The news of Optum’s bid to acquire Amedisys came as a surprise — but it fits a larger theme of payers, particularly Medicare Advantage plans, looking to acquire assets to build out a home ecosystem.
In recent years, we’ve seen this play out in a number of ways, with some buyers finding success in their endeavors and others selling off the asset shortly after acquisition. While some buyers, including payers and other providers, have been able to capitalize on owning home health assets, others have struggled to benefit financially.
The drivers
When acquiring a home health agency, payers’ objectives are largely centered around operating costs and the ability to refer as many of their patients to these organizations as possible. If the agency is not delivering a return on investment or is unable to refer enough patients, payers are not afraid to divest and reevaluate structure.
Despite these varying outcomes, the race is on to acquire home-based care assets. We suspect there are two main reasons:
1. Home-based care is a cost-effective alternative
Payers want to direct their members from acute care back to the home without a skilled nursing stay. Especially for Medicare Advantage patients, there is a financial incentive to avoid sending patients to a skilled nursing facility (SNF).
Amid the push to improve patient quality, SNFs are often seen as a cost center that payers are eager to cut out — leading many to invest in home health agencies and services.
2. Home-based care operators need to grow their workforce
All home-based care operators, whether part of a payer organization or not, need to grow their workforce. According to our research, this was the number one factor hindering the expansion of home-based care.
By adding Amedisys’s workforce to their own existing home-based care workforce, Optum could help overcome this challenge.
Optum’s interest in Amedisys is also notable because of the diversity of services that Amedisys offers. Not only do they support home health, but they also offer hospital at home services through Contessa as well as home-based palliative and hospice care. That’s an attractive suite of services for a Medicare Advantage payer interested in offering more care in the home.
What we’ll be watching
It’s still unclear what will happen with Optum’s offer for Amedisys. Even if Amedisys agrees to the acquisition, the deal is likely to face FTC scrutiny. If that does happen, we’ll be watching to see whether Optum has to divest from any of Amedisys’ assets as part of an eventual deal.
With the continued rise in seniors who require skilled care — most of whom would prefer to age in the home — investments and divestments in the home health space will continue to make headlines.
Moving forward, we’ll be paying close attention to the outcomes of larger home health acquisitions by payer organizations.
Specifically, we’ll be watching to see if they’re able to successfully move their members away from facility-based care and into the home, both in terms of quality and the bottom line.
A new study from the American Cancer Society revealed a startling phenomenon in colorectal cancer: cases are trending younger while the severity of diagnoses is increasing. As shown in the graphic above, despite an overall reduction in the incidence of colorectal cancer—thanks to an emphasis on earlier detection and treatment—more severe diagnoses of colorectal cancer (termed “regional” and “distant”) each grew by over 30 percent in adults under age 50 from 2010 to 2019.
While researchers are still exploring the causes for the increase in younger people, it underscores the importance of new guidance from May 2021 which lowered the recommended colorectal cancer screening age from 50 to 45. One bright spot: unlike most other cancer screenings, screenings for colorectal cancer actually increased during the pandemic, thanks to the rise of at-home stool testing. Stool testing was especially common among lower income and minority populations who often struggle to access colonoscopies.
However, there is evidence that flagged patients are not scheduling critical follow-up colonoscopies. Better connection between at-home assessments and more thorough diagnostic services is a critical next step in the broader home-based care movement.
Last Friday, the Food and Drug Administration (FDA) granted emergency use authorization to the Lucira COVID-19 and Flu Test, making it the first at-home flu test approved for US consumers. The decision came just days after Lucira filed for Chapter 11 bankruptcy, blaming a protracted approval process for a test it had anticipated would be approved last August. As Lucira was unable to find a buyer prior to filing for bankruptcy, it remains unclear if the test will ever reach store shelves.
The Gist: While most Americans first experienced at-home viral testing with COVID, Europeans have used the same underlying technology to diagnose themselves with the flu at home for years. Lucira’s test was only approved because its capacity to detect COVID qualified it for emergency approval, and even then, approval took so long that the company began to falter. Many have questioned the FDA’s slow-walking of at-home diagnostics, especially now that Americans have demonstrated both the willingness and ability to swab their own noses.
With the locus of care shifting towards the home, and in an environment of cost-conscious consumers, the push for more at-home diagnostics will continue to grow.
Published last weekend in the New York Times Magazine, this wide-ranging article weaves the experiences of patients and providers within hospital-at-home programs into a broader examination of what hospital-level care at home could mean for the future of healthcare.
