The 2012 American Hospital Association Environmental Scan provides insight and information about market forces that have a high probability of affecting the health care field. It is designed to help hospital and health system leaders better understand the health care landscape and the critical issues and emerging trends their organizations likely will face in the foreseeable future. The 2012 AHA Environmental Scan foldout is compiled from nationally recognized sources with recommendations from select AHA governance committees. The scan is produced by Gene J. O'Dell, the AHA's vice president for strategic and business planning, led by Donna J. Aspy, project manager, strategic and business planning. Lee Ann Jarousse, H&HN's senior editor of custom publications, compiled the information.

Associations

The strategic imperative for innovation in all forms is becoming ever more insistent. There is an especially urgent need to devote greater attention and energy to the complicated work of business-model innovation so associations are able to thrive over the next decade and beyond.

•The last decade has witnessed the creation of a robust, public, social layer of interaction, conversation and sharing in the form of blogs, wikis and, most recently, near real-time information flows, like Twitter, and global social networking sites, such as Facebook. The explosive growth of smart mobile devices over the last four years has amplified the impact of the social layer on the experience of associating. Associations must identify new ways to fully capitalize on digital social platforms to infuse greater meaning into a full spectrum of relationships between and among stakeholders, without necessarily imposing a requirement for any of those stakeholders to join the organization. 1

•An individual's perceived value of membership is directly proportional to his/her level of engagement. It's important to engage in dialogue with your members about the association's activities and initiatives, to involve them in advancing the mission of the organizations and stir their affinity for the association's vision. 2

Associations must produce products and services that deliver the highest possible value to members. This requires associations to discover their members' unarticulated needs, innovate, and develop valuable benefits that surprise and delight the membership. It also means dropping programs that deliver low value or distract staff from working on higher-value programs. 2

Science & Technology

Telemedicine (or connected health) is transforming the traditional view of medicine. Medical liability and other legal concerns, as well as security and privacy issues, also have come into play as potential obstacles to the growth of telemedicine. Plus, there are issues surrounding requirements in some states that physicians must secure a license to practice telemedicine with a state resident physician. 37

•Get ready for e-visits. Texting and emailing have been shown to be effective and efficient tools to connect patients and physicians. Additionally, the use of email communications and telephone visits cut office visits by 26 percent, improving the efficiency of ambulatory care. 32

•Health care consumers seeking advice will reach out increasingly to trusted online social networks as part of that process. As awareness about participatory medicine and the e-patient movement grows, consumers will come to hospitals better prepared to ask questions and expect clear, direct answers. 31

•The quality of care in the hospital setting can be facilitated through wireless technologies. This includes the ability to track every medication that is ingested, using pills tagged with digestible sensors that are activated in the stomach by the change in pH. Wireless sensors can monitor even routine procedures, such as physician and nurse hand washing.31

Physicians now can access the vital signs of hospitalized intensive care patients via their smart phones, and obstetricians can similarly monitor the uterine contractions and fetal heart rate of expectant mothers via their cell phones. Wherever there is connectivity to the web, patients can be monitored in real time. 31

•Rather than having the intensive care unit be the sole place where frequent vital sign measurements are recorded, every hospitalized patient's heart rate and rhythm, blood pressure, and other vital signs will be monitored continuously by noninvasive wireless sensors in the form of Band-Aid-like adhesive strips on the skin or wrist transceivers. 31

Human Resources

Finding a primary care physician and getting timely care are increasingly difficult, even among Medicare beneficiaries and privately insured adults. About 65 million people live in areas designated by the federal government as having a shortage of primary care providers. As the population grows and ages and a declining share of physicians choose primary care careers, current gaps in access to primary care are expected to widen. By 2020, the United States will face an estimated shortage of 91,000 physicians. 13

•There is a growing interest in workplace disease prevention and wellness programs to improve health and lower costs. Medical costs fall by about $3.27 for every dollar spent on wellness programs and absenteesism costs fall by about $2.73 for every dollar spent. 14

