The Tit for Tat Game in Healthcare produces No Winners

Tit for Tat battles in healthcare are nothing new. Last week, they were on full display.

  • Health insurers and drug manufacturers squared off in national ad campaigns accusing the other of complicity in keeping drug costs high.
  • The House Energy and Commerce and Ways and Means Committees held hearings challenging non-profit hospital tax exemptions as momentum builds for a new site neutral payment policy opposed by the American Hospital Association. In tandem, Indiana Republican Rep. Victoria Spartz reintroduced “Combatting Hospital Monopolies Act,”– a bill April 20 that would allow the FTC to enforce antitrust rules among the nation’s more than 2,900 nonprofit hospitals.

The intensity of these battles is likely to increase because healthcare affordability is a kitchen-table issue and the public’s paying attention.

Executive compensation in hospitals, drug companies and health insurers is a flashpoint: the disparity between pay packages for healthcare CEOs and their rank-and-file employees is widening. Books and documentaries about healthcare rogue operators like Theranos and Purdue draw wide audiences. And announcements like the Kaiser Permanente-Geisinger deal last week lend to the industry’s growing kinship with BIG BUSINESS.

The corporatization of U.S. healthcare has endangered its future.  The time has come to revisit its purpose, refresh its structure and re-organize its finances.

  • Revisit it’s purpose:
  • The modern health system has evolved through economic cycles, population growth, scientific explosion and shifting demand. Regulations, roles and money has followed. The integration of artificial intelligence is the next threshold in its evolution unlocking efficiencies heretofore unimagined and capabilities that enable self-care and customization. Might the system’s purpose shift from producing products and services for patients to enabling individuals to care for themselves and others more effectively? Might price and cost transparency in each sector be without pre-condition and barriers? And might the system’s true north be health and wellbeing rather than utilization and revenue growth?
  • Refresh its structure:
  • The system’s fundamental flaw is structural: the U.S. operates a health system of caregivers and facilities that serve its majority and a separate system of 3000 public health programs that serve the rest. Though long acknowledged, social determinants of health play second fiddle to specialized services to populations that are insured. The destination for the system must be health + social services, not health or human services, and the fiduciary role of its prominent non-profit institutions to steward the transition. In tandem, the system’s financing (through insurance) and delivery (through services and facilities) must necessarily be integrated so investments in prevention, population health management and care coordination are optimized.
  • Re-organize its finances:
  • The health system’s primary financing is derived primarily from direct government appropriations (vis a vis tax collections from individuals and employers) and profits earned by its operators and suppliers. Its capital investing is increasingly dependent on private equity that seeks profits in 5-6 years for its limited partner investors. In systems of the world with better outcomes and lower costs, government financing plays a bigger role balancing prevention and social services with the needs of the sick. The U.S. financing system rewards taking care of health problems after they’re manifest in hospitalization or medication management and insignificant investment elsewhere. Capitalizing innovation across the system is an imperative: otherwise, risk-taking by private investors in the system will default to short-term returns. And the public’s long-term wellbeing is compromised.

Most of the food fights in healthcare like last week’s revolve around each sector’s unique response to the three challenges above. That’s why they exist: to protect the interests of their members and advocate on their behalf. All believe their mission and vision is essential to the greater good and the moral high ground theirs. Some are imperiled more than others: not for profit, rural and safety net hospitals, long-term care operators, direct caregivers and public health programs at the top of this list.

Educating lawmakers is necessary but what’s needed is serious, objective forward-looking definition of the U.S. health system’s future. The tit for tat game will not solve anything. That’s where we are.


PS: Bipartisanship in Congress is rare.

Hospitals, particularly non-profit hospitals, may be the exception. Bipartisan headwinds are swelling and adversaries organizing. Members of Congress appear keen to assert more influence in how hospitals operate.