While the hospital-at-home movement is still small, provider interest grew sharply during the pandemic, and gave rise to Medicare’s Acute Hospital Care at Home waiver, providing 260 hospitals Medicare payment for the service. The article lays out the challenges hospital-at-home programs are still working to overcome, ranging from equity (rural hospitals have seen far less uptake of the Medicare waiver), labor models (National Nurses United, the largest union of registered nurses, opposes them), to the upfront investments required to stand up a program.
The Gist: Like telemedicine, hospital-at-home programs lingered on the fringes of care delivery before the federal COVID response delivered both the regulatory flexibility and the reimbursement needed to generate provider interest—and turbocharged start-ups providing support in implementing the model.
Despite growth in health system and payer interest, hospital-at-home programs are still not deployed widely, or at scale. Many physicians and patients either don’t understand or accept it as an alternative to inpatient hospitalization, despite the fact that patients and families who participate in the service largely report a high level of satisfaction.
But as the article points out, thebarriers to scaling hospital-at-home pilots—staffing models, quality control, and appropriate reimbursement—are ultimately financial.
There is no shortage of challenges to confront in healthcare today, from workforce shortages and burnout to innovation and health equity (and so much more). We’re committed to giving industry leaders a platform for sharing best practices and exchanging ideas that can improve care, operations and patient outcomes.
Check out this podcast interview with Ketul J. Patel, CEO at Virginia Mason Franciscan Health and division president, Pacific Northwest at CommonSpirit Health, for his insights on where healthcare is headed in the future.
In this episode, we are joined by Ketul J. Patel, Division President, Pacific Northwest; Chief Executive Officer, CommonSpirit Health; Virginia Mason Franciscan Health, to discuss his background & what led him to executive healthcare leadership, challenges surrounding workforce shortages, the importance of having a strong workplace culture, and more.
The executives featured in this article are all speaking at the Becker’s Healthcare 13th Annual Meeting April 3-6, 2023, at the Hyatt Regency in Chicago.
Question: What will hospitals and health systems look like in 10 years? What will be different and what will be the same?
Michael A. Slubowski. President and CEO of Trinity Health (Livonia, Mich.): In 10 years, inpatient hospitals will be more focused on emergency care, intensive/complex care following surgery or complex medical conditions, and short-stay/observation units. Only the most complex surgical cases and complex medical cases will be inpatient status. Most elective surgery and diagnostic services will be done in freestanding surgery, procedural and imaging centers. Many patients with chronic medical conditions will be managed at home using digital monitoring. More seniors will be cared for in homes and/or in PACE programs versus skilled nursing facilities.
Mark A. Schuster, MD, PhD. Founding Dean and Chief Executive Officer of Kaiser Permanente Bernard J. Tyson School of Medicine (Pasadena, Calif.): The future of hospitals might not actually unfold in hospitals. I expect that more and more of what we now do in hospitals will move into the home. The technology that makes this transition possible is already out there: Remote monitoring of vital signs and lab tests, remote visual exams, and videoconferencing with patients. And all of this technology will improve even more over the next 10 years — turning at-home care from a dream into a reality.
Imagine no longer being kept awake all night by beeps and alarms coming from other patients’ rooms or kept away from family by limited visiting hours. The benefits are especially welcome for people who live in rural places and other areas with limited medical facilities. Who knows? Maybe robotics will make some in-home surgeries not so far off!
Of course, not all patients have a safe or stable home environment where they could receive care, so hospitals aren’t going away anytime soon. I’m not suggesting that most current patients could be cared for remotely in a decade — but I do think we’re moving in that direction. So those of us who work in education will need to train medical, nursing, and other students for a healthcare future that looks quite different from the healthcare present and takes place in settings we couldn’t imagine 10 years ago.
Shireen Ahmad. System Director, Operations and Finance of CommonSpirit Health (Chicago): The biggest change I anticipate is a continuation in the decentralization of health services delivery that has typically been provided by hospitals. This will result in a reduction of hospitals with fewer services performed in acute settings and with more services provided in non-acute ones.
With recent reimbursement changes, CMS is helping to set the tone of where care is delivered. Hospitals are beginning to rationalize services, including who and where care is delivered. For example, pharmacies often carry clinics that provide vaccinations, but in France, one can go to a pharmacy for care and sterilization of minor wounds while only paying for bandages, medication and other supplies used in the visit. I would not be surprised if, in 10 years, one could get an MRI at their local Walmart or schedule routine screenings and tests at the grocery store with faster, more accurate results as they check out their produce.
