The 2013 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 2013 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, with assistance from Donna J. Aspy, program manager, strategic and business planning. Lee Ann Jarousse, H&HN's senior editor of custom publications, compiled the information.
•Data-driven strategies refer to a continuous loop that remarkable associations tend to exhibit: they continually track member needs and issues as well as the wider environment, then collectively analyze the data to reach a shared understanding through asking, "What do we now know, and what are we going to do about it?" These associations then incorporate the findings into their strategic and operational planning. (1)
•Textbook strategic plans — complete with clearly outlined goals, objectives and strategies that were reviewed and adjusted on a consistent basis — were present in many associations. But, remarkable associations don't just emphasize thinking strategically, they find it equally important to act strategically; they consistently implement their priorities.(1)
•Remarkable associations learn from and respond to change; although willing to change, they also know what not to change. Their mission and purpose remain the touchstones. Members and mission are at the heart of remarkable associations — and member value is the blood that keeps the heart pumping. While seeking to build and maintain a strong relationship with their members, remarkable organizations never stop being inquisitive about how they can refine and enhance the value they provide. (1)
•Social media has fast become an invaluable tool for associations. It can be inexpensive and quick to launch, promote discussion among participants with common interests, help identify new prospects and categories of members, and provide users with more immediate access to association services. In short, it helps associations remain relevant to their members and true to their mission. Finding the right balance between taking appropriate business risks and minimizing legal ones can be particularly tricky in the rapidly changing realm of social media. If an association's policy is too lax, it might invite greater exposure to legal risks. If a policy is too restrictive, it may not hold up to legal scrutiny. (2)
Information Technology & E-Health
•Health & Human Services delayed implementation of ICD-10 for use in administrative health care transactions by one year, from Oct. 1, 2013, to Oct. 1, 2014. A Workgroup for Electronic Data Interchange poll showed that nearly half of health providers don't know when they will complete their impact assessment, a key milestone that should have been met in 2011. Although one-third of providers expect to begin external testing in 2013, another half of respondents said they didn't know when testing would occur. The poll also found that most health plans do not expect to begin external testing until 2013 and, although more than a third of health plans have completed their assessment, one quarter are less than halfway through. About one-half of vendors said they are less than halfway through their product development cycle. (19)
•Providers get paid based on volume of services delivered, and mobile health has been shown to reduce the need for hospital admissions and physician office visits. Forty percent of physicians surveyed said they could eliminate 11 to 30 percent of office visits through the use of mobile health technologies like remote monitoring, email or text messaging with patients. Estimates of annual consumer market for remote and mobile monitoring devices is $7.7 billion to $43 billion. (15)
•"Big data" is a new term that refers to the massive data sets that are generated by all the activity in an increasingly digital world. This past year alone, health care generated an estimated 150 exabytes of information. McKinsey & Co. estimates that big data could create $300 billion in value by reducing health care spending by 8 percent. The consulting firm notes that big data add value to industries by: making information transparent and usable more quickly; enabling better performance measurement through digital capture; and improving business analytics and decision support. (20)
•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 medical 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. (21)
•A majority of hospital executives say they are very concerned about both the cost and the process of fully integrating EHRs into their hospital's operations and culture, including retention and training of staff and physicians. (22)
Insurance & Coverage
•In fiscal 2012, the majority of states experienced Medicaid spending and enrollment growth equal to or below original projections, and 10 states reported mid-year Medicaid cuts. The outlook for 2013 and beyond remains difficult with continued pressure to find Medicaid cuts, although few options for additional savings remain. Medicaid remains front and center in state budget discussions as governors release proposed budgets for fiscal 2013. After successive years of budget cutting and cost containment, many states are planning to take advantage of new integration opportunities for dual eligibles with the hope of health care improvements for this vulnerable population, but just as importantly, state budget savings. (16)
•Health care costs continue to grow at a faster rate than wages. With the recession as a backdrop, employers sought to moderate their bottom-line impact by continuing to increase the portion of health care costs borne by employees. Cost sharing for public employees already is increasing in some markets and likely will accelerate. Consumer-driven health plans are likely to become the only health benefit offered in more instances. More mid-sized firms, especially those with relatively healthy workforces, are likely to pursue self-insurance in an attempt to reduce health benefit costs and avoid minimum essential benefit requirements under health reform. While there is disagreement about how the number of employers offering health insurance will change — estimates range from a 9 percent increase to a 22 percent reduction — employer opt-out decisions are likely to be influenced heavily by labor market conditions that vary across geographic areas and industries. (23)
•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. These changes could translate into $7 billion of savings annually and save four hours of professional time per physician and five hours of practice support staff time. (24)
•Only slightly more than 10 percent of hospitals have Medicare costs below Medicare rates, and an alarming number recover 90 percent or less of their costs. (25).