Price transparency, cost controls, site-neutral payments, charity care, pay equity and funding for non-patient care activity are on their radar. Hospitals, especially large not-for-profit multi-hospital systems, have joined drug manufacturers and pharmacy benefits managers as targets for reformers seeking lower cost and greater accountability.

As the debt ceiling is debated and FY24 federal budget is crafted, softening support for healthcare will take its toll across the industry and create unintended negative consequences for all.

Healthcare’s Wicked Problems

One of the great things about my job is getting the opportunity to talk with healthcare CEOs around the country on a regular basis.

Lately, every CEO I talk with tells me how hard it is to run a healthcare organization in 2023.

These are people with long experience, people who over time have pushed the right buttons and pulled the right levers to make their organizations successful and to give their communities the care they need.

Hearing these recent comments from CEOs takes us back to the concept of “wicked problems,” which we’ve referred to in the past, and suggests that the current hospital operating environment is overwhelmed by wicked problems.

As a reminder, the wicked problem concept was developed in 1973 by social scientists Horst Rittel and Melvin Webber.

Unlike math problems, wicked problems have no single, correct solution. In fact, a solution that improves one aspect of a wicked problem usually makes another aspect of the problem worse.

Poverty is a common example of a wicked problem.

According to Rittel and Webber, all wicked problems have these five characteristics:

  1. They are hard to define.
  2. It’s hard to know when they are solved.
  3. Potential solutions are not right or wrong, only better or worse.
  4. There is no end to the number of solutions or approaches to a wicked problem.
  5. There is no way to test the solution to a wicked problem—once implemented, solutions are not easily reversable, and those solutions affect many people in profound ways.

Healthcare is one of our nation’s critical wicked problems, and the broad and persistent effects of COVID have made that problem worse.

Like all wicked problems, the wicked problem of healthcare can be defined in many different ways and from many different perspectives.

If we were to frame the wicked problem of healthcare just in the context of hospitals and health systems coming off of their worst financial year in memory, it could look something like this:

Hospitals and health systems need to make a margin in order to carry out their “duty of care”—that is, their responsibility to improve health for communities, which increasingly include public health undertakings.

However, in 2022, more than half of hospitals in America had negative margins due largely to macroeconomic factors related to labor, inflation, utilization, and insufficient revenue growth.

The actions then needed to improve financial performance likely involve reducing labor costs and eliminating unprofitable services.

But these solutions in the hospital world are seen as another wicked problem, and actions taken to improve financial and clinical operations are often cautiously approached in order to protect the organization’s duty of care.

As you can see, the very actions to solve the wicked problem of provider healthcare may likely make aspects of the strategic problem worse.

Everyone reading this blog is dedicated to solving these and other wicked problems related to health and healthcare and the provision of sufficient care to the American community.

Solutions to healthcare’s wicked problems are never clear, and those solutions are not easily tested and eventually can affect many.

And in the wicked problem lexicon, once uncertain solutions have been implemented they are very hard to undo.

And healthcare’s many and varied dissatisfied stakeholders demand rapid solutions and then complain loudly when those solutions fall short, as any one solution inevitably will when the problem is as wicked as the current healthcare environment.

This is the new role of healthcare leaders: solvers of wicked problems.

What Hospital Systems Can Take Away From Ford’s Strategic Overhaul

On today’s episode of Gist Healthcare Daily, Kaufman Hall co-founder and Chair Ken Kaufman joins the podcast to discuss his recent blog that examines Ford Motor Company’s decision to stop producing internal-combustion sedans, and talk about whether there are parallels for health system leaders to ponder about whether their traditional strategies are beginning to age out.

Consumers are skeptical of “hospitals”—just not their own

Health systems have recently been the subject of high-profile media accusations that they prioritize “profits over patients”, as an unflattering New York Times series has framed it.

New consumer survey data from strategic healthcare communications consulting firm Jarrard Inc. shows that while consumers find some merit in these claims, they tend to see their local hospital in a better light. As shown in the graphic above, a majority of US adults believe that, on a national level, hospitals are more focused on making money than caring for patients, and that they don’t do enough to help low-income people access high quality care.

