For Hospitals, the Future’s not a Repeat of the Past

Last week was quite a week:

• The U.S. announced a peace deal with Iran to which Iranian officials denied knowledge.
• The strait of Hormuz opened, then closed.
• The stock market soared then fell.
• The President signed an Executive Order to loosen restrictions on psychedelic drugs.
• Vax skeptic HHS Secretary Kennedy nominated vax supporter Erica Swartz, MD, to head the CDC.
• The Centers for Medicare and Medicaid Services (CMS) announced its proposed Medicare inpatient hospital services reimbursement would increase 2.4% in fiscal 2027.
• Two members of the House of Representatives announced their resignations—both due to sexual impropriety (stupidity).
• And pundits were busy justifying or challenging polling showing a Trump Slump.

That’s the context for meetings this week in DC between hospital leaders and Members of Congress as part of the American Hospital Association’s Annual Meeting. Though much of the legislative agenda for hospitals has shifted to states, federal issues still matter, especially funding in the FY 2027 federal budget and appropriations to key departments and programs.

Hospitals are on the defensive in DC. On behalf of its members and in concert with its peers (FAH, CHA, AEH, et al) they’re seeking…….

• Protection against 340B cuts.
• Protection against site neutral payments.
• Protection against competition from physician owned hospitals.
• Protection against “corporate insurer” business practices.
• Protection against unwanted regulation that disrupt their “normal” business practices
• Protection against price gauging by drug companies.
• Protection against reduced tax exemptions for not-for-profit hospitals.
• Protection against funding cuts in the FY2027 federal budget.

And others.

Per AHA President and CEO: “The timing of our presence and voice in Washington is especially important this year. Health care affordability remains in the spotlight. Congress is discussing the prospects of one or two more reconciliation packages this year, even as we are asking them to examine the overreach and mitigate certain health care provisions from last year’s package. And we are 199 days from the midterm elections…” (AHA Today April 17, 2026)

The reality is this: hospitals have lost much of the good will they earned during the pandemic. Pushback by AHA against hospital price transparency, site neutral payments, 340B changes et al. have been successful. But heightened visibility about executive compensation, profitability, tax exemptions, private equity ownership concerns and for-profit venture-development has eroded Congressional favor, exacerbated nurse and physician burnout and lessened community support. AHA is aware.

In 2024, AHA and its coalition changed the name of its public-relations campaign from the Coalition to Protect America’s Health Care to Coalition to Strengthen America’s Healthcare to “… support the Coalition’s expanded capacity as a proactive, always-on organization dedicated to positively shaping public perception of hospitals and health systems, neutralizing opposition attacks, and holding corporate payers accountable for their role in delaying and denying care while driving up overall health care costs.” For AHA and most hospitals, it’s been an uphill battle against think tanks (West Health, Lown et al), investigative journalists (WSJ, NYT, STAT, Modern Healthcare) and competing interests, especially insurers and private investors, who see hospitals as protectors of the past rather than designers of healthcare’s future.

To restore trust and garner good will among employees, employed physicians, local and national employers, elected officials and community leaders, hospital leaders in DC should engage Congress in several areas usually not discussed:

Proactive education targeted to key constituents explaining how hospitals operate including actual costs, AI applications, et al and notable inefficiencies. Asking for money or regulatory relief is not enough. The public’s ignorant about how hospitals operate!

Long-range planning: Hospital boards tend to plan for NOW and NEAR to but spend inadequate time on FAR. Understanding long-term changes in clinical care, technology, regulatory and economic realities are keys to preparedness. And, like capital and facility plans, executive compensation should be linked directly to organizational readiness for long-term changes along with short-term financials). Long-term planning is not a luxury or distraction; it’s necessary.

Systemness: Hospitals should lead in the design of local/regional “systems of health” that provide a full range of needed health services affordably, rationalizes resources appropriately, is connected includes health, social services and funding programmatically. They’re the logical partner with government to integrate health and social services and, as a result, reduce fragmentation and waste. No excuses.

Workforce: Hospitals should modernize workforce plans to maximize technology-enabled consumer self-care, expand mid-level opportunities, facilitate AI-enabled administrative and clinical process improvements and compensate based on merit and performance.

Consumers including patients: Hospitals and AHA should embrace “healthcare consumerism” actualize its centricity in interactions with individuals who use its services. Competition in a value-based system of health depends on customized engagement with consumers.

Positioning: And hospitals must temper the “blame and shame” game against insurers, drug companies and demonstrate leadership in affordability, administrative waste reduction and optimal resource rationalization. Being their target is understandable: hospitals are 31% of direct spending and, with employed physicians, ancillaries and diversified interests, responsible for at least 55% of the U.S. health economy.