•Reducing Medicare provider rates will remain a discussion in deficit talks. Combine that with other efforts under way to reduce volume, and the squeeze is on hospitals. (27)
•The Supreme Court ruled unconstitutional ACA's provision penalizing states that do not expand their Medicaid programs. The result of the ruling is two opposing incentives. On the one hand, there's a deep pot of federal money for states to expand Medicaid. On the other, there's fear of getting even more saddled with bills from an increasingly expensive entitlement program. The federal government won't cover bills for Medicaid enrollees who already were eligible for the program but never signed up. States worry about those people showing up to enroll and having to accept them at the regular match rate. Meanwhile, the 100 percent match rate doesn't last forever. After the first three years, the federal government's match rate starts dropping: it will pay 95 percent of the cost beginning in 2017 and then, in 2020, foot only 90 percent of the bill. States fear that the federal government might decide to ratchet back that number. (28)
•There is uncanny bipartisan consensus to reduce federal support for the Medicaid and Medicare programs for U.S. hospitals. The ACA is scheduled to remove $550 billion during the next 10 years in federal support for the Medicaid and Medicare programs. Many state legislatures have dramatically reduced Medicaid funding, and hundreds of hospitals are reeling in an effort to balance their budgets as a consequence. A 2 percent across-the-board cut in Medicare payments is scheduled for Jan. 1, 2013, if Congress and the president fail to reach agreement on a deficit-reduction plan. This is a blow to communities with a heavy Medicare patient care load. An 8 to 12 percent cut in federal support to the Medicaid and Medicare programs is predicted during the next five years. This will close hundreds of U.S. hospitals and cripple essential community providers across the United States. (29)
•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 American Academy of Medical Colleges is urging federal officials to lift limits on Medicare funding for residency positions, which have been capped at 100,000 slots since 1997. HHS estimates that the physician supply will increase by just 7 percent in the next decade. (25)
Provider Organizations & Physicians
•New delivery models are going to be essential, including more primary care-based, easy-access, low-cost models for patients to receive certain services such as immunizations and school physicals. Relying on the current primary care system (physician offices and hospital EDs) is not going to be adequate; there are not enough primary care physicians, and hospital EDs are expensive. New physicians are not going into primary care, so access to traditional primary care will be increasingly limited. This leaves the door wide open for retail options to address such basic needs as flu shots, sore throats or routine physicals — all services for which it can be difficult to get into a doctor's office on a timely basis. Furthermore, a primary care office visit can cost more than a visit to a walk-in clinic in a retail environment, and people will be increasingly looking for more cost-effective alternatives.(8)
•A culture of performance excellence and accountability for results was exhibited strongly by high performing health systems. This was defined through cultural markers such as: focusing on continuous improvement, driving toward dramatic improvement or perfection versus incremental change, emphasizing patient-centeredness, adopting a philosophy that embraces internal and external transparency with regard to performance, and having a clear set of defined values and expectations that form the basis for accountability of results. (31)
•Hospitals and health systems will need to be much leaner in all ways. Leadership teams are starting to realize how difficult this task will be using traditional cost management techniques. Some health systems are taking proactive steps beyond traditional approaches to restructure the organization and its care processes in a more optimal way. Strategies include divesting business lines that cannot be effectively and efficiently operated, optimizing service distribution across facilities and geographies, and redesigning clinical processes to reduce variation, which increases costs. (16)
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, including: systems thinking, problem analysis, application of human factors science, communication skills, patient-centered care, teaming concepts and skills, and dealing with feelings of doubt, fear and uncertainty with respect to medical errors. These competencies should become fully developed during the residency training period. (27)
•A major cost savings opportunity in health care lies with supply-sensitive care: inpatient days (avoidable hospitalizations, readmissions and end-of-life care); physician visits (unneeded visits and specialist referrals); unnecessary diagnostic tests and minor procedures. If every area of the country achieved the performance level seen in the lowest-spending regions, an estimated 30 percent of the hospital beds could be closed. (28)