Despite only one in five survey participants having seen news stories alleging hospitals fail to provide enough charity care in exchange for tax breaks, 65 percent of survey respondents find those allegations believable.

But while the consumer perception of hospitals may be suffering nationally, the responses were quite different when consumers were asked about their preferred local hospital. More than half strongly agreed that their preferred local hospital is a good community partner—one that puts patient care ahead of making money.

(Just as with Congress: people love to criticize the institution, while continuing to return their own representatives to Washington.) While the negative national attention can be disheartening, at the end of the day, to consumers, healthcare is local, and health systems must continue to build direct consumer relationships to strengthen patient loyalty. 

Is ‘toxic positivity’ a healthcare problem? One CEO thinks so.

Writing for Forbes, Sachin Jain, president and CEO of SCAN Group and Health Plan, argues that “toxic positivity,” or the idea that one should only focus on what’s going right rather than identifying and working on the underlying causes of a problem, is rampant throughout the healthcare industry and offers a few ideas on how to fix it.

Toxic positivity in healthcare

Jain writes that toxic positivity is a “somewhat understandable reaction to seemingly insurmountable obstacles, which perhaps explains toxic positivity’s ascendancy in the healthcare industry.” But now, toxic positivity is “bleeding into situations involving challenging but fully solvable problems.”

For example, Jain writes that nearly every company in the healthcare industry eventually pays a marketing agency to craft “glorious-sounding mission statements” that are then used by leaders whenever they are confronted with their shortcomings.

“Your health system just christened a new billion-dollar hospital, but is unleashing bill collectors on the indigent? Our mission is clear: Patients first!” Jain writes. “Your startup appears to be serving only the wealthiest and healthiest retirees, while pulling no cost from the healthcare system? We’re proudly committed to doing right by seniors by offering value-based care!”

Jain clarifies that he doesn’t believe all healthcare executives are cynically trying to avoid hard issues. Rather, they are “often too far removed from the front lines of the system, and even their own companies’ patient-facing operations, to witness the flaws.”

Often executives don’t notice the flaws in their health systems until a loved one needs help, Jain writes. “Only then do the industry’s leaders confront the reality that, at a person’s most vulnerable point in life, healthcare companies often treat you like a consumer … instead of just taking care of you.”

Without that reality check, it’s easy for executives to rely on their lofty mission statements and value propositions, and to “see their companies as distinct from, rather than intrinsically connected to, the industry’s biggest issues,” Jain writes.

How to fix toxic positivity

One simple intervention won’t fix toxic positivity in the healthcare industry, Jain writes, but companies can start by talking about their flaws.

“In a perfect world, the healthcare industry would commit to a culture of relentless interrogation of its flaws as a means of driving to better results,” Jain writes. Healthcare leaders need to “stop hiding behind company mission statements and ‘just-so stories’ about their impact and start speaking publicly about the steep challenges we each face as we fall short of fulfilling our specific corporate mission,” Jain adds. That means publicly addressing issues at events and discussing strategies for addressing them.

Private behavior within a company can also help reverse toxic positivity, Jain writes. Leaders should continue celebrating the accomplishments of frontline healthcare providers, but they should also “bring a critical eye to their operations and demand — not just encourage — that their colleagues help them uncover ways they can individually and collectively do better.”

That means asking questions like, “If our organization disappeared tomorrow and people were forced to find their healthcare insurance or services or devices elsewhere, would anyone be truly worse off and why?” Jain writes. If your company doesn’t have an answer for that, then you should work harder to increase your replacement value and drive competitive differentiation.

Addressing toxic positivity also means addressing the flaws in value-based care and having “honest, authentic conversations about what works and what doesn’t and why,” Jain writes. “About whether companies that proclaim to improve care are merely benefitting from arbitrage opportunities in reimbursement systems or are actually, meaningfully improving service to patients.”