I acknowledge hospitals are uniquely complex organizations—labor intense, capital intense and highly regulated by states and the federal government. Events like last week’s add to uncertainty about their future but efforts to “protect” their status quo are ill-conceived. It’s time for AHA and its followers to plan beyond clinical innovations, technologies and the current regulatory and political environment. Otherwise, most hospitals will be public utilities.

I do not think the future of the U.S. health system will be a repeat of its past. That’s good news and bad news for hospitals.

Paul

PS: Each week, I try to distill lag and lead indicators from the Clinical Care, Technology, Capital, Funding, Consumer and Regulatory environments of consequence to healthcare insiders. What’s abundantly clear is that outside forces—economic, political, global—will impact U.S. healthcare future more than its internal dynamics. The future for hospitals is not a repeat of their past: that’s clear. What’s unclear is who will shape that future and what role hospitals will play.

Why Those Outside Healthcare Control its Future

I study the future of the U.S. health system. The framework I use is based on monitoring trends, lag and lead indicators in five zones of unique relevance in the health industry at home and abroad:

• Clinical innovations that produce new diagnostics, therapeutics & methods of care.
• Technologies that improve how processes and decision-making (clinical/administrative) are made, by whom and where.
• Regulations (and politics) that set boundaries, define roles, appropriate public funds, protect public interests and facilitate (or not) competition.
• Capital markets (public and private) that enable funding, define access (credit) and determine costs of capital (monetary & fiscal policies, interest rates).
• Consumers who use and purchase health products and services and vote on health issues.

Based on 30 years-plus years of applying this framework to my industry surveillance process, it’s clear that traditional lag indictors like enrollment, utilization, spending, workforce supply-demand et al are less useful in predicting its future. Instead, indicators from outside healthcare seem more aligned to its future than indicators from within. Why?

• Technologies developed outside healthcare now control the system’s processes and pace of adoption. Technologies are solving problems that legacy healthcare has struggled to address. AI-enabled point solutions are reducing administrative cost and inappropriate clinical variation. Private capital is funding cheaper, and better remedies without permission of insiders.
• The public’s receptive. Public satisfaction with the status quo has plummeted. Expectations have changed. Affordability concerns have been neglected by insiders. Non-healthcare employers are fed-up. And voters are receptive to solutions insiders fear.
• Regulators are changing the rules. Partisan brinksmanship on most contentious healthcare issues has intensified. The Trump administration’s health apparatus (legislative priorities, executive orders, judicial appointments) embraces price transparency, competition, and necessary spending cuts due years of fraud, waste and abuse. And it is facilitating a dramatic increase in state responsibility for implementing and funding its policies.

Objectively, the reality is this: the players outside healthcare including Big Tech, Big Banks and Big Employers are forcing changes faster than healthcare insiders are comfortable and the health system’s future is uncertain as a result. Boards of most healthcare organizations inadequately evaluate future state options due to urgent issues that require attention and/or lack of CEO interest. And in many, long-range planning is relegated to 5-year capital plans and program portfolio updates. Radical change is dismissed, and executive compensation is set accordingly.

Will the health system change radically? Or will it incrementally evolve? To facilitate meaningful discussion,  at least three future state possibilities merit deliberation by leaders:

Big Public-Small Private: By 2040, federal and state governments fund 85% of health services funds contracting with private hospitals, medical groups and other providers based on evidence-based performance standards of quality, costs and access. Funding will be sourced from individual and employer taxes while a small percentage of the population will purchase services in a separate, smaller private market. Medicare, Medicaid, CHIP and Social Security programs will be combined (eventually) and budgets will be capped. Note: this model already in place in many developed systems i.e. Canada, UK, et al and is considered an incremental change to the status quo akin to “Medicare for Most” proponents.

Retail health: By 2040, employer tax deductions for employee health benefits are eliminated as a result of employer dissatisfaction with costs and cost shifting by providers based on underpayments by Medicaid and Medicare. Individuals are responsible for purchasing individual insurance and choosing and paying for the doctors, hospitals, medications and ancillary services they use. Note: many economists believe the unintended consequence of third-party health insurance is unnecessary waste, costs and marginalization of consumer choice in healthcare. Forced consumerism, they argue, would bring discipline to health spending. Critics (including most physicians) counter consumers are incapable of smart shopping for their health needs. This option represents a transformational change to the health system wherein its economy is based on retail health.

