Tuesday, the, FTC, and DOJ announced creation of a task force focused on tackling “unfair and illegal pricing” in healthcare. The same day, HHS joined FTC and DOJ regulators in launching an investigation with the DOJ and FTC probing private equity’ investments in healthcare expressing concern these deals may generate profits for corporate investors at the expense of patients’ health, workers’ safety and affordable care.
Thursday’s State of the Union address by President Biden (SOTU) and the Republican response by Alabama Senator Katey Britt put the spotlight on women’s reproductive health, drug prices and healthcare affordability.
Friday, the Senate passed a $468 billion spending bill (75-22) that had passed in the House Wednesday (339-85) averting a government shutdown. The bill postpones an $8 billion reduction in Medicaid disproportionate share hospital payments for a year, allocates $4.27 billion to federally qualified health centers through the end of the year and rolls back a significant portion of a Medicare physician pay cut that kicked in on Jan. 1. Next, Congress must pass appropriations for HHS and other agencies before the March 22 shutdown.
And all week, the cyberattack on Optum’s Change Healthcare discovered February 21 hovered as hospitals, clinics, pharmacies and others scrambled to manage gaps in transaction processing. Notably, the American Hospital Association and others have amplified criticism of UnitedHealth Group’s handling of the disruption, having, bought Change for $13 billion in October, 2022 after a lengthy Department of Justice anti-trust review. This week, UHG indicates partial service of CH support will be restored. Stay tuned.
Just another week for healthcare: Congressional infighting about healthcare spending. Regulator announcements of new rules to stimulate competition and protect consumers in the healthcare market. Lobbying by leading trade groups to protect funding and disable threats from rivals. And so on.
At the macro level, it’s understandable: healthcare is an attractive market, especially in its services sectors. Since the pandemic, prices for services (i.e. physicians, hospitals et al) have steadily increased and remain elevated despite the pressures of transparency mandates and insurer pushback. By contrast, prices for most products (drugs, disposables, technologies et al) have followed the broader market pricing trends where prices for some escalated fast and then dipped.
While some branded prescription medicines are exceptions, it is health services that have driven the majority of health cost inflation since the pandemic.
UnitedHealth Group’s financial success is illustrative:
it’s big, high profile and vertically integrated across all major services sectors. In its year end 2023 financial report (January 12, 2024) it reported revenues of $371.6 Billion (up 15% Year-Over-Year), earnings from operations up 14%, cash flows from operations of $29.1 Billion (1.3x Net Income), medical care ratio at 83.2% up from 82% last year, net earnings of $23.86/share and adjusted net earnings of $25.12/share and guidance its 2024 revenues of $400-403 billion. They buy products using their scale and scope leverage to pay less for services they don’t own less and products needed to support them. It’s a big business in a buyer’s market and that’s unsettling to many.
Big business is not new to healthcare:
it’s been dominant in every sector but of late more a focus of unflattering regulator and media attention. Coupled with growing public discontent about the system’s effectiveness and affordability, it seems it’s near a tipping point.
David Johnson, one of the most thoughtful analysts of the health industry, reminded his readers last week that the current state of affairs in U.S. healthcare is not new citing the January 1970 Fortune cover story “Our Ailing Medical System”
“American medicine, the pride of the nation for many years, stands now on the brink of chaos. To be sure, our medical practitioners have their great moments of drama and triumph. But much of U.S. medical care, particularly the everyday business of preventing and treating routine illnesses, is inferior in quality, wastefully dispensed, and inequitably financed…
Whether poor or not, most Americans are badly served by the obsolete, overstrained medical system that has grown up around them helter-skelter. … The time has come for radical change.”
Johnson added: “The healthcare industry, however, cannot fight gravity forever. Consumerism, technological advances and pro-market regulatory reforms are so powerful and coming so fast that status-quo healthcare cannot forestall their ascendance. Properly harnessed, these disruptive forces have the collective power necessary for U.S. healthcare to finally achieve the 1970 Fortune magazine goal of delivering “good care to every American with little increase in cost.”
He’s right.
I believe the U.S. health system as we know it has reached its tipping point. The big-name organizations in every sector see it and have nominal contingency plans in place; the smaller players are buying time until the shoe drops. But I am worried.
I am worried the system’s future is in the hands of hyper-partisanship by both parties seeking political advantage in election cycles over meaningful creation of a health system that functions for the greater good.
I am worried that the industry’s aversion toprice transparency, meaningful discussion about affordability and consistency in defining quality, safety and value will precipitate short-term gamesmanship for reputational advantage and nullify systemness and interoperability requisite to its transformation.
I am worried that understandably frustrated employers will drop employee health benefits to force the system to needed accountability.
I am worried that the growing armies of under-served and dissatisfied populations will revolt.
I am worried that its workforce is ill-prepared for a future that’s technology-enabled and consumer centric.
I am worried that the industry’s most prominent trade groups are concentrating more on “warfare” against their rivals and less about the long-term future of the system.
I am worried that transformational change is all talk.
It’s time to start an adult conversation about the future of the system. The starting point: acknowledging that it’s not about bad people; it’s about systemic flaws in its design and functioning. Fixing it requires balancing lag indicators about its use, costs and demand with assumptions about innovations that hold promise to shift its trajectory long-term. It requires employers to actively participate: in 2009-2010, Big Business mistakenly chose to sit out deliberations about the Affordable Care Act. And it requires independent, visionary facilitation free from bias and input beyond the DC talking heads that have dominated reform thought leadership for 6 decades.
Or, collectively, we can watch events like last week’s roll by and witness the emergence of a large public utility serving most and a smaller private option for those that afford it. Or something worse.
P.S. Today, thousands will make the pilgrimage to Orlando for HIMSS24 kicking off with a keynote by Robert Garrett, CEO of Hackensack Meridian Health tomorrow about ‘transformational change’ and closing Friday with a keynote by Nick Saban, legendary Alabama football coach on leadership. In between, the meeting’s 24 premier supporters and hundreds of exhibitors will push their latest solutions to prospects and customers keenly aware healthcare’s future is not a repeat of its past primarily due to technology. Information-driven healthcare is dependent on technologies that enable cost-effective, customized evidence-based care that’s readily accessible to individuals where and when they want it and with whom.