•A substantial body of research examining the quality of nurse practitioners' and physician assistants' primary care shows that these clinicians perform as well as physicians on important clinical outcome measures, such as mortality, improvement in pathological condition, reduction of symptoms, health status and functional status. 13

•In 2012, the percentage of unionized workers across the country slid to its lowest level in more than 25 years, according to the U.S. Department of Labor's Bureau of Labor Statistics. While the number of unionized workers declined by 612,000 workers in 2010, the contraction was not as dramatic as in 2009 when union membership dropped by 770,000. 15

States with low primary care physician supply also tend to have a high uninsured rate and few adults above the federal poverty line who are eligible for Medicaid, so these states likely will have the greatest enrollment increases — and demand for medical care — when the Medicaid eligibility expansions occur in 2014. 16

Consumers & Demographics

•Overall, the U.S. population has become more ethnically diverse. More than half of the growth in the total population between 2000 and 2010 was due to the increase in the Hispanic population (currently at 50.5 million or 16 percent of the total population). The Asian population experienced the fastest rate of growth with a 43 percent increase (reaching 14.7 million or 5 percent of the total population in 2010). The black-alone population had the third-highest increase in population, yet it grew slower than most other major racial groups (now totaling 38.9 million or 13 percent of the population). The only major racial group to experience a decrease in its proportion was the white-alone population (shrinking from 75 to 72 percent of the total population). Minorities are expected to be the majority by 2042. 3

•The single biggest force threatening U.S. workforce productivity, as well as health care affordability and quality of life, is the rise in chronic conditions. American workers experience high rates of chronic disease. Almost 80 percent of workers have at least one chronic condition. Fifty-five percent of workers have more than one chronic condition. 4

•As consumers take on more of the risk associated with health care, the traditional relationship among consumers, providers and payers is changing. With persistent medical inflation, employers will continue to promote greater employee cost sharing to reduce their health care spending. 5

•Agency for Healthcare Research and Quality-funded studies show that conversations with doctors about advanced care planning led to increased satisfaction among patients 65 years and older. Patients who talked with their families or physicians about their preferences for end-of-life care had less fear and anxiety; felt they had more ability to influence and direct their medical care; believed that their physicians had a better understanding of their wishes; and indicated a greater understanding and comfort level than they had before the discussion. 6

•Many Americans continue to report that they are confused and lack information about how the year-old health reform law will affect them. Fully 52 percent of the public say they do not have enough information about the health reform law to understand how it will impact them personally. 7

Economy & Finance

•Looking forward to 2012, 23 states already estimate budget gaps of 10 percent or more. Forty-six states and the District of Columbia are enacting cuts in all major program areas including health care, K-12 and higher education. 8

•Negative factors supporting Moody's outlook for the nonprofit health care sector include: high rates of unemployment, lower rates of health care utilization, and increased exposure to governmental payers and self-pay; pressure on all hospital revenue streams including Medicare, Medicaid, commercial payers and philanthropy; increased difficulty containing costs following two years of expense reduction; and ongoing balance sheet pressures due to exposure to bank liquidity facility renewal risk, pension obligations and increased exposure to noncancelable operating leases. 9

•The transformation of the health care industry is underway. Previously, it incentivized the provision of a high volume of services; the fee-for-services care delivery and payment system will change gradually during the next decade to a system that incentivizes the provision of high-value services. 10

•The purchase of sizable nonprofit health care systems by for-profit entities signals a significant shift underway in the hospital sector toward increased competition and consolidation in various markets in the United States. This trend will place additional pressure on the remaining nonprofits in affected markets to operate more efficiently, but also offers a potential new source of capital for nonprofits considering merger or sale. It also could provide unexpected exit strategies for investors holding the debt of low-rated nonprofit hospitals. 11

Despite the Medicaid program's success in holding down per capita cost growth relative to other segments of the health care system, states are grappling with immediate budgetary crises that may result in significant cuts to the program. 12