If the pandemic has taught us anything, there will always be a need for acute care and our society will always need hospitals to provide care to sick patients. This is not something I would anticipate changing. However, the need to provide most care in a hospital will change with the result leading to fewer hospitals in total. Far from being a bleak outlook, however, I believe that healthier, sustainable health systems will prevail if they are able to provide a greater spectrum of care in broader settings focussing on quality and convenience.
Gerard Brogan. Senior Vice President and Chief Revenue Officer of Northwell Health (New Hyde Park, N.Y.): Operationally, hospitals and health systems will be more designed around the patient experience rather than the patient accommodating to the hospital design and operations. Specifically, more geared toward patient choice, shopping for services, and price competition for out-of-pocket expenses. In order to bring costs down, rational control of utilization will be more important than ever. Hopefully, we will be able to shrink the administrative costs of delivering care. Structurally, more care will continue to be done ambulatory, with hospitals having a greater proportion of beds having critical care capability and single rooms for infection control, putting pressure on the cost per square foot to operate. Sustainable funding strategies for safety net hospitals will be needed.
Mike Gentry. Executive Vice President and COO of Sentara Healthcare (Norfolk, Va.): During the next 10 years, more rural hospitals will become critical assessment facilities. The legislation will be passed to facilitate this transition. Relationships with larger sponsoring health systems will support easy transitions to higher acuity services as required. In urban areas, fewer hospitals with greater acuity and market share will often match the 50 percent plus market share of health plans. The ambulatory transition will have moved beyond only surgical procedures into outpatient but expanded historical medical inpatient status in ED/observation hubs.
The consumer/patient experience will be vastly improved. Investments in mobile digital applications will provide greatly enhanced communication, transparency of clinical status, timelines, the likelihood of expected outcomes and cost. Patients will proactively select from a menu of treatment options provided by predictive AI. The largest 10 health systems will represent 25 percent of the total U.S. acute care market share, largely due to consumer-centric strategic investments that have outpaced their competitors. Health systems will have vastly larger pharma operations/footprints.
Ketul J. Patel. CEO of Virginia Mason Franciscan Health (Seattle) and Division President, Pacific Northwest of CommonSpirit Health (Chicago): This is a transformative time in the healthcare industry, as hospitals and healthcare systems are evolving and innovating to meet the growing and changing needs of the communities we serve. The pandemic accelerated the digital transformation of healthcare. We have seen the proliferation of new technologies — telemedicine, artificial intelligence, robotics, and precision medicine — becoming an integral part of everyday clinical care. Healthcare consumers have become empowered through technology, with greater control and access to care than ever before.
Against this backdrop, in the next decade we’ll see healthcare consumerism influencing how health systems transform their hospitals. We will continue incorporating new technologies to improve healthcare delivery, offering more convenient ways to access high-quality care, and lowering the overall cost of care.
SMART hospitals, including at Virginia Mason Franciscan Health, are utilizing AI to harness real-time data and analysis to revolutionize patient and provider experiences and improve the quality of care. VMFH was the first health system in the Pacific Northwest to introduce a virtual hospital nearly a decade ago, which provides virtual services in the hospital across the continuum of care to improve quality and safety through remote patient monitoring and care delivery.
As hospitals become more high-tech, more nimble, and more efficient over the next 10 years, there will be less emphasis on brick-and-mortar buildings as we continue to move care away from the hospital toward more convenient settings for the patient. We recently launched VMFH Home Recovery Care, which brings all the essential elements of hospital-level care into the comfort and convenience of patients’ homes, offering a safe and effective alternative to the traditional inpatient stay.
Health systems and hospitals must simplify the care experience while reducing the overall cost of care. VMFH is building Washington state’s first hybrid emergency room/urgent care center, which eliminates the guesswork for patients unsure of where to go for care. By offering emergent and urgent care in a single location, patients get the appropriate level of care, at the right price, in one convenient location.
As healthcare delivery becomes more sophisticated in this digital age, we must not lose sight of why we do this work: our patients. There is no device or innovation that can truly replace the care and human intelligence provided by our nurses, APPs and physicians. So, while hospitals and health systems might look and feel different in 2033, our mission will remain the same: to provide exceptional, compassionate care to all — especially the most vulnerable.
David Sylvan. President of University Hospitals Ventures (Cleveland): American healthcare is facing an imperative. It’s clear that incremental improvements alone won’t manifest the structural outcomes that are largely overdue. The good news is that the healthcare industry itself has already initiated the disruption and self-disintermediation. I would hope that in the next 10 years, our offerings in healthcare truly reflect our efforts to adopt consumerism and patient choice, alleviate equity barriers and harness efficiencies while reducing time waste.
