In the last edition of the Weekly Gist, we illustrated how non-hospital physician employment spiked during the pandemic. Diving deeper into the same report from consulting firm Avalere Health and the nonprofit Physicians Advocacy Institute, the graphic above looks at the specialties that currently have the greatest number of physicians employed by hospitals and corporate entities (which include insurers, private equity, and non-provider umbrella organizations), and those that remain the most independent.
To date, there has been little overlap in the fields most heavily targeted for employment by hospitals and corporate entities. Hospitals have largely employed doctors critical for key service lines, like cancer and cardiology, as well as hospitalists and other doctors central to day-to-day hospital operations.
In contrast, corporate entities have made the greatest strides in specialties with lucrative outpatient procedural business, like nephrology (dialysis) and orthopedics (ambulatory surgery), as well as specialties like allergy-immunology, that can bring profitable pharmaceutical revenue.
Meanwhile, only a few specialties remain majority independent. Historically independent fields like psychiatry and oral surgery saw the number of independent practitioners fall over 25 percent during the pandemic.
While hospitals will remain the dominant physician employer in the near term, corporate employment is growing unabated, as payers and investors, unrestrained by fair market value requirements, can offer top dollar prices to practices.
New Hyde Park, N.Y.-based Northwell Health began 2023 with a low, but positive operating margin, but labor costs are expected to increase again this year on the back of recent union activity in the state.
To offset such increases that were not anticipated in the 2023 budget, Northwell is evaluating opportunities to reduce expenses and increase revenue across the health system, which includes 21 hospitals and about 83,000 employees.
Michael Dowling, CEO of Northwell, spoke to Becker’s Hospital Review about the health system’s biggest challenge this year, how it approaches cost-cutting and why outpatient care is its biggest growth area.
Editor’s note: Responses are lightly edited for length and clarity.
Question: Many health systems saw margins dip last year amid rising inflation, increased labor costs and declining patient volumes. How have you led Northwell through the challenges of last year?
Michael Dowling: We ended 2022 with a low, but positive margin. We’ve been coming back from COVID quite successfully, and we’re back pretty much in all areas to where we were prior to the pandemic. Volumes have returned and we’re very busy. We came into 2023 with a positive budget and a positive margin. We anticipate that you’re always going to have challenges and disturbances, but it’s important to stay focused and deal with it. We have a very detailed strategic plan, which outlines our various goals, and we stick to it.
Q: What is your top priority today?
MD: The biggest issue for us today is labor costs. We have lots of union activity in New York at the moment. There were various nurse strikes in New York City at the beginning of the year. None of our hospitals were involved in those deliberations, but some of those hospitals agreed to contracts that have increases that were not anticipated in anybody’s 2023 budget. That’s going to have an effect on us. We have negotiations ongoing with the nurses’ union, and have 10 unions overall. About 90 percent of Northwell’s facilities have unions, so the bottom line is we are going to have expenses as a result of these contracts that were not anticipated in the budget. I don’t know the final number on these contracts yet, but it’s definitely going to be more than what we anticipated.
The unions in New York get a lot of government support and have become very empowered and quite aggressive. The bottom line is there’s more expense than we anticipated in our budget, so we need to figure out how to address that. We’re looking at everything across our health system to find expense reductions or revenue enhancements to be able to make up for the increased labor costs and be optimistic about ending the year with a positive margin. But we’re in a good place and are not like some other health systems that are struggling financially.
Q: Where are the biggest opportunities to reduce expenses or increase revenue to offset the increased labor costs?
MD: It’s a combination of a lot of things. We have a detailed capital plan that we may slow down. We hire about 300 people a week, so maybe we’ll target that hiring into specific areas and not be as broad based as we thought we could be. We will examine if we have specific programs or initiatives we can curtail without doing any damage to our core mission. It will end up being a portfolio of items; it won’t be one big thing. On the revenue side, we’re working very hard to increase our neurosurgery, cardiac, cancer and orthopedic businesses. Over the next couple of months, all of those things will be taken into consideration. The bottom line is we are going to come out of this winning.