Executives need to stop treating the healthcare industry like all other industries and “call BS on the idea that it’s somehow okay to be financially successful without making an actual difference in anyone’s lives,” Jain writes.

The healthcare industry needs to welcome thoughtful, critical, and reflective voices to every table, Jain writes. “Because nothing — absolutely nothing — will actually get better without them.” 

Physician burnout as a symptom of our ailing healthcare system

 In a guest essay for the New York Times this week, Dr. Eric Reinhart argues that physician burnout is not solely a product of physicians’ deteriorating working conditions, but is also driven by a loss of faith in the larger US healthcare system.

He notes that physicians have begun to lose hope in their ability to improve the system in which they work. As outpourings of appreciation for heroic healthcare workers have ended, physicians find themselves working in a system whose myriad structural flaws have been exacerbated by the pandemic. While the system might serve certain physician groups well (particularly specialists who are advantaged by the American Medical Association’s billing code structures), it often fails the patients who trust them for their care, and doctors “are now finding it difficult to quash the suspicion that our institutions, and much of [their] work inside them, primarily serve a moneymaking machine”.

The Gist: While elevating burnout to the level of culture, ideology, and faith in the US healthcare system may be met with skepticism by health system leaders interested in concrete solutions to their workforce problems, it’s important to acknowledge that material benefits and operational improvements may not fully solve engagement challenges.

Compared to peer nations, our healthcare system can be uniquely seen as unfair and unequal, whether because of medical debt, maternal mortality, or declining life expectancies—and many providers feel ill-equipped to address these concerns in their daily work.

This piece serves as a reminder of why most clinicians chose healthcare in the first place: to save lives and help people. The younger generation of physicians is rethinking what that mission means, and how it should include more than just care delivery—and they’re more open to aggressive policy solutions to address systemic inequalities

5 trillion-dollar questions hanging over hospitals

Big questions tend to have no easy answers. Fortunately, few people would say they went into healthcare for its ease.

The following questions about hospitals’ culture, leadership, survival and opportunity come with a trillion-dollar price tag given the importance of hospitals and health systems in the $4.3 trillion U.S. healthcare industry. 

1. How will leaders insist on quality first in a world where it’s increasingly harder to keep trains on time? 

Hospitals and health systems have had no shortage of operational challenges since the COVID-19 pandemic began. These organizations at any given time have been or still are short professionals, personal protective equipment, beds, cribs, blood, helium, contrast dye, infant formula, IV tubing, amoxicillin and more than 100 other drugs. After years of working in these conditions, it is understandable why healthcare professionals may think with a scarcity mindset

This is something strong leaders recognize and will work to shake in 2023, given the known-knowns about the psychology of scarcity. When people feel they lack something, they lose cognitive abilities elsewhere and tend to overvalue immediate benefits at the expense of future ones. Should supply problems persist for two to three more years, hospitals and health systems may near a dangerous intersection where scarcity mindset becomes scarcity culture, hurting patient safety and experience, care quality and outcomes, and employee morale and well-being as a result. 

The year ahead will be a great test and an opportunity for leaders to unapologetically prioritize quality within every meeting, rounding session, budgetary decision, huddle and town hall, and then follow through with actions aligned with quality-first thinking and commentary. Working toward a long-term vision and upholding excellence in the quality of healthcare delivery can be difficult when short-term solutions are available. But leaders who prioritize quality throughout 2023 will shape and improve culture.

2. Who or what will bring medicine past the scope-of-practice fights and turf wars that have persisted for decades? 

It is naive to think these tensions will dissolve completely, but it would be encouraging if in 2023 the industry could begin moving past the all-too-familiar stalemates and fears of “scope creep,” in which physicians oppose expanded scope of practice for non-physician medical professionals. 