And many will be anticipating HCA Mission Health’s (Asheville NC) Plan of Action response due to CMS this Wednesday addressing deficiencies in 6 areas including CMS Deficiency 482.12 “which ensures that hospitals have a responsible governing body overseeing critical aspects of patient care and medical staff appointments.” Interest is high outside the region as the nation’s largest investor-owned system was put in “immediate jeopardy” of losing its Medicare participation status last year at Mission. FYI: HCA reported operating income of $7.7 billion (11.8% operating margin) on revenues of $65 billion in 2023.
Pittsburgh-based UPMC reported a $198 million operating loss (-0.7% margin) in 2023, down from a $162 million gain (0.6% margin) in 2022, according to financial documents published Feb. 28.
UPMC attributed the swing from operating income to loss to various factors, including increased labor and supply costs, increases in medical claims expense due to higher utilization and certain legal settlements.
Revenue for the health system increased 8.5% year over year to $27.7 billion and expenses rose 10% to $27.9 billion. Under expenses, labor costs increased 6.4% to $9.7 billion and supply costs were up 11% to $7.4 billion.
After accounting for nonoperating items, such as investment returns, UPMC ended 2023 with a $31 million net loss, compared to a $1 billion net loss the previous year.
As of Dec. 31, UPMC had more than $9.5 billion in cash and investments, $3.2 billion of which was held by its regulated health and captive insurance companies.
Last week, venture capital firm General Catalyst announced its plan to acquire Summa Health, an Akron, OH-based integrated delivery system with three hospitals, a large medical group, a health plan, and an annual revenue of around $2B. The terms of the deal were not disclosed, though General Catalyst previously indicated it aimed to spend $1-3B to acquire a health system.
Pending regulatory approval, Summa will convert to a for-profit entity and become a fully owned subsidiary of General Catalyst’s recently launched Health Assurance Transformation Corporation (HATCo).
HATCo, under the leadership of former Intermountain Health CEO Marc Harrison, was founded with the intention of acquiring a health system to serve as a blueprint for General Catalyst’s vision of healthcare transformation.
The Gist:While there’s a dearth of evidence for what kind of health system makes a good venture capital investment, Summa’s concentrated footprint of integrated delivery assets, robust Medicare Advantage plan, and position in an aging, yet competitive, market certainly seem attractive given HATCo’s stated goals.
If it closes, the partnership will provide Summa with an influx of capital and General Catalyst with a “proving ground” for both its vision of healthcare transformation and its portfolio of technology solutions. But while it’s one thing to get Summa’s board to sign on, General Catalyst will now have to reckon with other important stakeholders.
Summa’s physicians will be the gatekeepers of change at the local level, and their buy-in will be required for any continued push toward value-based care or successful product roll-out.
And, behind the scenes, General Catalyst will have to convince its investors that this longer-term play to rethink care delivery will offer financial returns worth the wait.
After 18 years as CEO in Kaiser Permanente, I set my sights on improving the heatlh of the nation, hoping to find a way to achieve the same quality, technology and affordability our medical group delivered to 5 million patients on both coasts.
That quest launched the Fixing Healthcare podcast in 2018, and it inspired interviews with dozens of leaders, thinkers and doers, both in and around medicine. These experts shared innovative ideas and proven solutions for achieving (a) superior quality, (b) improved patient access, (c) lower overall costs, and (d) greater patient and clinician satisfaction.
Which of the hundreds of ideas presented remain most promising?
Why, after five years and so many excellent solutions, has our nation experienced such limited improvements in healthcare?
And finally, how will these great ideas become reality?
To answer the first question, I offer 15 of the best Fixing Healthcare recommendations so far. Some quotes have been modified for clarity with links to all original episodes (and transcripts) included.
Fixing the business of medicine
1. Malcolm Gladwell, journalist and five-time bestselling author: “In other professions, when people break rules and bring greater economic efficiency or value, we reward them. In medicine, we need to demonstrate a consistent pattern of rewarding the person who does things better.”
2. Richard Pollack, CEO of the American Hospital Association (AHA): “I hope in 10 years we have more integrated delivery systems providing care, not bouncing people around from one unconnected facility to the next. I would hope that we’re in a position where there’s a real focus on ensuring that people get care in a very convenient way.”
Eliminating burnout
3. Zubin Damania, aka ZDoggMD, hospitalist and healthcare satirist: “In the culture of medicine, specialists view primary care as the weak medical students, the people who couldn’t get the board scores or rotation honors to become a specialist. Because why would you do primary care? It’s miserable. You don’t get paid enough. It’s drudgery. We must change these perceptions.”
4. Devi Shetty, India’s leading heart surgeon and founder of Narayana Health: “When you strive to work for a purpose, which is not about profiting yourself, the purpose of our action is to help society, mankind on a large scale. When that happens, cosmic forces ensure that all the required components come in place and your dream becomes a reality.”
5. Jonathan Fisher, cardiologist and clinician advocate: “The problem we’re facing in healthcare is that clinicians are all siloed. We may be siloed in our own institution thinking that we’re doing it best. We may be siloed in our own specialty thinking that we’re better than others. All of these divides need to be bridged. We need to begin the bridging.”
Making medicine equitable
6. Jen Gunter, women’s health advocate and “the internet’s OB-GYN”: “Women are not listened to by doctors in the way that men are. They have a harder time navigating the system because of that. Many times, they’re told their pain isn’t that serious or their bleeding isn’t that heavy. We must do better at teaching women’s health in medicine.”
7. Amanda Calhoun, activist, researcher and anti-racism educator: “A 2015 survey showed that white residents and medical students still thought Black people feel less pain, which is wild to me because Black is a race. It’s not biological. This is actually an historical belief that persists. One of the biggest things we can do as the medical system is work on rebuilding trust with the Black community.”