Q: Looking three or four years down the line, where do you see the biggest growth opportunities for Northwell?
MD: Our biggest growth is in outpatient care. A lot of surgeries are moving outpatient, so we have to get ahead of that. Some think we are only a hospital system, but only about 46 percent of our business is from our hospital sector today. Home care is going to grow phenomenally, especially given the new technology that’s available. Digital health will also dramatically expand.
We’re also looking at expanding into new geographic areas and markets. It’s about positioning your offerings in places close to where people live, so you reduce the inconvenience of people having to travel long distances for care when it should be available to them closer to home. When you do that, you increase market share. We’re constantly increasing our market share by being very aggressive about going to where the customer is and providing the highest quality care that we can. Part of that is also being able to recruit top-line, quality physicians. When you do that, you attract new business because you have competencies that you didn’t have before. It’s a combination of all of these things, but there’s certainly no limit to the opportunities in front of us. We’re not in a world of challenges; we’re in a world of opportunity. The question is are we aggressive enough and do we have enough tolerance for some risk? We need to be as aggressive as we possibly can to take advantage of some of those opportunities.
Q: What is the biggest challenge on the horizon for Northwell?
MD: The biggest challenge is the huge growth in government payer business — Medicare and Medicaid. The problem with Medicaid — especially in a union environment — is it doesn’t cover your costs. The government is a big part of a potential future issue there. By increasing Medicaid, the more of your business becomes Medicaid and the worse you end up doing, unless you can increase your commercial payer business to continue to cross-subsidize. We also have a lot of union negotiations over the next couple of months, which will put a strain on our 2023 budget, but we will resolve it.
Q: How do you see hospitals and health systems evolving as CMS, commercial payers and patients continue to push more services to outpatient settings, where they can arguably be performed at a higher quality and lower cost?
MD: I think it’s going to continue to grow. For example, Northwell has 23 hospitals — 21 of which it owns — yet it has 890 outpatient facilities. We’ve been ahead of this curve a long time. Our primary expansion is in ambulatory care, not in-hospital care. Like I said, only 46 percent of Northwell’s total business is its hospital business. If you’re relying on the hospital to be the core provider of the future, you’re going to lose. You’ve got to take a little bit of a hit by going out and expanding your ambulatory presence. But the more you expand ambulatory and grow in the right locations, the more you increase market share, which brings more of the necessary inpatient care back to your hospitals. Our hospitals are growing and getting busier in addition to our outpatient centers because we are growing market share. If we enter a new community and see 100 people, five of them will need to be hospitalized. That’s a new market. Ambulatory cannot be disassociated from its connection to the inpatient market.
Q: Many financial experts are projecting a recession this year. How might that affect hospitals and health systems, and how can they best prepare?
MD: Even if we do have a recession, it doesn’t mean that people don’t get sick. In fact, people’s problems increase. Our business does not slow down if we have a recession; our business will probably increase. On the revenue side, it won’t necessarily affect our government reimbursement, which we don’t do well on anyway. The things you worry about during a recession is if employers give up the coverage of their staff. Then those employees with no insurance may go on a state Medicaid program, and that might affect hospitals.
In the healthcare sector, even in a recession, the need for hospital services actually increases. No recession could be as bad as what we experienced during COVID, yet we managed it. We had a problem that we didn’t even understand, and we worked through it. I think healthcare deserves an extraordinary credit for what was done during COVID. If there is a recession, we will deal with it. It’s just one of those things that happens, and we will respond to it in as comprehensive a way as we can. I can’t control it, but I can control our response. Leadership to me is about having a positive disposition; basically saying that whatever happens to you, you’re going to win.
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.
Published this week in the New England Journal of Medicine, this concerning study found that seven percent of all inpatient hospital admissions feature at least one preventable adverse event, and that nearly a quarter of all adverse events are preventable, with drug administration errors the most frequent. While the complexities behind studying adverse events make it difficult to measure progress over time, the authors assert that these episodes are still far too common, and advocate for establishing standard approaches to measure the frequency of adverse events more reliably.