Many professions have political squabbles and sticking points that are less palpable to outsiders. Scope-of-practice discord may fall in that category — unless you are in medicine or close to people in the field, it can easily go undetected. But just as it is naive to think physicians and advanced practice providers will reach immediate harmony, so too is it naive to think that aware Americans who watch nightly news segments about healthcare’s labor crisis and face an average wait of 26 days for a medical appointment will have much sympathy for physicians’ staunch resistance to change. 

The U.S. could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, according to the Association of American Medical Colleges. Ideally, 2023 is the year in which stakeholders begin to move past the usual tactics, arguments and protectionist thinking and move toward pragmaticism about physician-led care teams that empower advanced practice providers to care for patients to the extent of the education and training they have. The leaders or organizations who move the needle on this stand to make a name for themselves and earn a chapter or two in the story of American healthcare. 

3. Which employers will win and which will lose in lowering the cost of healthcare? 

Employers have long been incentivized to do two things: keep their workers healthy and spend less money doing it. News of companies’ healthcare ventures can be seen as cutting edge, making it easy to forget the origins of integrated health systems like Oakland, Calif.-based Kaiser Permanente, which dates back to one young surgeon establishing a 12-bed hospital in the height of the Great Depression to treat sick and injured workers building the Colorado River Aqueduct. 

Many large companies have tried and failed, quite publicly, to improve healthcare outcomes while lowering costs. Will 2023 be the year in which at least one Fortune 500 company does not only announce intent to transform workforce healthcare, but instead point to proven results that could make for a scalable strategy? 

Walmart is doing interesting things. JPMorgan seems to have learned a good deal from the demise of Haven, with Morgan Health now making some important moves. And just as important are the large companies paying attention on the sidelines to learn from others’ mistakes. Health systems with high-performing care teams and little variation in care stand to gain a competitive advantage if they draw employers’ attention for the right reasons. 

4. Who or what will stabilize at-risk hospitals? 

More than 600 rural hospitals — nearly 30 percent of all rural hospitals in the country — are at risk of closing in the near future. Just as concerning is the growing number of inner-city hospitals at increased risk of closure. Both can leave millions in less-affluent communities with reduced access to nearby emergency and critical care facilities. Although hospital closures are not a new problem, 2022 further crystalized a problem no one is eager to confront. 

One way for at-risk hospitals to survive is via mergers and acquisitions, but the Federal Trade Commission is making buying a tougher hurdle to clear for health systems. The COVID-19 public health emergency began to seem like a makeshift hospital subsidy when it was extended after President Joe Biden declared the pandemic over, inviting questions about the need for permanent aid, reimbursement models and flexibilities from the government to hospitals. Recently, a group of lawmakers turned to an agency not usually seen as a watchdog for hospital solvency — HHS — to ask if anything was being done in response to hospital closures or to thwart them. 

Maintaining hospital access in rural and urban settings is a top priority, and the lack of interest and creativity to maintain it is strikingly stark. As a realistic expectation for 2023, it would be encouraging to at least have an injection of energy, innovation and mission-first thinking toward a problem that grows like a snowball, seemingly bigger, faster and more insurmountable year after year.

Look at what Mark Cuban was able to accomplish within one year to democratize prescription drug pricing. Remember how humble and small the origins of that effort were. Recall how he — albeit being a billionaire — has put profit secondary to social mission. There’s no one savior that will curb hospital closures in the U.S., but it would be a good thing if 2023 brought more leadership in problem-solving and matching a big problem with big energy and ideas. 

5. Which hospital and health system CEOs will successfully redefine the role? 

Many of the largest and most prominent health systems in the country saw CEO turnover over the past two years. With that, health systems lost decades of collective industry and institutional knowledge. Their tenure spanned across numerous milestones and headwinds, including input and compliance with the Affordable Care Act, the move from paper to digital records, and major mergers and labor strikes. The retiring CEOs had been top decision-makers as their organizations met the demands of COVID-19 and its consequences. They set the tone and had final say in how forcefully their institutions condemned racism and what actions they took to address health inequities. 