Addressing social determinants of health
8. Don Berwick, former CMS administrator and head of 100,000 Lives campaign: “We know where the money should go if we really want to be a healthy nation: early childhood development, workplaces that thrive, support to the lonely, to elders, to community infrastructures like food security and transportation security and housing security, to anti-racism and criminal-justice reform. But we starve the infrastructures that could produce health to support the massive architecture of intervention.”
9. David T. Feinberg, chairman of Oracle Health: “Twenty percent of whether we live or die, whether we have life in our years and years in our life, is based on going to good doctors and good hospitals. We should put the majority of effort on the stuff that really impacts your health: your genetic code, your zip code, your social environment, your access to clean food, your access to transportation, how much loneliness you have or don’t have.”
Empowering patients
10. Elisabeth Rosenthal, physician, author and editor-in-chief of KHN: “To patients, I say write about your surprise medical bills. Write to a journalist, write to your local newspaper. Hospitals today are very sensitive about their reputations and they do not want to be shamed by some of these charges.”
11. Gordon Chen, ChenMed CMO: “If you think about what leadership really is, it’s influence. Nothing more, nothing less. And the only way to achieve better health in patients is to get them to change their behaviors in a positive way. That behavior change takes influence. It requires primary care physicians to build relationship and earn trust with patients. That is how both doctors and patients can drive better health outcomes.”
Utilizing technology
12. Vinod Khosla, entrepreneur, investor, technologist: “The most expensive part of the U.S. healthcare system is expertise, and expertise can relatively be tamed with technology and AI. We can capture some of that expertise, so each oncologist can do 10 times more patient care than they would on their own without that help.”
13. Rod Rohrich, influential plastic surgeon and social media proponent: “Doctors, use social media to empower your audience, to educate them, and not to overwhelm them. If you approach social media by educating patients about their own health, how they can be better, how can they do things better, how they can find doctors better, that’s a good thing.”
Rethinking medical education
14. Marty Makary, surgeon and public policy researcher: “I would get rid of all the useless sh*t we teach our medical students and residents and fellows. In the 16 years of education that I went through, I learned stuff that has nothing to do with patient care, stuff that nobody needs to memorize.”
15. Eric Topol, cardiologist, scientist and AI expert: “It’s pretty embarrassing. If you go across 150 medical schools, not one has AI as a core curriculum. Patients will get well versed in AI. It’s important that physicians stay ahead, as well.”
Great ideas, but little progress
Since 2018, our nation has spent $20 trillion on medical care, navigated the largest global pandemic in a century and developed an effective mRNA vaccine, nearly from scratch. And yet, despite all this spending and scientific innovation, American medicine has lost ground.
American life expectancy has dropped while maternal mortality rates have worsened. Clinician burnout has accelerated amid a growing shortage of primary care and emergency medicine physicians. And compared to 12 of its wealthiest global peers, the United States spends nearly twice as much per person on medical care, but ranks last in clinical outcomes.
Guests on Fixing Healthcare generally agree on the causes of stagnating national progress.
Healthcare system giants, including those in the drug, insurance and hospital industries, find it easier to drive up prices than to prevent disease or make care-delivery more efficient. Over the past decade, they’ve formed a conglomerate of monopolies that prosper from the existing rules, leaving them little incentive to innovate on behalf of patients. And in this era of deep partisan divide, meaningful healthcare reforms have not (and won’t) come from Congress.
Then who will lead the way?
Industry change never happens because it should. It happens when demand and opportunity collide, creating space for new entrants and outsiders to push past the established incumbents. In healthcare, I see two possibilities:
1. Providers will rally and reform healthcare
Doctors and hospitals are struggling. They’re struggling with declining morale and decreasing revenue. Clinicians are exiting the profession and hospitals are shuttering their doors. As the pain intensifies, medical group leaders may be the ones who decide to begin the process of change.
The first step would be to demand payment reform.
Today’s reimbursement model, fee-for-service, pays doctors and hospitals based on the quantity of care they provide—not the quality of care. This methodology pushes physicians to see more patients, spend less time with them, and perform ever-more administrative (billing) tasks. Physicians liken it to being in a hamster wheel: running faster and faster just to stay in place.
Instead, providers of care could be paid by insurers, the government and self-funded businesses directly, through a model called “capitation.” With capitation, groups of providers receive a fixed amount of money per year. That sum depends on the number of enrollees they care for and the amount of care those individuals are expected to need based on their age and underlying diseases.
This model puts most of the financial risk on providers, encouraging them to deliver high-quality, effective medical care. With capitation, doctors and hospitals have strong financial incentives to prevent illnesses through timely and recommended preventive screenings and a focus on lifestyle-medicine (which includes diet, exercise and stress reduction). They’re rewarded for managing patients’ health and helping them avoid costly complications from chronic diseases, such as heart attacks, strokes and cancer.
Capitation encourages doctors from all specialties to collaborate and work together on behalf of patients, thus reducing the isolation physicians experience while ensuring fewer patients fall through the cracks of our dysfunctional healthcare system. The payment methodology aligns the needs of patients with the interests of providers, which has the power to restore the sense of mission and purpose medicine has lost.
Capitation at the delivery-system level eliminates the need for prior authorization from insurers (a key cause of clinician burnout) and elevates the esteem accorded to primary care doctors (who focus on disease prevention and care coordination). And because the financial benefits are tied to better health outcomes, the capitated model rewards clinicians who eliminate racial and gender disparities in medical care and organizations that take steps to address the social determinants of health.
2. Major retailers will take over
If clinicians don’t lead the way, corporate behemoths like Amazon, CVS and Walmart will disrupt the healthcare system as we know it. These retailers are acquiring the insurance, pharmacy and direct-patient-care pieces needed to squeeze out the incumbents and take over American healthcare.
Each is investing in new ways to empower patients, provide in-home care and radically improve access to both in-person and virtual medicine. Once generative AI solutions like ChatGPT gain enough computing power and users, tech-savvy retailers will apply this tool to monitor patients, enable healthier lifestyles and improve the quality of medical care compared to today.
When Fixing Healthcare debuted five years ago, none of the show’s guests could have foreseen a pandemic that left more than a million dead. But, had our nation embraced their ideas from the outset, many of those lives would have been saved. The pandemic rocked an already unstable and underperforming healthcare system. Our nation’s failure to prevent and control chronic disease resulted in hundreds of thousands of unnecessary deaths from Covid-19. Outdated information technology systems, medical errors and disparities in care caused hundreds of thousands more. As a nation, we could have done much better.