We know that some of this will come about through technology design, build and adoption, especially in the areas of generative artificial intelligence. But we also know that some of this will require a process overhaul, with learnings gleaned from other industries that have already solved adjacent challenges. What won’t change in 10 years will be the empathy and quality of care that the nation’s clinicians provide to patients and their caregivers daily.
Joseph Webb. CEO of Nashville (Tenn.) General Hospital: The United States healthcare industry operates within a culture that embraces capitalism as an economic system. The practice of capitalism facilitates a framework that is supported by the theory of consumerism. This theory posits that the more goods and services are purchased and consumed, the stronger an economy will be. With that in mind, healthcare is clearly a driver in the U.S. economy, and therefore, major capital and technology are continuously infused into healthcare systems. Healthcare is currently approaching 20 percent of the U.S. gross domestic product and will continue to escalate over the next 10 years.
Also, in 10 years, there will be major shifts in ownership structures, e.g., mergers, acquisitions, and consolidations. Many healthcare organizations/hospitals will be unable to sustain operations due to shrinking profit margins. This will lead to a higher likelihood of increasing closures among rural hospitals due to a lack of adequate reimbursement and rising costs associated with salaries for nurses, respiratory therapists, etc., as well as purchasing pharmaceuticals.
Aging baby boomers with chronic medical conditions will continue to dominate healthcare demand as a cohort group. To mitigate the rising costs of care, healthcare systems and providers will begin to rely even more heavily on artificial intelligence and smart devices. Population health initiatives will become more prevalent as the cost to support fragmented care becomes cost-prohibitive and payers such as CMS will continue to lead the way toward value-based care.
Because of structural and social conditions that tend to drive social determinants of health, which are fundamental causes of health disparities, achieving health equity will continue to be a major challenge in the U.S. Health equity is an elusive goal that can only be achieved when there is a more equitable distribution of SDOH.
Gary Baker. CEO, Hospital Division of HonorHealth (Scottsdale, Ariz.): In 10 years, I would expect hospitals in health systems to become more specialized for higher acuity service lines. Providing similar acute services at multiple locations will become difficult to maintain. Recruiting and retaining specialty clinical talent and adopting new technologies will require some redistribution of services to improve clinical quality and efficiency. Your local hospital may not provide a service and will be a navigator to the specialty facilities. Many services will be provided in ambulatory settings as technology and reimbursement allow/require. Investment in ambulatory services will continue for the next 10 years.
Michael Connelly. CEO Emeritus of Bon Secours Mercy Health (Cincinnati): Our society will be forced to embrace economic limits on healthcare services. The exploding elderly population, in combination with a shrinking workforce to fund Medicare/Medicaid and Social Security, will force our health system to ration care in new ways. These realities will increase the role of primary care as the needed coordinator of health services for patients. Diminishing fragmented healthcare and redundant care will become an increasing focus for health policy.
David Rahija. President of Skokie Hospital, NorthShore University HealthSystem (Evanston, Ill.): Health systems will evolve from being just a collection of hospitals, providers, and services to providing and coordinating care across a longitudinal care continuum. Health systems that are indispensable health partners to patients and communities by providing excellent outcomes through seamless, coordinated, and personalized care across a disease episode and a life span will thrive. Providers that only provide transactional care without a holistic, longitudinal relationship will either close or be consolidated. Care tailored to the personalized needs of patients and communities using team care models, technology, genomics, and analytics will be key to executing a personalized, seamless, and coordinated model of care.
Alexa Kimball, MD. President and CEO of Harvard Medical Faculty Physicians at Beth Israel Deaconess Medical Center (Boston): Ten years from now, hospitals will largely look the same — at least from the outside. Brick-and-mortar buildings aren’t going away anytime soon. What will differ is how care is delivered beyond the traditional four walls. Expect to see a more patient-centered and responsive system organized around what individuals need — when and where they need it.
Telehealth and remote patient monitoring will enable greater accessibility for patients in underserved areas and those who cannot get to a doctor’s office. Technology will not only enable doctors to deliver more personalized treatment plans but will also dramatically reshape physician workflows and processes. These digital tools will streamline administrative tasks, integrate voice commands, and provide more conducive work environments. I also envision greater access to data for both providers and patients. New self-service solutions for care management, scheduling, pricing, shopping for services, etc., will deliver a more proactive patient experience and make it easier to navigate their healthcare journey.