Information Technology & E-Health

•The volume and complexity of health care transactions is expanding rapidly. Today, less than 20 percent of clinical data is electronic, with little standardization across data fields. Digitizing, standardizing and normalizing clinical data so that it can be used for operational and clinical decision-making will require large capital investments and create ongoing operating costs. Few health care industry players have the scale or sophistication to manage these issues on their own. Resulting in part from this systemwide complexity, industry administrative costs will grow by about 10 percent annually over the coming years — higher than the rate of growth of medical inflation. 5

Coordinating care for patients with complex health conditions who see multiple physicians also can be supported by better health information technology interoperability. The primary care team may be in the best position to coordinate a patient's care, but often it will need information from other providers. Most current electronic health records don't adequately support data exchange across providers and settings, so practices communicate with outsiders primarily on paper. To support information exchange, EHRs must present data in standard ways, and separate organizations providing services for the same patient need to share information securely. 17

•HIT alone cannot transform our health care system; financial incentives must be realigned to reward patient-centered care. Current fee-for-service reimbursement encourages EHR use for documentation of billable events rather than for tasks important to the quality of care, such as coordination. Payment innovations such as bundled payments and accountable care organizations aim to encourage providers to share accountability for outcomes. 17

The health information exchange infrastructure must expand to provide connectivity. There are already 150 to 200 HIEs across the country, supported by a broad ecosystem of technology players, ranging from large-scale providers to smaller ones, to publicly backed approaches, such as the open-source software advanced by the Nationwide Health Information Network. 5

Patients prefer providers who use Internet-based tools to augment care, according to Deloitte's survey of health care consumers. More than half (55 percent) want to communicate with their doctors via email to exhange health information and to get answers to questions. Sixty-eight percent are interested in remote monitoring devices that allow self-monitoring of their condition and electronic reporting of results to their physician. 18

Insurance & Coverage

Nearly 9 million Medicaid beneficiaries are "dual eligibles" — low-income seniors and younger persons with disabilities who are enrolled in both the Medicare and Medicaid programs. Dual eligibles are among the sickest and poorest individuals covered by either the Medicaid or Medicare program. Dual eligibles account for the largest share (39 percent) of total Medicaid spending, although they represent just 15 percent of Medicaid enrollment. 19

•As the health care industry moves toward outcome-based, bundled payments, providers increasingly must leverage payment and clinical insights to better understand and manage medical risk. Most providers do not understand the economics relating to patient segments, service lines, geographies and payers. To understand profitability at a detailed level in an outcome-focused world, providers must have access to and analyze normalized clinical, claims and payments data. 5

•The U.S. system of billing third parties for health care services is complex, expensive and inefficient. Physicians end up using nearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. 20

•Disparities-specific provisions in the health reform law serve as an important step in addressing racial and ethnic health disparities. There are many factors within the health care system that contribute to health disparities including health coverage, patient behavior and provider quality. The coverage expansions, particularly to low-income individuals through Medicaid, and the premium credits and cost-sharing subsidies aimed at making coverage more affordable, will greatly benefit communities of color, and may lead to reductions in racial and ethnic disparities in health and health care. 21

•The Centers for Disease Control and Prevention estimated 59.1 million Americans were uninsured at some point in the 12 months that ended April 1, 2010 — 9 million more than were estimated in a previous Census Bureau study. 22

Political Issues

•Nationwide physician shortages are expected to balloon to 62,900 in five years, up more than 50 percent from previous estimates. To counter shortages, the AHA and the Association of American Medical Colleges are urging federal officials to lift limits on Medicare funding for residency positions, which have been capped at 100,000 slots since 1997. Health & Human Services estimates that the physician supply will increase by just 7 percent in the next decade. 23

Congress may consider more cuts for hospitals, recommended by the president's bipartisan deficit commission, the National Commission on Fiscal Responsibility and Reform. Recent recommendations concluded many proposals affect hospitals, such as accelerative cuts in disproportionate share payments, immediately putting hospitals under the purview of the Independent Payment Advisory Board, reducing teaching payments for hospitals, and cutting bad debt payments to hospitals. 22