With the cracks in the system widening and the foundation eroding, disruption in healthcare is inevitable. What remains to be seen is whether it will come from inside or outside the U.S. healthcare system.
Welcome to the “Lessons from the C-suite” series, featuring Advisory Board President Eric Larsen’s conversations with the most influential leaders in healthcare.
In this edition, Bill Gassen, President and CEO of Sanford Health and James Hereford, President and CEO of Fairview Health Services talk with Eric about the planned merger that will create the 11th largest health system in the United States that would span North Dakota, South Dakota, Iowa, and Minnesota.
The two CEOs describe the urgency and intent behind the merger, why not all disruptors are equally disruptive, and why it takes more than size to harness scale in healthcare.
Question: Bill and James, let’s jump right in. The two of you are architecting one of the most significant health system mergers of 2023 — a combination of Sanford Health and Fairview, which on its completion, will result in the 11th largest health system in the US. The discussions have attracted, understandably, a lot of interest and scrutiny not just in each of your communities, but nationally. Some may not be aware, but this is not the first time that Sanford and Fairview have considered coming together. Bill, let’s start with you – why is this time different?
Gassen: Eric, you’re right. This is not the only time our two organizations have considered the idea of merging. James and I, and our respective boards and organizations, have examined every element of the union and are confident that this is the right time to proceed. We have executed a Letter of Intent (LOI) and submitted an HSR filing that has been reviewed by the Federal Trade Commission (FTC). The parties provided substantial amounts of information to the FTC and the HSR process and it is now complete. There is an unwavering commitment from our respective leaders and our organizations to see this through.
It is a false choice for anyone to believe that James or I or anybody else has the benefit of sitting back and saying, well, maybe I’ll just maintain the world that I live in today. The healthcare status quo is gone. What is in front of us is taking the steps needed to ensure that we can continue to provide the best possible service for our patients, employees, and communities. Taking control over our destiny. We want to come together in a merger between our two organizations to put us in a position to fundamentally change and to be an agent for the modernization of the way care is delivered into the future. Our organizations exist only to serve patients, employees, and our communities. That is not up for debate. What we have in front of us is a decision to make that better for generations to come.
Hereford: I think Bill articulated that very well. Our purpose is to combine to improve and sustain our ability to offer world class healthcare. It is not simply a function of scale, you have to combine that with an intent to drive change, to improve value, and to innovate. And that’s a rare thing to have that intent. We have that intent today.
Avoiding the ‘Noah’s Ark’ problem
Q: Let’s go a bit deeper into the horizontal consolidation among health systems. This isn’t a new phenomenon — in fact, our $1.4 trillion hospital sector is already massively consolidated, with the top 100 systems controlling almost $900 billion in revenue. But with this degree of concentration, a lot of disillusionment: we just haven’t seen compelling or provable quality improvements, let alone the scale of cost reductions projected. Some of this might be what I call the “Noah’s Ark” problem—two of everything (two CEOs, two headquarters, two EHRs, etc.) … in other words, very little rationalization of back-office infrastructure or staffing.
I think about the proposed Sanford-Fairview merger differently. I might even characterize it as more a “vertical” merger, instead of “horizontal” — a combination of different and complementary capabilities instead of overlapping or competing ones — including Sanford’s proprietary health plan and virtual hospital investments, bringing Fairview’s specialty pharmacy and post-acute companies into the combination — for example. Am I thinking about this the right way?
Gassen: I think your characterization is right, Eric. We are different but very complementary organizations. We are contiguous as it relates to geography, but there is no overlap. We serve distinctly different populations in a similar part of the country. Roughly two-thirds of the patients who have been served today at Sanford Health come to us from a rural community. While most of those who Fairview serves come from much more densely populated urban communities. Both of those subsets of our population are experiencing similar challenges. There’s a need for financial sustainability, both on the provider side as well as on the patient side of the house.
When you think about our service mix, there are a number of complementary areas that make our union additive. Specialty and subspecialty expertise at Fairview coupled with a robust primary care backbone from Sanford plus our Virtual Care initiative and significant philanthropic investment will come together to create powerful healthcare solutions.
The fact that at Sanford alone we have $350 million solely dedicated to, and available for, scaling virtual care is amazing. And when you think about applying that investment to Sanford and Fairview, the opportunities are limitless. We’re going to be able to serve both our rural and urban communities, allowing us to truly transform the way in which healthcare is delivered and experienced in this part of the country.
And for those outside our orbit, they’ll say, “I want to partner with a combined Sanford Fairview” because that is much more attractive. And at the end of the day, partnering with us means that we’re all in a better position to transform the way in which we deliver care, how care is accessed, and how quality is improved. And do it in a financially sustainable way that allows us to deliver equitable care to more people in the upper Midwest.
Hereford: Here’s why scale matters: If you’re one hospital and you drive an innovation that requires a capital of investment of $1 million, that’s an expensive solution. But if you’ve got 100 hospitals, the size of that investment you made on a scale basis is much smaller. Therefore, your ability to drive the needed level of innovation is expanded significantly. To truly improve healthcare delivery, we must challenge ourselves to do things differently, but you have to have a certain level of scale to be able to do that.
Health system transformation must happen now
Q:I want to expand on the earlier point you made that the old health system status quo is forever gone. 2022, for health systems, was something of an Armageddon year — the worst on record with 11 out of 12 months with negative margins; supply chain costs up 17% versus pre-pandemic; health systems collectively spending an extra $125 billion on Labor last year compared to 2021. So not a great “state of the union” for acute-care centric health systems. How does this macroeconomic backdrop factor into your planning?
Hereford: Conceptually, cognitively, I would offer that hospital CEOs probably all know that the good old days are gone. But you don’t see organizations responding as if they’re gone. And we’re on the precipice of a significant cliff. The fundamental things that have defined healthcare and not-for-profit healthcare for decades have fundamentally shifted. We need to change in response.