•Beginning in 2015, a 300-bed hospital with poor quality metrics could be penalized by more than $1.3 million per year. Even more important, these hospitals could suffer reputational damage as these metrics are published online, which is now the most popular place for consumers to seek health information. (29)
•Programs aimed at enhancing care coordination during hospital-to-home transitions have shown the most consistent beneficial effects on cost and quality. (30)
•Providers are particularly concerned that public reports fairly and accurately reflect their performance, and not things that are beyond their control, such as the risk profile of the population they treat. (31)
Science & Technology
•The full potential of the technology-enabled home health care market remains to be tapped. In the United States, home care accounts for about 3 percent ($68 billion a year) of national health spending. The market is increasing by about 9 percent annually, solid but hardly booming growth, especially since labor accounts for about two-thirds of the expenditure and home-monitoring technology represents a small fraction of it. The most important value offered by technology-enabled home care is preventing or delaying the shift of patients to acute- or long-term care settings. (32)
•Technology and informatics also can be used to build and enhance provider networks, linking community and rural providers to specialists, linking patients to providers virtually, and remotely monitoring patients' health status and medication compliance. (22)
•Mobile medical applications that can be downloaded on smart phones, and tablets are proliferating. New apps will enable organizations to efficiently develop and distribute best-practice standards and protocols to clinicians. (7)
•Smart phones, iPads and other tablets are now in use in 80 percent of health care organizations. The BYOD (bring your own device) revolution is well under way, yet 50 percent of respondents in a recent health care IT poll say nothing is being done to protect data on those devices. (33)
•Get ready for e-visits. Texting and emailing have been shown to be effective tools to connect patients and physicians efficiently. Additionally, the use of email communications and telephone visits cuts office visits by 26 percent, improving the efficiency of ambulatory care. (34)
•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. (34)
•Finding a primary care physician and getting timely care are increasingly difficult, even among Medicare beneficiaries and privately insured adults. Sixty-five 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, gaps in access are expected to widen. By 2020, the United States will face an estimated shortage of 91,000 physicians, split about evenly between primary care physicians and specialists. (11)
•Trust — never a natural instinct between physicians and hospitals — remains a barrier. When asked whether they trust hospitals, 20 percent of physicians surveyed said "no" and 57 percent said "sometimes." However, physicians want financial security from their hospital relationships, and money may win out over trust issues. Nearly three-fourths of physicians surveyed said they're already aligned financially in some way with hospitals. Such relationships include directorships, employment and joint ventures. In addition, 24 percent said that they already work primarily in hospital practice settings. (12)
•The transformation of the health care industry is proving to be — and will continue to be — hard work, requiring significant investments and resources. An area of great demand is human capital — highly skilled people with specific job experiences and relevant talent. (13)
•CEO turnover is high. In health care, 25 CEOs left their positions in January 2012, compared with only nine year-over-year. If the January data are any indication of turnover and mimic last year's numbers, health care once again could see the highest CEO turnover rates of all sectors. Health care organizations saw the heaviest CEO turnover among all industries in 2011.(14)
Consumers & Demographics
•Nearly half of Americans will develop a mental illness and 27 percent will suffer from a substance abuse problem during their lifetimes. In any given year, 25 percent of the American population experiences either a mental illness or a substance abuse problem. Treatment capacity for behavioral services is in critically short supply and getting worse.(3)
•Rates of adult and childhood obesity in the United States vary significantly by region, race, ethnicity and age, but overall rates are high. Among adults ages 20 or older, nearly 34 percent have weight levels in the obese range, and another 34 percent are classified as overweight; thus, the combined prevalence of those who are obese and overweight is 68 percent. Among children and adolescents ages 2 through 19, nearly 17 percent are classified as obese and 15 percent as overweight; thus, close to 32 percent are either obese or overweight.(4)
•Without question, 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. Depression is the greatest cause of productivity loss among workers. (5)