The Gist: Health systems had been making at least some progress in their decades-long effort to reduce adverse events before COVID turned the industry upside down, drawing clinical leaders’ focus to the crisis and upending industry benchmarks.
Today’s short-staffed, traveler-dependent labor force presents yet another challenge to hospitals aiming to achieve quality benchmarks. COVID has also accelerated the outpatient shift, heightening the importance of tracking quality metrics in non-hospital settings.
As more complex procedures are performed in ambulatory surgery centers, and more hospital care is administered at home, there’s also a concern that hospital-based quality measures are not telling the whole story on the state of patient safety.
A rethinking of quality metrics and processes to measure and prevent adverse events across the continuum is long overdue.
Hospitals experienced a slight boost to operating margins in November, but not enough to restore the median negative margins that persisted for 2022 to date.
Kaufman Hall’s December “National Flash Hospital Report“ — based on data from more than 900 hospitals — found hospitals’ median operating margin was -0.2 percent through November, a slight improvement from the median of -0.3 percent recorded a month prior.
A 1 percent decline in expenses from October to November drove the eleventh-hour improvement to margins and tipped the scales on hospitals’ relatively flat revenue. Additionally, hospitals saw labor expenses decrease 2 percent in November, potentially driven by less reliance on contract labor.
The median -0.2 percent margin recorded in November 2022 marks a 44 percent decline for margins in 22 year-to-date compared to 2021 year-to-date. Kaufman Hall’s index shows hospitals’ median monthly margins have been in the red throughout 2022, starting with the -3.4 percent recorded in January, driven by the omicron surge. November is tied with September as hospitals’ best month of the year, with both sharing a median margin of -0.2 percent.
Outpatient care marks one of the brighter spots for hospitals’ finances, with outpatient revenue up 10 percent year-over-year while inpatient revenue was flat over the same time period.
“The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues and rising interest rates,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. “Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation.”
St. Francis Medical Center in Trenton, N.J., on Dec. 21 transitioned to a freestanding emergency room that offers various outpatient services after Capital Health acquired the hospital from Trinity Health, according to PBS affiliate WHYY.
The campus, renamed Capital Health – East Trenton, must feature a primary family health clinic and a women’s OB/GYN clinic, according to terms of the transaction.
Other services, such as cardiac surgery, are moving to Capital Health Regional Medical Center in Trenton, where “extensive capital projects” are being planned, the health system said in a Dec. 8 news release.
A St. Francis spokesperson told the news outlet that the hospital had been financially struggling for years.
“St. Francis has done many great things for the Trenton community, but the current healthcare landscape has made it unsustainable,” Capital Health President and CEO Al Maghazehe said. “Without these key approvals, Trenton would have lost desperately needed healthcare services, including emergency services, behavioral health and cardiac surgery.”
Capital Health said it has taken “a significant risk” to try and prevent a healthcare crisis for Trenton’s 90,000 residents, according to the report.
The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.
In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.
As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.
Rachel Woods:When I talk about hospitals of the future, I think it’s very easy for folks to think about something that feels very futuristic, the Jetsons, Star Trek, pick your example here. But you have a very different take when it comes to the hospital, the future, and it’s one that’s perhaps a lot more streamlined than even the hospitals that we have today. Why is that your take?
Jim Bonnette: My concern about hospital future is that when people think about the technology side of it, they forget that there’s no technology that I can name that has lowered health care costs that’s been implemented in a hospital. Everything I can think of has increased costs and I don’t think that’s sustainable for the future.
And so looking at how hospitals have to function, I think the things that hospitals do that should no longer be in the hospital need to move out and they need to move out now. I think that there are a large number of procedures that could safely and easily be done in a lower cost setting, in an ASC for example, that is still done in hospitals because we still pay for them that way. I’m not sure that’s going to continue.