We’re going to have 80,000 people when we combine. The challenge for us as leaders is going to be how do we shift the mindset and change the way we think about care delivery while maintaining essential services that persist with challenging economics. We are a high capital, low margin business that is critical to society.
Gassen: James, it’s as you and I talk about a lot. We don’t get the benefit of hitting pause, taking a year to revamp the industry because it’s 24 by 7 by 365. There are no breaks.
And while we’re doing that and while we are delivering essential services, the 45,000 incredible caregivers at Sanford and the 35,000 incredible caregivers at Fairview, collectively, are going to figure out how we evolve together as a unified organization to continue to elevate that critical work of patient care. And we don’t get reimbursed for a lot of those services. But those are essential services that people need.
If we want to be able to meet the needs of vulnerable patients and communities, we must face the increased pressure to lower costs and increase scale to drive positive margins. Those areas are few and far between in not-for-profit healthcare delivery. So, it necessitates that we continue to evolve and think differently about the work that we do driving down costs.
Larsen:And that’s increasingly becoming difficult — even for big players. I’ve been writing ruefully about the “billion-dollar club” — preeminent health systems like Ascension, MGB and Cleveland Clinic each posting more than a billion dollars in total losses (and even more in some cases, e.g., $4.5 billion for Kaiser). But Sanford, in contrast, is one of just a small handful of health systems that somehow managed to end 2022 in the black, with a $188 million operating income last year. Bill, any reflections on how you and the team did that?
Gassen: We count ourselves very, very blessed to be among the few who had the opportunity to experience positive margins in 2022. I would give first and foremost credit to an exceptionally talented team inside and outside the organization. They do a wonderful job of focusing their attention on that which matters most, which is patient care.
It’s also a very well-constructed organization from the ground up. We benefit coming into both the pandemic and then through the financial headwinds in 2022 with a well-diversified set of assets and geographies. On the acute side it’s largely contained across Iowa, South Dakota, and North Dakota.
In Minnesota, and across those above geographies, we have a great complement of assets across our provider sponsored health plan, hospitals, clinics, post-acute care, as well as our research enterprise, all of which, collectively, allowed us to do a better job than some of our peers at weathering that “economic storm” you mentioned earlier.
But, most importantly, it’s just the time that we’ve had to mature as an organization. And with that time, we’ve integrated more deeply as one singular operating company. Sanford Health is not a holding company. The decisions that we make, we make as one singular integrated system and that is a part of that special sauce that’s allowed us to be successful.
Everything that I’ve described has just given us a little bit of a head start and now it’s incumbent upon us to maximize that time.
The imagined and real disruption in healthcare
Q:Bill, you mentioned time is of the essence. And so far, we’ve mostly localized our discussion today talking about health system-specific competitive issues, which makes sense. But it also makes sense to lift up and survey the healthcare ecosystem outside of health systems and note the fact that even when Sanford and Fairview combine and represent $14 billion in revenue, it will still be comparatively tiny to some of the non-traditional players seeking to disrupt healthcare. We have trillion-dollar market cap companies like Amazon investing aggressively into the primary care, pharmacy, and home enablement spaces. We have Fortune 10 companies like UnitedHealth Group and CVS-Aetna vertically integrating and building out sophisticated ambulatory delivery systems. And we have retailers like Walmart and Best Buy transitioning into parts of the healthcare delivery chain as well. So, while Sanford-Fairview will be sizable by most conventional healthcare metrics, it has some pretty formidable competition. How do you assess the new competitive landscape emerging?
Hereford: So, I thought a lot about this because I do think it’s one of the most significant aspects of our industry right now. The opportunity for a CVS-Aetna is that they are proximate to a lot of people in the US. And there’s a lot of things that they could do for patients with a simple presentation of acute symptoms or for fairly simple chronic disease and stabilization. But that is not what drives the cost of health care in the US. It’s when people get very sick.
People receiving specialist care in hospitals are having complex procedures. They’re being treated for complex cancers. And we’re doing an amazing job of advancing the science and the technologies that we can apply to that. But that doesn’t happen in a drug store. That does not happen in a store front primary care office. That happens in organizations like ours. Our challenge is to create the same level of convenience, the same level of access, or partner in a smart way to achieve that.
Our job is to think about total cost of care within the context of delivering very complex care. That isn’t simply a function of primary care and that, I think, is our fundamental challenge. We can translate that into real total cost of care savings.
Gassen: For James and me, in our respective roles and responsibilities, this is our incredibly rewarding and incredibly difficult work. Because those other organizations aren’t required to provide care to everyone. They’re not required to provide free care. They’re not required to be able to provide services for which there is no margin. We don’t get to cherry pick.
It’s our responsibility to really be all things from a healthcare delivery perspective to all people, which means that we are always going to be challenged with how we do that in a financially sustainable way. I think it’s the beauty of where we find ourselves as an industry because out of that necessity comes that innovation that we’ve been talking about here because we can’t continue at current course and speed.
Larsen:When we start to talk about giants in healthcare we tend to index on their size and market cap and, as a result, we lump vertically integrating players and technology companies under the same umbrella. I think that’s a mistake. You have focused healthcare payers like CVS Aetna and UHG that are combining their underwriting business (and ownership of the premium dollar) with an ambulatory delivery network, with an emphasis on home and virtual care. To me that’s a very real and consequential development – and very different from what Big Tech is aspiring to do in our space.
Hereford: Eric, I agree.The world is so clearly changing and that is where the market and a number of very large healthcare organizations are betting. I do think that people who see the overall size of the healthcare marketplace and say “we want to be a part of that” but without any clear way of making sustainable margins.
Gassen: In contrast with the large public companies, as a not-profit health care system, it’s a fact of life that we operate on thin margins. But there are a lot of dollars floating around for other players in the healthcare ecosystem. Which to your point, is why people get enticed to enter into the healthcare space. Our goal with the transaction is to remain financially solid, with the resources needed to invest in our communities, while staying true to our non-profit mission.