Ronda Lehman, PharmD. President of Mercy Health – Lima (Ohio):
This is a highly challenging question to address as we continue to reevaluate how healthcare is being delivered following several difficult years and knowing that financial challenges still loom. That said, when I am asked what it will look like, I am keenly aware of the fact that it only will look that way if we can envision a better way to improve the health of our communities. So 10 years from now, we need to have easier and more patient-driven access to care.
We will need to stop doing ‘to people’ and start caring ‘with people.’ Artificial intelligence and proliferous information that is readily available to consumers will continue to pave the way to patients being more empowered and educated about their options. So what will differentiate healthcare of the future? Enabling patients to make informed decisions.
Undoubtedly, technology will continue to advance, and along with it, the associated costs of research and development, but healthcare can only truly change if providers fundamentally shift their approach to how we care for patients. It is imperative that we need to transform from being the gatekeepers of valuable resources and services to being partners with patients on their journey. If that is what needs to be different, then what needs to be the same? We need the same highly motivated, highly skilled and perhaps most importantly, highly compassionate caregivers selflessly caring for one another and their communities.
Mike Young. President and CEO of Temple University Health System (Philadelphia): Cell therapy, gene therapy, and immunotherapy will continue to rapidly improve and evolve, replacing many traditional procedures with precise therapies to restore normal human function — either through cell transfer, altering of genetic information, or harnessing the body’s natural immune system to attack a particular disease like cancer, cystic fibrosis, heart disease, or diabetes. As a result, hospitals will decrease in footprint, while the labs dedicated to defining precision medicine will multiply in size to support individual- and disease-specific infusion, drug, and manipulative therapies.
Hospitals will continue to shepherd the patient journey through these therapies and also will continue to handle the most complex cases requiring high-tech medical and surgical procedures. Medical education will likely evolve in parallel, focusing more on genetic causation and treatment of disease, as well as proficiency with increasingly sophisticated AI diagnostic technologies to provide adaptive care on a patient-by-patient basis.
Tom Siemers. Chief Executive Officer of Wilbarger General Hospital (Vernon, Texas): My predictions include the national healthcare landscape will be dominated by a dozen or so large systems. ‘Consolidation’ will be the word that describes the healthcare industry over the next 10 years. Regional systems will merge into large, national systems. Independent and rural hospitals will become increasingly rare. They simply won’t be able to make the capital investments necessary to replace outdated facilities and equipment while vying with other organizations for scarce, licensed personnel.
Jim Heilsberg. CFO of Tri-State Memorial Hospital & Medical Campus (Clarkston, Wash.): Tri-State Hospital continues to expand services for outpatient services while maintaining traditionally needed inpatient services. In 10 years, there will be expanded outpatient services that include leveraged technology that will allow the patient to be cared for in a yet-to-be-seen care model, including traditional hospital settings and increasing home care setting solutions.
Jennifer Olson. COO of Children’s Minnesota (St. Paul, Minn.): I believe we will see more and better access to healthcare over the next 10 years. Advances in diagnostics, monitoring, and artificial intelligence will allow patients to access services at more convenient times and locations, including much more frequently at home, thereby extending health systems’ reach well beyond their walls.
What I don’t think will ever change is the heart our healthcare professionals bring with them to work every day. I see it here at Children’s Minnesota and across our industry: the unwavering commitment our caregivers have to help people live healthier lives.
If I had one wish for the future, it would be that we become better equipped to address the social determinants of health: all of the factors outside the walls of our hospitals and clinics that affect our patients’ well-being. Part of that means relaxing regulations to allow better communication and sharing of information among healthcare providers and public and private entities, so we can take a more holistic approach to improve health and decrease disparities. It also will require a fundamental shift in how health and healthcare are paid for.
Stonish Pierce. COO of Holy Cross Health, Trinity Health Florida: Over the next decade, many health systems will pivot from being ‘hospital’ systems to true ‘health’ systems. Based largely on responding to The Joint Commission’s New Requirements to Reduce Health Care Disparities, many health systems will place greater emphasis on reducing health disparities, enhanced attention to providing culturally competent care, addressing social determinants of health (including, but not limited to food, housing and transportation) and health equity. I’m proud to work for Trinity Health, a system that has already directed attention toward addressing health disparities, cultural competency and health equity.
Many systems will pivot from offering the full continuum of services at each hospital and instead focus on the core services for their respective communities, which enables long-term financial sustainability. At the same time, we will witness the proliferation of partnerships as adept health systems realize that they cannot fulfill every community’s needs alone. Depending upon the specialty and region of the country, we may see some transitioning away from the RVU physician compensation model to base salaries and value-based compensation to ensure health systems can serve their communities in the long term.