To assume the role of health system CEO now comes with a different job description than it did when outgoing leaders assumed their posts. Many Americans may carry on daily life with little awareness as to who is at the top of their local hospital or health system. The pandemic challenged that status quo, throwing hospital leaders into the limelight as many Americans sought leadership, expertise and local voices to make sense of what could easily feel unsensible. The public saw hospital CEOs’ faces, heard their voices and read their words more within the past two years than ever. 

In 2023, newly named CEOs and incoming leaders will assume greater responsibility in addition to a fragile workforce that may be more susceptible to any slight change in communication, transparency or security. They will need to avoid white-collar ivory towers, and earn reputations as leaders who show up for their people in real, meaningful ways. Healthcare leaders who distance themselves from their workforce will only let the realistic, genuine servant leaders outshine them. In 2023, watch for the latter, emulate them and help up-and-comers get as much exposure to them as possible. 

Achieving True Health Care Transformation Requires Rethinking Compensation Models and Executive Performance Metrics

Healthcare leaders now need to strike a delicate balance that requires managing financial and growth metrics, increasing the speed of transformation, and building the health systems of tomorrow. So how do we redefine compensation models to reward all these behaviors?

Executive compensation might not spring to mind as a key driver of healthcare transformation, nor does it seem naturally connected to critical issues such as health equity, patient safety, or quality of care – just a few of the areas where significant changes can be made to transform healthcare. But, in fact, executives leading not-for-profit health systems today are tasked with delivering measurable results that improve the health status of their patients and their communities. And to ensure that these new performance metrics are met, we must change how we think about —and deliver—compensation.

Defining a new model

While executive compensation has always been tied to specific objectives, they have historically leaned heavily toward financial performance, volume and margins, with a modest portion of compensation aligned to quality of care and patient outcomes. But transformative approaches such as population health, value-based care, patient wellness and health outcomes are shifting the mark.

Healthcare leaders now need to strike a delicate balance that requires managing financial and growth metrics, increasing the speed of transformation, and building the health systems of tomorrow. So how do we redefine compensation models to reward all these behaviors?

Some might say that the answer lies in adjusting incentive plans. While incentive plans across health care have not changed significantly in the past decade, the sophistication of the plans has changed, reflecting greater attention to delivering a better patient experience. But delivering better experiences does not imply that health systems have transformed from the top down. In my mind, adjusting incentive plans only solves part of the problem.

If we want true health care transformation—and we should, in order to best serve patients and communities—health systems need to re-evaluate the outcomes for each stakeholder and create incentives to evolve leadership as a whole. We need to rethink executive compensation models to align with value-based care, patient experience, and the resulting outcomes, along with traditional performance measurements.

Leading through lingering disruption 

But rethinking executive compensation models won’t be an easy task, especially given the external challenges and changes thrust upon the health care system over the last few years.

As with nearly every other aspect of health care, pay for performance was disrupted during the pandemic. Demand for health services changed dramatically, labor and attrition issues intensified, and supply chain problems and operational costs increased. These new pressures required executives to manage through long periods of uncertainty where meeting operational pay-for-performance goals was nearly impossible. Fast-forward to today, the executive talent market remains extraordinarily competitive. Demand outpaces supply due to higher-than-typical retirements, effects of the great resignation, the need for new skill sets and overall burnout.

As a result, there has been upward pressure on compensation to address and fulfill unexpected but immediate needs such as rewarding executives for managing in a unique and challenging performance environment, increasing efforts to recruit and retain, and recognizing leaders for their hard-won accomplishments.

Considerations and changes

When considering adjusting models for 2023 and beyond, CEOs and compensation committees need to take these pressures and disruptions into account. They should look closely at their own compensation data from the past two years – not as a lighthouse for future compensation, but as data that may need to be set aside due to the volume of performance goals and achievements that were up-ended by the pandemic. When relying on external industry data, the same rules apply; smaller data sets or those that don’t account for the past two years may be misleading, so review carefully before using limited data sets to inform adjusted models.