Woods: And to be honest, we’ve talked about that shift, I think about the outpatient shift. We’ve been talking about that for several years but you just said the change needs to happen now. Why is the impetus for this change very different today than maybe it was two, three, four, five years ago? Why is this change going to be frankly forced upon hospitals in the very near future, if not already?
Bonnette: Part of the explanation is regarding the issues that have been pushed regarding price transparency. So if employers can see the difference between the charges for an ASC and an HOPD department, which are often quite dramatic, they’re going to be looking to say to their brokers, “Well, what’s the network that involves ASCs and not hospitals?” And that data hasn’t been so easily available in the past, and I think economic times are different now.
We’re not in a hyper growth phase, we’re not where the economy’s performing super at the moment and if interest rates keep going up, things are going to slow down more. So I think employers are going to become more sensitized to prices that they haven’t been in the past. Regardless of the requirements under the Consolidated Appropriations Act, which require employers to know the costs, which they didn’t have to know before. They’re just going to more sensitive to price.
Woods: I completely agree with you by the way, that employers are a key catalyst here and we’ve certainly seen a few very active employers and some that are very passive and I too am interested to see what role they play or do they all take much more of an active role.
And I think some people would be surprised that it’s not necessarily consumers themselves that are the big catalyst for change on where they’re going to get care, how they want to receive care. It’s the employers that are going to be making those decisions as purchasers themselves.
Bonnette: I agree and they’re the ultimate payers. For most commercial insurance employers are the ultimate payers, not the insurance companies. And it’s a cost of care share for patients, but the majority of the money comes from the employers. So it’s basically cutting into their profits.
Woods: We are on the same page, but I’m going to be honest, I’m not sure that all of our listeners are right. We’re talking about why these changes could happen soon, but when I have conversations with folks, they still think about a future of a more consolidated hospital, a more outpatient focused practice is something that is coming but is still far enough in the future that there’s some time to prepare for.
I guess my question is what do you say to that pushback? And are there any inflection points that you’re watching for that would really need to hit for this kind of change to hit all hospitals, to be something that we see across the industry?
Bonnette: So when I look at hospitals in general, I don’t see them as much different than they were 20 years ago. We have talked about this movement for a long time, but hospitals are dragging their feet and realistically it’s because they still get paid the same way until we start thinking about how we pay differently or refuse to pay for certain kinds of things in a hospital setting, the inertia is such that they’re going to keep doing it.
Again, I think the push from employers and most likely the brokers are going to force this change sooner rather than later, but that’s still probably between three and five years because there’s so much inertia in health care.
On the other hand, we are hitting sort of an unsustainable phase of cost. The other thing that people don’t talk about very much that I think is important is there’s only so many dollars that are going to health care.
And if you look at the last 10 years, the growth in pharmaceutical spend has to eat into the dollars available for everybody else. So a pharmaceutical spend is growing much faster than anything else, the dollars are going to come out of somebody’s hide and then next logical target is the hospital.
Woods: And we talked last week about how slim hospital margins are, how many of them are actually negative. And what we didn’t mention that is top of mind for me after we just come out of this election is that there’s actually not a lot of appetite for the government to step in and shore up hospitals.
There’s a lot of feeling that they’ve done their due diligence, they stepped in when they needed to at the beginning of the Covid crisis and they shouldn’t need to again. That kind of savior is probably not their outside of very specific circumstances.
Bonnette: I agree. I think it’s highly unlikely that the government is going to step in to rescue hospitals. And part of that comes from the perception about pricing, which I’m sure Congress gets lots of complaints about the prices from hospitals.
And in addition, you’ll notice that the for-profit hospitals don’t have negative margins. They may not be quite as good as they were before, but they’re not negative, which tells me there’s an operational inefficiency in the not for-profit hospitals that doesn’t exist in the for-profits.
Woods: This is where I wanted to go next. So let’s say that a hospital, a health system decides the new path forward is to become smaller, to become cheaper, to become more streamlined, and to decide what specifically needs to happen in the hospital versus elsewhere in our organization.