Restructure: By 2040, system restructuring to reset its focus.  The health system’s structure is its major barrier to change. Horizontal consolidation dominant now in most sectors represents a defensive maneuver whereby insiders protect against restructure by imposing its muscle-strength. Current incentives reward specialty providers, inpatient and outpatient services, patent protected specialty drugs, institutional senior care and separate financing and delivery systems. At the same time, they discourage needed investment in behavioral health, enabling of mid-level providers, incentives based on value (costs + outcomes), community-based integration of health and social services programs and guided self-care. Systemic restructure is necessary but unlikely until and unless demanded by community leaders, elected officials and private investors. In the interim, vertically integrated community health organizations will be surrogates for wider adoption.

No one knows for sure what healthcare’s future will be, but all recognize the status quo is not sustainable. Ownership status (for-profit vs. not-for-profit) will matter less and affordability will matter more.  Regulation will increase and states will play a larger role. And base rates for reimbursement will decreasingly be based on Medicare rate setting.

Protecting the status quo is not a solution. Failure to seriously evaluate future state options is professional malpractice. Outsiders want results, not excuses.

In US Healthcare, It’s Incrementalism before Transformation by Necessity

This will be a quiet week for healthcare in DC with major hearings, confirmations and legislative votes not scheduled.

Last week was relatively calm as well. The House Ways and Means Committee heard testimony from hospital CEOs of HCA, ECU Health, Common Spirit and NY Presbyterian featuring accusations of price gauging and unnecessary costs. And a study that found an OpenAI model outperformed doctors in diagnostic reasoning stirred attention in the physician and healthcare tech worlds where AI’s a dirty word to some and salvation to others.

But, for healthcare, it was an uncharacteristic quiet week. No shutdown announcements akin to Spirit’s 2 a.m. Saturday advisory “winding down all operations.”  No strikes by nurses or new megadeal announcements. No public announcements from CMS on new alternative payment models or final rules on reimbursement. But It’s a temporary calm before the tsunami building offshore. It’s the cumulative result of four convergent forces each capable of destabilizing the health economy on its own:

• The One Big Beautiful Bill (HR1) Medicaid cuts and work requirements start January 1, 2027: states are scrambling to be ready.
• Economists expect prices for gas, food and energy to be high into next year as a result of the war in Iran. Consumer confidence is at a modern-era low.
• The labor market is shifting toward the AI economy where server farms and worker displacement are immediate foci.
• And polling shows public erosion of trust and confidence in America’s major institutions at a 40-year low including its health system, Congress and even organized religion.

U.S. healthcare has much to be proud of: we justifiably tout our breakthrough meds and devices, Star Ratings, Top 100 lists and modern buildings. We remind legislators we’re the biggest private sector employer in the U.S. economy and, at every opportunity, our economic impact on communities. And, in every sector of our $5.6 trillion industry, we’re now talking about affordability (without defining it).

In April, I met with several health system Boards, limited partners in 2 healthcare investment funds and health officials in 3 states. The sentiments are the same: they’re concerned about the future and preparing for the worst. They’re asking their leaders and corporate strategists to do the impossible—avert the storm, at least for a little while. They’re confident public funds for healthcare are already stretched with no relief in sight. And they’re attempting contingency planning knowing their efforts might be moot given political volatility in DC and states.

Understandably, the appetite for risk taking in organizations and government agencies like these is relatively low. It’s safer to consolidate horizontally than vertically, cut costs, change incentives, modify reg’s slightly than attempt “newer, better, cheaper” solutions to well-known problems. Old playbooks are dependable. And, for healthcare’s operators, radical incrementalism disguised as transformation has served its interests well for 50 years as spending grew from 9% of the GDP in 1980 to 18% today. Bigger players in each sector have done well and pay their executives to keep it that way while the smaller players are collapsing.

Transformation of the system, and a clear destiny for its future are secondary to self-preservation in US healthcare today. Our investors and lenders expect it, Board compensation committees reward it, and our workforce depends on it.

Thus, until and unless elected officials, large (non-healthcare) employers and concerned community leaders act, it will not happen. And if neglected, the entire system will collapse in the next 10 years.

It’s a possibility few Boards of healthcare organizations seriously consider but growing numbers of concerned citizens fear. Like Spirit Airlines passengers and its 17,000 employees are experiencing, they’re SOL.

Paul

PS: I am in Alaska this week with the Southcentral Foundation, the Alaska Native-owned 501(c)(3) nonprofit that provides comprehensive outpatient and inpatient services to more than 70,000 Alaska Native and American Indian peoples living in the Indian Health Service’s Anchorage Service Unit. Two features of how SCF operates impress me: its purposeful blending of physical, mental, emotional and spiritual wellness in care management, and its Nuka System of Care ownership model in which individuals are customer owners, not patients. There are lessons to be learned from both.