Driven largely by continued workforce supply shortages, we will also see innovation achieve its full potential. This will include, but not be limited to, virtual care models, robots to address functions currently performed by humans, and increased adoption of artificial intelligence and remote monitoring. Healthcare overall will achieve parity in technological adoption and innovation that we take for granted and have grown accustomed to in industries such as banking and the consumer service industries.
For what will remain the same, we can anticipate that government reimbursement will still not cover the cost of providing care, although systems will transition to offering care models and services that enable the best long-term financial sustainability. We will continue to see payers and retail pharmacies continue to evolve as consumer-friendly providers. We will continue to see systems make investments in ambulatory care and the most critically ill patients will remain in our hospitals.
Jamie Davis. Executive Director, Revenue Cycle Management of Banner Health (Phoenix): I think that we will see a continued shift in places of service to lower-cost delivery sources and unfavorable payer mix movement to Medicare Advantage and health exchange plans, degrading the value of gross revenue. The increased focus on cost containment, value-based care, inflation, and pricing transparency will hopefully push payers and providers to move to a more symbiotic relationship versus the adversarial one today. Additionally, we may see disruption in the technology space as the venture capital and private equity purchase boom that happened from 2019 to 2021 will mature and those entities come up for sale. If we want to continue to provide the best quality health outcomes to our patients and maintain profitability, we cannot look the same in 10 years as we do today.
James Lynn. System Vice President, Facilities and Support Services of Marshfield Clinic Health System (Wis.): There will be some aspects that will be different. For instance, there will be more players in the market and they will begin capturing a higher percentage of primary care patients. Walmart, Walgreens, CVS, Amazon, Google and others will begin to make inroads into primary care by utilizing VR and AI platforms. More and more procedures will be the same day. Fewer hospital stays will be needed for recovery as procedures become less invasive and faster. There will be increasing pressure on the federal government to make healthcare a right for all legal residents and it will be decoupled from employment status. On the other hand, what will stay the same is even though hospital stays will become shorter for some, we will also be experiencing an ever-aging population, so the same number of inpatient beds will likely be needed.
Understand the health care industry’s most urgent challenges—and greatest opportunities.
The health care industry is facing an increasingly tough business climate dominated by increasing costs and prices, tightening margins and capital, staffing upheaval, and state-level policymaking. These urgent, disruptive market forces mean that leaders must navigate an unusually high number of short-term crises.
But these near-term challenges also offer significant opportunities. The strategic choices health care leaders make now will have an outsized impact—positive or negative—on their organization’s long-term goals, as well as the equitability, sustainability, and affordability of the industry as a whole.
This briefing examines the biggest market forces to watch, the key strategic decisions that health care organizations must make to influence how the industry operates, and the emerging disruptions that will challenge the traditional structures of the entire industry.
Preview the insights below and download the full executive briefing (using the link above) now to learn the top 16 insights about the state of the health care industry today.
Preview the insights
Part 1 | Today’s market environment includes an overwhelming deluge of crises—and they all command strategic attention
Insight #1
The converging financial pressures of elevated input costs, a volatile macroeconomic climate, and the delayed impact of inflation on health care prices are exposing the entire industry to even greater scrutiny over affordability. Keep reading on pg. 6
Insight #2
The clinical workforce shortage is not temporary. It’s been building to a structural breaking point for years. Keep reading on pg. 8
Insight #3
Demand for health care services is growing more varied and complex—and pressuring the limited capacity of the health care industry when its bandwidth is most depleted. Keep reading on pg. 10
Insight #4
Insurance coverage shifted dramatically to publicly funded managed care. But Medicaid enrollment is poised to disperse unevenly after the public health emergency expires, while Medicare Advantage will grow (and consolidate). Keep reading on pg. 12
Part II | Competition for strategic assets continues at a rapid pace—influencing how and where patient care is delivered.