Larsen:Your comments, Bill, underscore the power of being a ‘payvider’ in healthcare, which of course Sanford is. You’re in rarefied company — only a dozen or so health systems can claim this, and they have one thing in common — a very mature health plan function (average age of 44 years). So Intermountain, Geisinger, Kaiser, Sentara, Sanford and a small handful of others fit this bill. I presume a major part of the envisioned benefit of the merger is extending Sanford Health plan into Fairview. Can I get you both to comment on that?
Gassen: I certainly agree with you Eric about the importance of being a “payvider.” And of course, I’d also say there is a scale component to that, too. Today our health plan only has 220,000 covered lives. But it is a very valuable and strategic component of the larger Sanford Health system.
As we come together with Fairview into a combined system, we now have the opportunity to bring the Sanford Health plan and its additional options and opportunities for members to a much larger community. And one that’s backed by a combined system. It offers greater choices for the two million people across North Dakota, South Dakota, and Western Minnesota.
When we do that, it puts us in the best possible position to coordinate care that allows for the best outcomes, and as a consequence, also results in a better financial position for us. And so, when we think ahead to the opportunity to now apply the infrastructure that we’ve built to the greater Twin Cities market and beyond to bring that together with the care delivery assets and expertise of Fairview Health Services, we get really excited about the opportunities we unlock not just for the combined organization, but for importantly, for all the members within that community.
Healthcare’s technology paradox
Q:The above commentary on scaling out to wider geographies and connecting and transforming care brings me to the paradox of digital health. One of the only bright lights to come out of the pandemic was what I would characterize as a “Renaissance moment” in digital health — unprecedented funding ($72 billion globally in 2021 alone) fueling the creation of almost 13,000 digital startups, spanning new diagnostics, therapeutics, clinical/non-clinical workflow, care augmentation, you name it. And while we’re now seeing a rough contraction, with lots of companies starved for capital and struggling to sell into healthcare incumbents, we are going to see some winners and some transformational platforms emerge.
The question is, will healthcare incumbents like health systems be able to take advantage of this? The data are sobering — it takes an estimated 23 months for a health system to deploy a digital health technology (once it signs a contract). And while technology tends to be deflationary — lowers costs as it augments productivity — that just hasn’t happened in healthcare, as costs inexorably keep going up. How will the combined Sanford-Fairview tackle this? Who wants to go first?
Hereford: Let me start because I want to respond to something you said, Eric. You’re right, technology has been deflationary in other sectors but only since about 1995. In the 1990s many books in that period were asking “why are we investing all this money in technology across all sectors and we’re not seeing productivity improvements?”
But out of that question came reengineering — where companies started to reconfigure processes and workflows as opposed to just applying technologies. Only then did they see the deflationary benefits of greater efficiencies from technologies. So, I think that has a lot to do with how we’ve applied technology. We’ve had federal stimulus to apply technology, but it’s to apply technology for its own sake. Not to challenge how we use technology to make it easier to be a doctor or nurse. How do we use technology to make people more effective and therefore more efficient?
Gassen: I think that change, especially fundamental shifts, and changes to a business won’t happen until you absolutely have to. And that’s human nature.
The challenge ahead of us is to interrogate how we as an industry interact with our patients and ask, “How can we fundamentally tear that down to the studs and rebuild it better and fit for today?”
But I also want to be clear about why we’re here as a health system. Our reality is that there is a patient at the end of every single decision that we make. So, we must be extremely careful about how we look at processes and implement change. We know they’re rarely perfect, but oftentimes we do deliver the best outcome for the patient. Our job is to be able to make the right change without causing harm.
Larsen:Bill, we’ve made the argument together in past conversations that this same creation moment for digital health solutions beautifully aligns to address the conventional disadvantages of American rural medicine: insufficient infrastructure (hospitals, surgery centers, etc.) and a scarcity of clinicians and non-clinicians for the workforce. Digital health holds the promise to turn those deficits into advantages. And, you know, Sanford’s been a pioneer in launching a $350 million virtual hospital. Perhaps you can unpack this.
Gassen: I’d say our work here really has its origins in the unwavering belief that one zip code should not determine the level of care that a person receives. Every patient has the right to access world class care. So, it’s incumbent upon us, those of us who find ourselves in the privileged position to be in leadership in healthcare delivery organizations like Sanford and Fairview, to take the necessary steps to deploy the appropriate resources and to find the right partners to ensure that whether you’re living in the most rural parts of the heartland or an urban center, you get the best quality care possible.
We take great pride in the fact that our organization was built on the belief that we know many of our patients choose to live in rural America. Two-thirds of the patients today at Sanford Health, whom we have the privilege of serving, come to us from rural America.
It’s with that front and center, the Virtual Care initiative at Sanford Health is allowing us the opportunity to deliver world class care. It’s about making certain that through basically all facets of digital transformation, we leverage our resources to extend excellence in primary care, in specialty and subspecialty care, and offer those individuals access to that care close to home.
The vision for us is to ensure that those who choose to live in rural America are not forced to sacrifice access to high quality, dependable care. That’s at the core of both our beliefs and actions.
Larsen:And James, I think you’ve been one of the most progressive CEOs in the industry on thinking about capitalizing on digital health, innovation and partnering with capital allocators. And we talked about a few of them — leading VCs like Thrive or SignalFire who are partnering broadly with health systems — and finding ways to shorten the innovation cycle.
Hereford: It comes back to intent and purpose. Our job is to make sure that everybody can access high quality care and so the opportunity is to really think about the commonalities and leverage that across both rural America, urban communities, suburbs, exurbs, etc. The other thing that I think is often overlooked in your Cambrian explosion is the volume of scientific advancements over the last two decades.
I love the hypothetical of a medical student who learned everything about medicine in 1950 and how fast the volume of clinical knowledge would have doubled then. They would have had about 50 years before the knowledge base doubled. Today, an amazing medical student with the ambition to learn the entire body of clinical knowledge would have about seven months to see it doubled. That’s how fast medicine is advancing.
We built this industry based on highly specialized, incredibly smart, incredibly committed people who can master these topics. This volume of information on clinical care theory, the body of knowledge on clinical application, all layered on to how the business of care works is cognitive overload. We have got to give them better tools. We have got to help support them. I think we’re in a unique place to be able to really do something about it and create real solutions for people.
