Historically, demand forecasting for hospitals has been relatively predictable, based on the demography in a community, its population growth and historic mortality rates. However, in light of recent dynamics influencing the healthcare industry, this straightforward approach is no longer sufficient. In our view, four factors are reshaping demand for hospital services and prompting leadership to reassess their forecasts:
Factors Contributing to Shifting Care Settings
Influenced by the factors below, demand and utilization of hospital services have shifted from inpatient to outpatient settings. In those clinical programs where inpatient care is the standard, lengths of stay have been shrinking and efficiency gains have been achieved through clinical process redesign and facility improvements. The hospital of the future operates around a presumption that market dynamics address the following:
Clinical Innovation
Advances in diagnostics and treatment, the evolution of information technologies and advanced analytics, and digital connectivity to individuals and households are fast paced. The convergence of physical and behavioral health, traditional and alternative methods and acute and post-acute services is forcing hospitals to innovate in every clinical program.
Cost pressures
Per capita and aggregate costs of care are increasing faster than the GDP and CPI. Insurers, employers and individuals are particularly sensitive to hospital and drug costs.
Competition
New niche players in each sector (acute, post-acute, primary care, et al) are competing against local hospitals. Many are funded by private investors. Some are sponsored by physicians in the community. With access to capital available at low rates, niche players like Laser Treatment, Cancer Centers of America, and others will increase their presence as competitive options.
Consolidation
Hospitals are increasingly affiliating with
multi-hospital networks to acquire capital inexpensively and leverage scale for purchasing and managed care contracts. Consolidation is expected to continue for several years as acute providers seek to offer a wider scope of services across preventive and retail health, chronic care management, acute and post-acute services, and in some, sponsorship of health insurance.
Most hospitals have been active in managing their costs, quality and patient experiences. The vast majority of hospitals are actively engaged in efforts to improve the efficiency and effectiveness of their performance.
- Most are pursuing supply chain and revenue-cycle efficiencies through direct purchasing for big ticket technologies, outsourcing of purchasing and business office functions, and workforce reductions.
- Most are evaluating workforce productivity and compensation strategies to reduce their labor-related fixed and variable costs.
- Most have developed clinically integrated networks with a core of employed physicians to participate effectively in shared-risk arrangements with payers.
- Most are reorganizing their clinical portfolios to achieve optimal volume and efficiencies. And in this process, integrating physical and behavioral health in managing chronic, acute and post-acute settings.
- Most are investing in digital technologies and expanded primary and preventive health programs to engage patients more effectively
- Most are assuming more responsibility for the affordability of the services provided.
- And most are assessing methods of improving access to their services through physical facilities offering a broader range of services and online access.
Looking forward, market dynamics will force hospitals to accelerate their efforts to become systems of health offering more than traditional inpatient and outpatient services.
The hospital of the future must be market-driven. Hospitals must adapt to changing market conditions – some quicker than others. They are not paralyzed by regulatory constraints or shared risk arrangements, nor timid about deploying capital outside traditional hospital services.
Payments
Allows the scanning of people to ensure they are following safety protocols
Scope of Services
Verifies who is entering the building and allows check-in without touching a kiosk
Scale of Operations
Allows visitors and employees to complete a touchless check-in process using their mobile devices and scanning QR codes
Customers
Monitors the temperature of visitors and employees upon entry of the building, providing an extra safety measure
In responding to these dynamics, hospital leaders will have expanded operational responsibilities that, in some cases, require new skills and competencies: Per the illustration below, there are 11 key domains of attention:
HOSPITAL OF THE FUTURE | |||
|---|---|---|---|
FROM COMMUNITY HOSPITAL OR HEALTH SYSTEM | TO SYSTEMS OF HEALTH | ||
TODAY’S THINKING
Unit Costs Inpatient, Outpatient Services, Physician Services Medical Staff, Employed, ACO Safety, Outcomes Patient Experience, Allopathic Campus Orientation Facility Locations Affiliations Technology, Facilities for Inpatient, Outpatient Core Screenings, Social Services Annual Negotiation Reputation, IP-OP Location | OPERATIONAL DOMAINS
Cost Orientation Business Unit Orientation Physician Organization Clinical Orientation Network Design Access Provider Network Capital Deployment Community Benefit Focus Insurer Orientation Value Proposition | FUTURE STATE OF THINKING
Total cost of care Acute, Primary, Post Acute, Retail + Insurance Exclusive Network + Alternative Providers Effectiveness, Efficiency, User Experience Regional Sites of Care Facilities + Digital Connectivity Narrow, Formal Regional Hubs Social Determinants Partnerships Scale, Scope, Outcomes, Affordability, Locations | |
The 11 Operational Domains Hospitals of the Future Must Address
Clinical Innovation
From managing unit costs to leveraging total cost of care (TCOC): Cost per visit, test, admission, et al, will be replaced by total cost of care reporting for a given patient population calculated over a given time period. TCOC captures all services associated with treating a patient including inpatient, outpatient, post-acute, professional, pharmacy, and ancillary services, and includes fixed and direct costs.
Business Unit Orientation
Expanded organizational chart orientation shift from emergency, inpatient, outpatient, and clinic business units to a wider array of business units addressing post-acute care, retail health, insurance and others.
Physician Orientation
From a medical staff model to an exclusive network of clinicians and providers inclusive of pharmacists, dentists, nutritionists, health coaches, alternative health, mental health and others.
Clinical Orientation
From allopathic health to convergence of physical and behavioral health and alternative methods of care.
Network Orientation
From a campus orientation centered around inpatient and outpatient activity to a regional network of connected facilities and programs in homes, workplaces, schools, and convenient full-service outpatient centers.
Access
From facility locations to digital connectivity at home, at work, at play.
Provider Network Orientation
From services provided in the local community to services coordinated through partnerships outside local markets.
Capital Deployment
From financing via debt or equity to business partnerships and joint ventures
Community Benefit Focus
From loosely organized community benefit programs to expanded responsibility for improving social determinants of health.
Insurer Orientation
From contracts with multiple insurers to sponsorship of a plan in partnership with an insurer or partner.
Value Proposition
From access and perceived quality and safety to publicly reported safety, outcomes, patient experiences and costs.
Each of these requires operators to learn new skills and assume greater risks for results.
Key Considerations for Boards and C-Suites
Every hospital management team and its board is on a journey to become a system of health. Some will be more directly involved in insurance coverage, others less so. But there’s no doubt the transition is inevitable due to the industry’s trends and fast-changing market dynamics. Some key questions for leaders:
- Is our clinical portfolio appropriately designed to optimize efficiency, effectiveness, outcomes and convenience to the markets served?
- Are our capital investments in programs and facilities oriented to a hospital system of health that’s comprehensive and competitive?
- Should we go it alone or affiliate with a business partner?
- Are we responding to our market dynamics proactively or reactively?
- Does our bricks-and-sticks footprint position us for the future strategically?
- Does our online footprint connect us effectively?
Future Readiness Assessment
ERDMAN uses state-of-the-art proprietary clinical and market data to determine your best options for defining services, locations, and partners, based on the behavior of your populations, spending patterns, disease prevalence, and competitive opportunity at a block-by-block geographic level. We then support a strategic plan that encompasses facilities, service lines, brand, and provider network to achieve your goals.