Insight #5
The current crisis conditions of hospital systems mask deeper vulnerabilities: rapidly eroding power to control procedural volumes and uncertainty around strategic acquisition and consolidation. Keep reading on pg. 15
Insight #6
Health care giants—especially national insurers, retailers, and big tech entrants—are building vertical ecosystems (and driving an asset-buying frenzy in the process). Keep reading on pg. 17
Insight #7
As employment options expand, physicians will determine which owners and partners benefit from their talent, clinical influence, and strategic capabilities—but only if these organizations can create an integrated physician enterprise. Keep reading on pg. 19
Insight #8
Broader, sustainable shifts to home-based care will require most care delivery organizations to focus on scaling select services. Keep reading on pg. 21
Insight #9
A flood of investment has expanded telehealth technology and changed what interactions with patients are possible. This has opened up new capabilities for coordinating care management or competing for consumer attention. Keep reading on pg. 23
Insight #10
Health care organizations are harnessing data and incentives to curate consumers choices—at both the service-specific and ecosystem-wide levels. Keep reading on pg. 25
Part III | Emerging structural disruptions require leaders to reckon with impacts to future business sustainability.
Insight #11
For value-based care to succeed outside of public programs, commercial plans and providers must coalesce around a sustainable risk-based payment approach that meets employers’ experience and cost needs. Keep reading on pg. 28
Insight #12
Industry pioneers are taking steps to integrate health equity into quality metrics. This could transform the health care business model, or it could relegate equity initiatives to just another target on a dashboard. Keep reading on pg. 30
Insight #13
Unprecedented behavioral health needs are hitting an already fragmented, marginalized care infrastructure. Leaders across all sectors will need to make difficult compromises to treat and pay for behavioral health like we do other complex, chronic conditions. Keep reading on pg. 32
Insight #14
As the population ages, the fragile patchwork of government payers, unpaid caregivers, and strained nursing homes is ill-equipped to provide sustainable, equitable senior care. This is putting pressure on Medicare Advantage plans to ultimately deliver results. Keep reading on pg. 34
Insight #15
The enormous pipeline of specialized high-cost therapies in development will see limited clinical use unless the entire industry prepares for paradigm shifts in evidence evaluation, utilization management, and financing. Keep reading on pg. 36
Insight #16
Self-funded employers, who are now liable for paying “reasonable” amounts, may contest the standard business practices of brokers and plans to avoid complex legal battles with poor optics. Keep reading on pg. 38
The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.
In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.
As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.
Radio Advisory’s Rachel Woods sat down with Optum EVP Dr. Jim Bonnette to discuss the sustainability of modern-day hospitals and why scaling down might be the best strategy for a stable future.
Rachel Woods:When I talk about hospitals of the future, I think it’s very easy for folks to think about something that feels very futuristic, the Jetsons, Star Trek, pick your example here. But you have a very different take when it comes to the hospital, the future, and it’s one that’s perhaps a lot more streamlined than even the hospitals that we have today. Why is that your take?
Jim Bonnette: My concern about hospital future is that when people think about the technology side of it, they forget that there’s no technology that I can name that has lowered health care costs that’s been implemented in a hospital. Everything I can think of has increased costs and I don’t think that’s sustainable for the future.
And so looking at how hospitals have to function, I think the things that hospitals do that should no longer be in the hospital need to move out and they need to move out now. I think that there are a large number of procedures that could safely and easily be done in a lower cost setting, in an ASC for example, that is still done in hospitals because we still pay for them that way. I’m not sure that’s going to continue.
Woods: And to be honest, we’ve talked about that shift, I think about the outpatient shift. We’ve been talking about that for several years but you just said the change needs to happen now. Why is the impetus for this change very different today than maybe it was two, three, four, five years ago? Why is this change going to be frankly forced upon hospitals in the very near future, if not already?
Bonnette: Part of the explanation is regarding the issues that have been pushed regarding price transparency. So if employers can see the difference between the charges for an ASC and an HOPD department, which are often quite dramatic, they’re going to be looking to say to their brokers, “Well, what’s the network that involves ASCs and not hospitals?” And that data hasn’t been so easily available in the past, and I think economic times are different now.
We’re not in a hyper growth phase, we’re not where the economy’s performing super at the moment and if interest rates keep going up, things are going to slow down more. So I think employers are going to become more sensitized to prices that they haven’t been in the past. Regardless of the requirements under the Consolidated Appropriations Act, which require employers to know the costs, which they didn’t have to know before. They’re just going to more sensitive to price.
Woods: I completely agree with you by the way, that employers are a key catalyst here and we’ve certainly seen a few very active employers and some that are very passive and I too am interested to see what role they play or do they all take much more of an active role.
And I think some people would be surprised that it’s not necessarily consumers themselves that are the big catalyst for change on where they’re going to get care, how they want to receive care. It’s the employers that are going to be making those decisions as purchasers themselves.
Bonnette: I agree and they’re the ultimate payers. For most commercial insurance employers are the ultimate payers, not the insurance companies. And it’s a cost of care share for patients, but the majority of the money comes from the employers. So it’s basically cutting into their profits.
