impulse toward protectionism is understandable. Community groups are concerned about losing access to care. Labor groups are worried about losing jobs. Political leaders are concerned about both, and about the continued economic strength of their localities.

In too many cases, these understandable concerns have the unintended consequence of keeping open a hospital that no longer effectively serves its community. In other cases, they make the process of necessary change unnecessarily painful and protracted.

The challenge for healthcare executives and community leaders alike is to figure out a new path forward—one that creates a clinically, operationally, and economically viable approach to providing needed access to high quality care but offers an alternative to complete hospital closure or to a facility continuing to exist in a state of distress.

Recently, we came across a man named Scott Keller, who has spent the past 28 years shaping and implementing what looks to me like a creative and workable path forward for many communities facing hospital closures.

The intellectual underpinning of Scott’s approach is to combine community health, economic development, and neighborhood planning. Through that lens, Scott and his team at Dynamis look to transform hospitals that are no longer viable into community hubs that he calls “Healthy Villages®.”

These hubs address a range of community needs that include some traditional healthcare services, but also social and other community services. They bring these services together—under one roof and extending into the neighborhood—into a careful system that creates an opportunity to develop new care models built on the foundation of value-based, population-based care, prioritizing health, prevention, and elimination of disparities and barriers to care. The aim is to treat the whole person in a walkable, thriving community.

At a macro level, Scott’s approach involves consolidating treatment services into a fraction of the square footage of the existing facility and leasing the remaining space to partners focused on social determinants of health, much like a successful multifaceted retail environment creates an excellent consumer experience.

From there, the hub integrates with other neighborhood partners such as senior housing providers, financial institutions for social-impact financing, and education providers to support workforce training.

Scott explained to us that the approach can be applied in settings from challenged urban neighborhoods to rural towns, at scales from neighborhoods to full towns, and in concert with initiatives such as a health system’s service-line planning. In addition, some of these hubs have unique sources of funding that support the community, funding not typically available to a traditional hospital.

Perhaps the most attractive quality of Scott’s approach is to shift the conversation about a distressed hospital from the binary close-or-don’t close to a thoughtful consideration of what it means to deliver healthcare in a setting that has difficulty supporting a particular hospital.

In doing so, Scott helps us focus on the true issue at hand. America’s economic, demographic, and technological forces are aligned in certain markets to challenge the adequacy of the traditional hospital. The question is not whether this group of hospitals will change, but how they will change.

In too many instances and too many locations, that hospital change becomes an enemy to be fought against, resulting in a transformation that is protractedly painful and that often ends poorly for all concerned. Scott’s approach is a welcome example of how organizations and communities, rather than clinging to the status quo, can apply creative thinking, broad participation, and systematic planning to shape a future that may turn out to be not an enemy, but a real and lasting improvement.

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