Gassen: Where we’re at right now necessitates that. And again, thinking a level deeper as it relates to rural America, the opportunity is so incredibly ripe because it’s necessary. The only way that we’re going to be able to scale to the level we need is to leverage and maximize technology. And so therein creates that opportunity and that necessity makes us a very fertile ground for organizations to come in and partner with us, to be able to extend those services.
The current deal’s state of play
Q:So, we started our conversation about the merger and went broad to talk about industry trends and the wider landscape. But I do want to circle back to a couple of the outstanding specifics of the merger. Sanford and Fairview are merging. What will the University of Minnesota’s relationship be with the merged organization?
Gassen: Both James and I firmly believe, and have articulated in our conversation with you today, the virtues of bringing Sanford Health and Fairview Health services together are absolutely essential to ensuring the delivery of world class healthcare in the upper Midwest. And we are committed to creating the right relationship with the University of Minnesota for it to pursue its mission.
Hereford: We’ve always said that we wanted the University to be part of what we’re building. And, the University of Minnesota has indicated their desire to purchase the academic assets of the system and we stand ready to engage with them to support that. If that is the path that they pursue and can get state funding to support, then we can work with them to determine the nature of the relationship between the new system and the University of Minnesota.
Larsen:And how about the other partners and players in the landscape? I’m thinking of the Minnesota Attorney General, the FTC, etc.
Gassen: We’ve engaged the elected officials across the states of North Dakota, South Dakota, and Minnesota, and we’ve continued to keep them apprised. We’ve also worked very closely with regulators and are happy to report that following its review, the Federal Trade Commission cleared the transaction and the HSR process is complete.
At this point in time, we are working closely with Attorney General Keith Ellison’s office in the state of Minnesota to ensure that he has sufficient information to complete his analysis under antitrust and charities laws to ensure that he’s continuing to protect the interests of all Minnesotans. We remain very engaged and look forward to the conclusion of that work.
The future focus of leadership
Q:Ok, I’d like to round out this conversation with a look to the future. Can you foreshadow your division of labor…where you will be converging and where will you be dividing and conquering as CEOs?
Hereford: One of the great positives of this deal and one of the great signals of the quality of the rationale here is that Bill and I went into this with the question: How do we set this up to be successful over the long term?
You may have noticed Bill and I are different ages. Bill has a lot more runway than I have, so it was not a difficult decision on my part to say “look, it’s important for me to help with the transition because it’s a big deal, right? And it’s not going to be over in a year.” But I can be that bridging function to help support the transition. This is a long-term play and Bill’s the person who’s going to be able to be in the seat to really see that through.
And given my interests I can take on the innovation that we’re talking about and how we make the membrane of this organization a little more permeable and a little bit more friendly to partners, while also being very demanding of partners in terms of the value they create, and we create within the system.
I’m really excited about the opportunity to do that. I do think the way that we have approached this is a very enlightened approach.
Gassen: Standing on the shoulders of James’ comments, one of the many aspects that makes this merger unique is the collegiality and foresight from our respective boards that see how incredibly valuable it is to be able to have co-CEOs working together, focusing first and foremost on ensuring that we’re bringing together the two organizations as one integrated, transformative healthcare delivery organization. I think James and I get up every morning with the goal of making sure that that happens every single day.
And it’s not just that James will work on the innovation piece because it brings him joy and energy but also, it’s where he has a deep level of experience and expertise. I get to focus more of my time and energy on the day-to-day of the two organizations coming together.
Together, James and I will be able to jointly balance the combination of the two organizations with day-to-day delivery and the transformative opportunities for us because of the unique nature of our backgrounds and expertise.
Hereford: And I think that’s a real advantage for the organization. I’m sure there are going be times when I’ll say “Bill, we’ve got to change. You’ve got to do this”. And he’s going to say “yeah, but I can’t do that. I can’t make that kind of change.”
But that’s the kind of dialogue that this structure sets up for us to hold that tension productively as opposed to responding to the tyranny of the urgent, which is ever present in a large health care delivery system. Transformation of care delivery systems will require the ability to manage those competing dynamics. I really appreciate both the structure but also how Bill is approaching this.
Gassen: I do think that what we just described here will prove to be one of the finer distinguishing factors that allows us to really be successful. Because you do oftentimes find yourself with a choice between A or B. And for us we get to choose C — “all of the above” — and go forward and do that.
Thursday marks the 13th anniversary of the signing of the Affordable Care Act– perhaps the most consequential healthcare legislation since LBJ’s passage of the Medicare Act in 1965. Except in healthcare circles, it will probably go unnoticed.
World events in the Ukraine and China President Xi Jinping’s visit to Russia will grab more media attention. At home, the ripple effects of Silicon Valley Bank’s bankruptcy and the stability of the banking system will get coverage and former President Trump’s arrest tomorrow will produce juicy soundbites from partisans and commentators. Thus, the birthday of Affordable Care Act, will get scant attention.
That’s regrettable: it offers an important context for navigating the future of the U.S. health system. Having served as an independent facilitator between the White House and private sector interests in 2009-2010, I recall vividly the events leading to its passage and the Supreme Court challenge that affirmed it:
The costs and affordability of healthcare and growing concern about the swelling ranks of uninsured were the issues driving its origin. Both political parties and every major trade group agreed on the issues; solving them not so easy.
Effective messaging from special interests about the ACA increased awareness of the law and calcified attitudes for or against. Misinformation/disinformation about the “Patient Protection and Affordable Care Act” morphed to a national referendum on insurance coverage and the cost-effectiveness of the ACA’s solution (Medicaid expansion, subsidies and insurance marketplaces). ‘Death panels. government run healthcare and Obamacare’ labels became targets for critics: spending by special interests opposed to the law dwarfed support by 7 to 1. Differences intensified: Emotions ran high. I experienced it firsthand. While maintaining independence and concerns about the law, I received death threats nonetheless. Like religion, the ACA was off-limits to meaningful discussion (especially among the majority who hadn’t read it).