Woods: We are on the same page, but I’m going to be honest, I’m not sure that all of our listeners are right. We’re talking about why these changes could happen soon, but when I have conversations with folks, they still think about a future of a more consolidated hospital, a more outpatient focused practice is something that is coming but is still far enough in the future that there’s some time to prepare for.
I guess my question is what do you say to that pushback? And are there any inflection points that you’re watching for that would really need to hit for this kind of change to hit all hospitals, to be something that we see across the industry?
Bonnette: So when I look at hospitals in general, I don’t see them as much different than they were 20 years ago. We have talked about this movement for a long time, but hospitals are dragging their feet and realistically it’s because they still get paid the same way until we start thinking about how we pay differently or refuse to pay for certain kinds of things in a hospital setting, the inertia is such that they’re going to keep doing it.
Again, I think the push from employers and most likely the brokers are going to force this change sooner rather than later, but that’s still probably between three and five years because there’s so much inertia in health care.
On the other hand, we are hitting sort of an unsustainable phase of cost. The other thing that people don’t talk about very much that I think is important is there’s only so many dollars that are going to health care.
And if you look at the last 10 years, the growth in pharmaceutical spend has to eat into the dollars available for everybody else. So a pharmaceutical spend is growing much faster than anything else, the dollars are going to come out of somebody’s hide and then next logical target is the hospital.
Woods: And we talked last week about how slim hospital margins are, how many of them are actually negative. And what we didn’t mention that is top of mind for me after we just come out of this election is that there’s actually not a lot of appetite for the government to step in and shore up hospitals.
There’s a lot of feeling that they’ve done their due diligence, they stepped in when they needed to at the beginning of the Covid crisis and they shouldn’t need to again. That kind of savior is probably not their outside of very specific circumstances.
Bonnette: I agree. I think it’s highly unlikely that the government is going to step in to rescue hospitals. And part of that comes from the perception about pricing, which I’m sure Congress gets lots of complaints about the prices from hospitals.
And in addition, you’ll notice that the for-profit hospitals don’t have negative margins. They may not be quite as good as they were before, but they’re not negative, which tells me there’s an operational inefficiency in the not for-profit hospitals that doesn’t exist in the for-profits.
Woods: This is where I wanted to go next. So let’s say that a hospital, a health system decides the new path forward is to become smaller, to become cheaper, to become more streamlined, and to decide what specifically needs to happen in the hospital versus elsewhere in our organization.
Maybe I know where you’re going next, but do you have an example of an organization who has had this success already that we can learn from?
Bonnette: Not in the not-for-profit section, no. In the for-profits, yes, because they have already started moving into ambulatory surgery centers. So Tenet has a huge practice of ambulatory surgery centers. It generates high margins.
So, I used to run ambulatory surgery centers in a for-profit system. And so think about ASCs get paid half as much as a hospital for a procedure, and my margin on that business in those ASCs was 40% to 50%. Whereas in the hospital the margin was about 7% and so even though the total dollars were less, my margin was higher because it’s so much more efficient. And the for-profits already recognize this.
Woods: And I’m guessing you’re going to tell me you want to see not-for-profit hospitals make these moves too? Or is there a different move that they should be making?
Bonnette: No, I think they have to. I think there are things beyond just ASCs though, for example, medical patients who can be treated at home should not be in the hospital. Most not-for-profits lose money on every medical admission.
Now, when I worked for a for-profit, I didn’t lose money on every Medicare patient that was a medical patient. We had a 7% margin so it’s doable. Again, it’s efficiency of care delivery and it’s attention to detail, which sometimes in a not-for-profit friends, that just doesn’t happen.
Driven in large part by the growth of Medicare Advantage, a number of startups are vying to create the next value-based care model for senior care in patients’ homes, Axios’ Sarah Pringle reports.
Why it matters: As we recently reported in our Elder Care Crisis Deep Dive, there is a shortfall of enough cash and caregivers to handle the massive amount of aging baby boomers reaching their senior years.
“The cool thing about value-based care?” General Atlantic managing director Robb Vorhoff said. “There’s hundreds of business models.”
Reality check: Scaling remains a challenge for new models looking to shake up the senior care market.
“There are a lot of options out there that you don’t know about,” Town Hall Venture’s Andy Slavitt says. “Some are the best-kept secrets; some are not worth knowing about.”
Be smart: While most elderly adults would prefer to age in place, there is still a need for institutional care settings like nursing homes, which presents its own major challenges, Sarah writes.
HENRY KOTULA 