How to Move from a Holding Company to an Operating Company

It’s the key for health systems to achieve economies of scale

Recently, I had the distinct pleasure of participating in a panel at Becker’s Hospital Review 8th Annual Meeting with Khosrow Shotorbani, president and CEO of TriCore Reference Laboratories, Bill Santulli, EVP and COO of Advocate Health Care and Mark Dixon, president of The Mark Dixon Group and former regional president of Fairview Health Service. We spoke about the nationwide trend of health systems moving from a holding company model to an operating company model and all agreed that this trend will continue to accelerate.

Under the old, holding company model, decisions were typically made at the departmental or facility level. But under an operating company model, decision-making is centralized so that redundancy is reduced or eliminated system-wide. To achieve economies of scale, the focus should first be on standardizing non-clinical or purely administrative functions. We all agreed that standardization grows more difficult the closer it gets to clinicians and patients.

We know that health systems have faced intense margin pressure, and it’s escalating. Many hospitals and health systems are now working on initiatives to target a reduction in operating expenses by 15 to 30 percent over the next three to five years. Those are aggressive goals.

Centralization is about the idea that assets belong to a system, rather than the being the assets of Hospital A or B. Moving from a holding company to an operating company model is about shifting from a siloed vantage point to one that considers the system at large.

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