Maybe I know where you’re going next, but do you have an example of an organization who has had this success already that we can learn from?
Bonnette: Not in the not-for-profit section, no. In the for-profits, yes, because they have already started moving into ambulatory surgery centers. So Tenet has a huge practice of ambulatory surgery centers. It generates high margins.
So, I used to run ambulatory surgery centers in a for-profit system. And so think about ASCs get paid half as much as a hospital for a procedure, and my margin on that business in those ASCs was 40% to 50%. Whereas in the hospital the margin was about 7% and so even though the total dollars were less, my margin was higher because it’s so much more efficient. And the for-profits already recognize this.
Woods: And I’m guessing you’re going to tell me you want to see not-for-profit hospitals make these moves too? Or is there a different move that they should be making?
Bonnette: No, I think they have to. I think there are things beyond just ASCs though, for example, medical patients who can be treated at home should not be in the hospital. Most not-for-profits lose money on every medical admission.
Now, when I worked for a for-profit, I didn’t lose money on every Medicare patient that was a medical patient. We had a 7% margin so it’s doable. Again, it’s efficiency of care delivery and it’s attention to detail, which sometimes in a not-for-profit friends, that just doesn’t happen.
One of COVID’s many effects on the health system business model has been the accelerated migration of care to outpatient settings, with orthopedic surgeries, such as knee and hip replacements, leading the way. For this week’s graphic, we partnered with Stratasan, a Syntellis-owned healthcare data analytics firm that provides market intelligence for strategic planning, to track how quickly joint replacements have shifted to hospital outpatient and ambulatory surgery centers (ASCs) over the last five years.
Using data from Stratasan’s proprietary All-Payer Claims Database, we found that by the end of 2021, only one in four knee replacements and one in three hip replacements were performed in inpatient facilities, down from over 95 percent in 2018. A major catalyst for the shift was the removal of the procedures from Medicare’s Inpatient Only list, first knee replacements in 2018, then hip replacements in 2020.
This change triggered an outpatient shift across all payers; COVID’s dampening effect on inpatient demand only exacerbated the trends. Patients who undergo these surgeries in an inpatient hospital tend to be sicker, older, and more likely to be on Medicare. This translates to an altered payer mix for these procedures, with hospitals seeing a drop in lucrative commercial payment and an uptick in lower Medicare reimbursements.
Amid rising expenses and slow-to-return volumes across the board, this outpatient migration presents another significant challenge to health systems’ financial bottom lines, and they must either find ways to recapture revenues in ambulatory settings, or watch a once reliable source of revenue walk—gingerly—out their doors.
Adult inpatient volumes will recover to pre-pandemic numbers but grow only 2 percent over the next decade, a new report from Sg2 forecasts.
At the same time, adult inpatient days are expected to increase 8 percent and tertiary inpatient days are poised to increase 17 percent, fueled by an increase in chronic conditions.
“While case mix varies by hospital, it is likely this combination of increased inpatient volume, patient complexity and length of stay may require healthcare organizations to rethink service line prioritization, service distribution and investment in care at-home initiatives,” Maddie McDowell, MD, senior principal and medical director of quality and strategy for Sg2, said in a June 7 news release for the report.
Five other key takeaways from Sg2’s forecasts:
1. Outpatient volumes are projected to return to pre-pandemic levels in 2022 and then grow 16 percent through 2032, three percentage points above estimated population growth.
2. Surgical volumes are projected to grow 25 percent at ambulatory surgery centers and 18 percent at hospital outpatient departments and physician offices over the next decade.
3. The pandemic-driven decline in emergency department visits is expected to plateau with a decline in demand projected at -2 percent over the next 10 years.
4. Over the next five years, home care is expected to gain traction, with home evaluation and management visits seeing 19 percent growth, home hospice at 13 percent growth and home physical and occupational therapy at 10 percent growth.
5. Telehealth is expected to resume its climb and by 2032 account for 27 percent of all evaluation and management visits.