•The hospital value-based purchasing program will pay hospitals based on their actual performance on quality measures, rather than just the reporting of those measures, beginning in fiscal 2013. The VBP program will include 12 clinical quality measures as well as the Hospital Consumer Assessment of Healthcare Providers and Systems' patient experiences with care survey. The clinical measures will account for 70 percent of a hospital's VBP score and the HCAHPS survey for 30 percent. 24

•There appears to be consensus among policymakers and stakeholders that Medicare price reductions alone will not work; some set of delivery system reforms also will need to take hold. To address the long-term financing challenge, and to meet the needs of an aging population, additional revenues will be needed to forestall major Medicare benefit reductions or relatively drastic reductions in provider payments. 25

•Hospitals compete in two different markets — the economic marketplace, against other hospitals for market share; and the political marketplace, against other segments of the economy for government funding. Hospitals are at greater financial risk in the political marketplace. With potentially large fiscal deficits and shrinking government payments, competing interest groups will seek to protect their government subsidies at the expense of others. 26

Provider Organizations & Physicians

•Over the past 20 years, the number of public hospitals has declined by more than 25 percent. With federal budget cuts looming, states going broke, and local governments preparing for the worst, public institutions are going to have to learn to manage better. With mounting pressure on Medicare and Medicaid spending, and with the stubborn recession pushing more patients into safety-net medicine, cutting costs is going to be an ongoing struggle. 27

•Hospitals have to convert from ICD-9 to ICD-10 diagnosis and procedure codes by October 2013. The implementation of ICD-10 will be complex, time-intensive and costly. Significant technology and process changes in addition to industry adoption will be required to achieve intended benefits. 28

•Under the health reform law, hospitals must conduct a community needs assessment at least once every three years. Hospitals must make their assessments available to the public, and they must adopt strategies to meet the community health needs identified. This requirement will create opportunities for advocates, public health officials and others to approach local hospitals about working collaboratively to find solutions to unresolved health needs in their communities. 29

Hospital mergers are up and so are concerns that some of them violate antitrust law. Merger and acquisition volume for the third quarter of 2010 was 20 percent higher than for the third quarter of 2009. Enforcement agencies have been leery of hospital mergers, suspecting that market power rather that increased efficiency is the real motivation behind them. Hospitals have won lawsuits against enforcement actions by pointing to a larger market area than the government alleged, showing evidence of improved efficiencies from the merger and showing that the merged entity can better serve the community. 30

•The health reform law means the demand for primary care will increase dramatically beginning in 2014. Even with growth in midlevels, provider supply will continue to be a challenge. 31

Quality & Patient Safety

•Medical schools are not doing an adequate job of facilitating student understanding of basic knowledge and the development of skills required for the provision of safe patient care. This includes an understanding of systems thinking, problem analysis, application of human factors science, communication skills, patient-centered care and teaming concepts and skills. 32

Medicare penalties for health care delivery system failures will begin with avoidable readmissions in 2012 and expand to hospital-acquired conditions in 2015. These, together with growth of shared saving, and bundled-payment models, will shift more clinical and financial accountability to providers and will drive a greater focus on patient safety and coordination of inpatient and outpatient care. 31

•Programs aimed at enhancing care coordination during hospital-to-home transitions have shown the most consistent beneficial effects on cost and quality. 33

Integrated care brings together the different groups involved in patient care so that, from the patient's perspective, the services delivered are consistent and coordinated. Too often, providers focus on single episodes of treatment, rather than the patient's overall well-being. 34

Physicians influence almost every dollar spent in the $2.5 trillion U.S. health care industry. Their orders are directly responsible for 80 percent of spending; only one in 10 consumers feels somewhat confident challenging a physician's judgment. 35

•In 2010, more than 240 drugs were either in short supply or completely unavailable and more than 400 generic compounds were back-ordered for greater than five days. 36


What the experts have to say...

What are the new trends and interesting findings in the 2012 AHA Environmental Scan?

Among the more interesting findings to emerge from the 2012 Environmental Scan result from the effects of the recession and health reform, including: the transformation of U.S. health care as evidenced by a shift of incentives from a high-volume service basis to a high-value service basis that pays hospitals based on their actual performance on quality measures rather than reported measures; the alignment of operating costs with post-reform reimbursement expectations; the increase in hospital mergers as a result of increased competition and consolidation in various markets across the United States; and the pursuit of performance excellence initiatives to achieve better strategic and operating results.  