Just as important, CEOs and compensation committees should consider new performance measurements tied to both financial and quality or value-based transformation metrics. We don’t need to eliminate traditional financial and operational goals because viability is still a business mandate. But how can we articulate compensation-driven KPIs for stewardship of patient and community health, improved outcomes and reduced cost of care? Too many measures are akin to having no measures at all.

The compensation mix should take into account a more focused approach to long-term measures. The old paradigm of 12-month incentive cycles is not enough to address the time required to truly transform health care. Another consideration should be performance-based funding of deferred compensation based on achieving transformation goals, and greater use of retention programs to support the maintenance of a stable executive team during the transformation period. Covid-19 proved how crisis can be an accelerator for change. True transformation should blend the skills gained from crisis management with planful, thoughtful and intentional change.

In addition, some metrics may need to incorporate a discretionary component, considering ongoing disruption within the workforce, supply chain limitations, and energy, equipment and labor cost increases. More organizations are also including health equity, DE&I, and ESG goals in incentive programs to tighten alignment with mission-critical board-mandated goals.

Transformative change 

There are four elements that are vital in the journey to transform health care from “heads in beds” to the public-service-oriented organizations that they were meant to be—and can be again. With mounting pressure from patients, communities, and payers to boards and employees, CEOs and compensation committees must become key drivers of change, setting the right goals and incentives from the top down.

  • Affordability: can patients afford the care they need?
  • Quality: is the care being delivered of the utmost quality?
  • Usability: how can we reduce hurdles to undertaking the care plan?
  • Access: are all community members able to access needed care?

Solving for each of these elements is one of the biggest challenges we face, and as we begin to emerge from the disruption of the pandemic, leaders will be watched closely to ensure that they deliver—and can clearly show the path to delivery.

Ideally, end achievements would include patients spending less to achieve better health; payers controlling costs and reducing risk; providers realizing efficiencies and greater patient satisfaction; and alignment of medical supplier pricing to patient outcomes. And when you zoom out to reveal the bigger picture, all of these pieces come together to achieve healthier populations and lower overall health care costs, while still meeting the financial goals of the organization.

We’re asking a lot of already-overburdened health care executives. Stakeholders must prove that we value leaders with the right mindset and skillset in order to attract executives who can shepherd organizations through the transformation journey. This requires a setting where there is supportive leadership, a compelling mission and opportunity for personal growth and development. It will not be easy, but without rethinking how we design compensation models from the top down, it will be unnecessarily challenging.

The dire state of hospital finances (Part 1: Hospital of the Future series)

About this Episode

The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.

In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica WestheadColin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.


As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting

Where do patients go when hospitals shut down capacity?

Last week we met the CEO of the flagship hospital of a large academic health system. Like nearly every hospital, they are challenged in finding the staff they need to keep the hospital running at full capacity. Keeping all the hospital’s units open has been critical: “Over the past three months, we have been busting at the seams…more patients, and they’re sicker. And we’re not even really into flu season yet.” We asked what had changed, given that summer usually is lighter than other seasons for hospital admissions. 

His diagnosis: local community hospitals, also strapped for staff, had begun to regularly shut down units to keep premium labor spend in check. “If they’re not running at full capacity, the patients still have to go somewhere. Given that we’re both the quaternary care provider and the community’s safety net, they’re coming downtown to us. We don’t have the luxury to shut down.” The system had to ramp up agency nursing to accommodate the demand, leading to a sharp rise in labor costs.

This CEO wasn’t backing away from the system’s mission, and vowed to expand capacity as much as they could, but felt that policymakers and payers needed to understand the dynamics in the market: “We’re getting criticized for not being able to control our costs, despite the fact that we’re absorbing what other hospitals can’t handle.” As we head into winter, flu will surely spike, and another COVID surge is possible—the hospitals at the top of the “care chain” will become even more strained in their mission to accommodate their communities’ needs.