Hospital diversification: evaluating alternatives.

Abstract

The appropriateness of diversification as a growth strategy for hospitals is discussed, and planning for diversification is described. Because new forms of health-care delivery are now in direct competition with hospitals, many hospitals are confronting environmental pressures and preparing for future survival through diversification. To explore the potential risks and benefits of diversification, the hospital must identify opportunities for new business ventures. Diversification can be "related," through an expansion of the primary product line (health care), or "unrelated," into areas not directly associated with health care. The hospital must establish specific criteria for evaluating each diversification alternative, and the two or three most attractive options should be analyzed further through a financial feasibility study. The hospital should also seek legal advice to determine the implications of diversification for maintenance of tax status, antitrust limitations, and applicability of certificate of need. Although diversification may not be appropriate for every institution, hospitals should consider it as a strategy for increasing their revenue base, confronting environmental pressures, and securing future survival.