And after Scott Brown’s election to the vacant Massachusetts seat held by Ted Kennedy in January, 2010, the administration shifted its support to a more-moderate Senate Finance Committee version of the law that did not include a public option or malpractice reforms in the House version. Late-night lobbying by White House operatives resulted in a House vote in favor of the Senate version with promises ‘it’s only the start’. Through amendments, executive orders, administrative actions and appropriations, it would evolve with the support of the Obama team. It passed along party lines with the CBO offering an optimistic view it would slow health cost escalation by reducing administrative waste, implementation of comparative effectiveness research to align evidence with care, increased insurance coverage, changing incentives for hospitals and physicians and more.
The Affordable Care Act dominated media coverage from August 2009 to March 2010. In the 2010 mid-term election, it was the issue that catapulted Republicans to net gains of 7 in the Senate, 63 in the House and 6 in Governor’s offices. And since, Republicans in Congress have introduced “Repeal and Replace” legislation more than 60 times, failing each time.
Today, public opinion about the ACA has shifted modestly: from 46% FOR and 40% against in 2010 to 55% FOR and 42% against now (KFF). The national uninsured rate has dropped from 15.5% to 8.6% and Medicaid has been expanded in 39 states and DC. Lower costs, increased affordability and quality improvements owing to the ACA have had limited success.
Key elements of the ACA have not lived up to expectations i.e. the Patient Centered Outcome Research Institute, the National Quality Strategy, Title V National Healthcare Workforce Task Force, CMMI’s alternative payment models and achievement of Level 3 interoperability goals vis a vis ONCHIT, CHIME et al. So, as the 2024 political season starts, the ACA will get modest attention by aspirants for federal office because it addressed big problems with blunt instruments. Most recognize it needs to be modernized based on trends and issues relevant to healthcare in 2030 and beyond.
Trends like…
Self-diagnostics and treatment by consumers (enabled by ChatGPT et al).
Data-driven clinical decision-making.
Integration of non-allopathic methodologies.
The science of wellbeing.
Complete price, cost and error transparency.
Employer and individual insurance coverage optimization.
And others.
Issues like….
The role and social responsibility of private equity in ownership and operation of services in healthcare delivery and financing.
The regulatory framework for local hospitals vs. Regional/nation health systems, and between investor-owned and not-for-profit sponsorship.
The role and resources for guided self-care management and virtual-care.
Innovations in care delivery services to vulnerable populations using technologies and enhanced workforce models.
Modernization of regulatory environments and rules of competition for fully integrated health systems, prescription drug manufacturers, health insurers, over-the counter therapies, food as medicine, physician ownership of hospitals, data ownership, tech infomediaries that facilitate clinical decision-making, self-care, professional liability and licensing and many others.
Integration of public health and local health systems.
The allocation of capital to the highest and best uses in the health system.
The sustainability of Medicare and role of Medicare Advantage.
The regulatory framework for disruptors”.
And many others.
These trends are not-easily monitored nor are the issues clear and actionable. Most are inadequately addressed or completely missed in the ACA.
Complicating matters, the political environment today is more complicated than in 2010 when the ACA became law. The economic environment is more challenging: the pandemic, inflation and economic downturn have taken their toll. Intramural tensions in key sectors have spiked as each fights for control and autonomy i.e. primary care vs. specialty medicine, investor-owned vs. not-for-profit hospitals, retail medicine & virtual vs. office-based services, carve-outs, direct contracting et al . Consolidation has widened capabilities and resources distancing big organizations from others. Today’s media attention to healthcare is more sophisticated. Employers are more frustrated. And the public’s confidence in the health system is at an all-time low.
“ACA 2.0” is necessary to the system’s future but unlikely unless spearheaded by community and business leaders left out of the 1.0 design process. The trends and issues are new and complicated, requiring urgent forward thinking.
During one of our regular check-ins with a health system CEO this week, the conversation took a turn for the existential. Lamenting the difficult economic situation in the industry, the continued shift of care to ambulatory disruptors, and the mounting pressure to dial back money-losing services, he shared that he was starting to question the fundamental business model.
“Many years ago, we set out to become an integrated delivery system. But I’m not sure we’ve succeeded at any of those things: we’re not integrated enough, we don’t act like a system, and we don’t seem to be delivering the kind of care consumers want.” A stark admission, but one that could apply to many large health systems across the industry.
In theory, those three “legs of the stool” should create a virtuous flywheel: greater integration across the care continuum (perhaps in a risk-bearing model, but not necessarily) ought to allow systems to deliver quality care at the right place, right time. And a system-oriented approach ought to allow for efficiencies and cost-savings that enable care to be delivered at lower cost to patients.
Instead, the three components often create a vicious spiral: care that’s not coordinated across an integrated continuum, with little success at leveraging system-level efficiencies, resulting in unnecessary, duplicative, and variable-quality care delivery at excessive cost.
Capturing the value of integrated delivery systems will ultimately require hard work, and not just lip service, on all three pieces. Meanwhile, scaling a broken model will only exacerbate the problems of organizations that are neither integrated, nor systemic, nor delivering care that is high value.
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 digital platform is designed to provide consumers with a coordinated healthcare experience across care settings. It’s being sold to Aetna’s fully insured and self-insured plan sponsors, as well as CVS Caremark clients, and is due to go live next year. According to CVS Health, the new offering “enables consumers to choose care when and where they want,” whether that’s virtually, in a retail setting (including at a MinuteClinic or HealthHUB), or through at-home services.
Patients will have access to primary care, on-demand care, medication management, chronic condition management, and mental health services, as well as help in identifying other in-network care providers.
The Gist: CVS Health has been working to integrate its retail clinics, care delivery assets, and health insurance business. This new virtual-first care platform is aimed at coordinating care and experience across the portfolio, and streamlining how individuals access the range of services available to them.
CVS is not alone in focusing here: UnitedHealth Group, Cigna, and others have announced virtual-first health plans with a similar value proposition. Any payer or provider who aims to own the consumer relationship must field a similar digital care platform that streamlines and coordinates service offerings, lest they find themselves in a market where many patients turn first to CVS and other disruptors for their care needs.
HENRY KOTULA 