Another key impact to the health care environment is related to the changing U.S. population, which becoming more ethnically diverse with minorities expected to become the majority by 2042. This will require a culturally appropriate approach with patients. Currently, disparities exist in quality of care across all minority populations and the problem is only going to become more challenging as this subset grows.

Gene J. O'Dell
AHA vice president, strategic and business planning, Chicago, producer of the 2012 AHA Environmental Scan

Has your organization reassessed its strategic plan in light of health reform?
How does your organization involve physicians in the strategic planning process?

Our strategic planning has become more inclusive — requiring input not just from our different managerial levels, but also from board members, our physicians and even community leaders. In the case of our physicians, we expect them to be integral to the process from inception to execution, as opposed to simply providing comments on the back end. We see physicians not only participating, but leading many aspects of our planning modules. The changing environment including health reform requires a more dynamic, ongoing planning process today that is tweaked almost quarterly, and physician leadership is critical to the overall nimbleness of the plan.  

John W. Bluford, III
President and CEO, Truman Medical Centers, Kansas City, Mo., and Chairman of the American Hospital Association

How often does WellSpan review the strategic planning process?
How do you assess the strength of the organization's strategic planning process?

Integral to WellSpan Health's development as an integrated health care delivery system has been an ongoing cycle of strategic and operational planning. Every 10 years, we engage the organization in a comprehensive planning process to define our vision and identify those strategic imperatives that are essential to our long-range success in meeting the needs of the communities we serve. This strategic plan forms an operating planning process, which begins with an annual three-day retreat and includes stakeholders across all levels of the organization. During the retreat, members of WellSpan's governing boards, physician leaders and managers collaborate to identify the initiatives that the organization will undertake in the coming two to three years. Specific annual objectives are later outlined in an annual systemwide plan we call "The Blue Book," and performance is measured every six months and presented to the board of directors. Because this planning cycle is designed in an ongoing, continual manner, WellSpan has the opportunity to evaluate and adjust its goals and planning processes to address challenges as they emerge.

Maria Royce
Vice president, community relations, WellSpan Health, York, Pa., and President-elect of the Society for Healthcare Strategy and Market Development


Environmental Scan webcast @ www.hhnmag.com

Hear AHA President and CEO Rich Umbdenstock and Vice President of Strategic and Business Planning Gene O'Dell discuss critical issues and emerging trends that have the highest probability of impacting the health care field — and hospital leaders — in the foreseeable future.

The Webcast will be available in January, 2012. View it on-demand, at your convenience at www.hhnmag.com.


Resources

1. "Six Design Principles for Business-Model Innovation," by Jeff de Cagna, Associations Now, American Society of Association Executives, April 2011.
2. "Further Discussion of Five Super-Trends," by Benjamin Martin, Journal of Association Management, ASAE, Fall 2007.
3. "Overview of Race and Hispanic Origin: 2010," 2010 Census Brief, U.S. Census Bureau, March 2011, and "An Older and More Diverse Nation by Midcentury," U.S. Census Bureau, 2010.
4. "The Burden of Chronic Disease on Business and U.S. Competitiveness," excerpt from the 2009 Almanac of Chronic Disease, Partnership to Fight Chronic Disease, May 14, 2009.
5. "The Next Wave of Change for U.S. Health Care Payments," by Thomas Pellathy and Shubham Singhal, McKinsey Quarterly, May 2010.
6. "Navigating the Health Care System," Agency for Healthcare Research and Quality, July 9, 2009.
7. Kaiser Health Tracking Poll, Public Opinion on Health Care Issues, March 2011.
8. "State Fiscal Conditions and Medicaid," by the Kaiser Commission on Medicaid and the Uninsured — Medicaid Facts, October 2010.
9. "Negative Outlook for U.S Not-for-Profit Healthcare Sector Continues for 2011," Moody's Investors Service,