•In both 2008 and 2009, 5 percent of the population accounted for nearly 50 percent of health care expenditures. Similarly, 10 percent of the population accounted for 63.6 percent of overall health care expenditures. (6)
•Most boomers are going to be working after age 65. Far from demanding wellness and lifestyle enhancement from the health system and paying for it with discretionary dollars, most boomers will be desperate to remain healthy enough to continue working into their 70s or even 80s. (7)
•Families are the principal caregivers for our nation's older people, providing more than 80 percent of so-called chronic care services. For economic reasons, many baby boomers are going to end up relying extensively on their children for support as they struggle with chronic illnesses. (8)
Economy & Finance
•Moody's is maintaining its negative outlook for the U.S. nonprofit health care industry. The outlook has remained negative for the last three years and is expected to remain negative for at least the next several years. The negative outlook is based on modest projections for hospital revenue growth over the next 18 months, the expectation of ongoing economic softness throughout the country, financial and operating pressures resulting from regulatory challenges and continued balance sheet challenges. (8)
•In the past, hospital mergers and acquisitions were the primary vehicles to consolidation with a goal to increase market share and leverage with payers. Consolidation offers the promise of greater operating efficiency and risk diversification across larger organizations. The ability to demonstrate lower costs while providing high-quality care will be the key driver in governmental and commercial reimbursement going forward. Physician alignment, another form of consolidation that many are pursuing, is also a strategy to control costs and drive improved quality by adopting evidence-based medicine. The growing trend toward nonprofit hospital consolidation is positive for the financial health of many, but not all, hospitals. Unfortunately, given current looming headwinds confronting the health care sector, those hospitals left out of consolidations, especially smaller stand-alone hospitals that cannot match the financial, managerial or market access capabilities of larger multihospital systems, will face greater negative rating pressure going forward. (9)
•The Institute of Medicine estimates that high administrative costs for insurers, physicians and hospitals account for $200 billion of waste. Overuse of tests and the use of brand name drugs instead of generics account for another $200 billion. Errors and avoidable complications and fraud each tally to $75 billion. (10)
What the experts have to say...
Gene J. O'Dell -Vice president, strategic and business planning, American Hospital Association, Chicago, producer of the 2013 AHA Environmental Scan
What are the new trends and key findings in the 2013 AHA Environmental Scan?
Although only 40 percent of hospitals today break even on Medicare inpatient payments, Medicare represents 43 percent of all hospital revenue; that percentage is expected to increase in the future. With a predicted 8 to 12 percent cut in Medicare and Medicaid support over the next five years, it's imperative that hospitals pursue strategies to improve operational performance by delivering strong operating margins. Exacerbating the situation, the Supreme Court's ruling on the Affordable Care Act and its impact on the Medicaid expansion decision has states carefully evaluating the potential influx of significant federal dollars while remaining anxious about how to cover the growing Medicaid population and this increasingly expensive entitlement program.
Teri Fontenot - President and CEO, Woman's Hospital, Baton Rouge, La., and chair of the AHA
How will your organization reassess its strategic plan in light of the Supreme Court's ruling?
Woman's Hospital is committed to transforming from the first curve to the second curve; that is, from a volume-based focus of providing individual medical care to caring for women and infants in a manner that focuses on wellness, prevention and avoidance of inpatient services by keeping people healthy. As a result, the Supreme Court decision had little effect on our strategic plan.
What is your role in the strategic planning process?
As CEO, my responsibility is to set the vision, inspire our team through communication in action and word, and provide the necessary resources for success.
Holli Salls - Vice president, public relations, marketing and physician services, Northwestern Memorial Hospital, Chicago, and president-elect of the Society for Healthcare Strategy and Market Development
What are the most important elements of a hospital's strategic planning process?
At Northwestern Memorial Hospital, we start our review with the broader health care environment, followed by our local market and then within our organization. We also talk with our leadership, medical staff and board to gain their insights and identify trends. This step is important as it helps set the early framework for our strategic planning process and successful development of our tandem long-term financial plan. Once a future vision or destination is set and a plan is drafted, clear milestones and metrics are defined. It is then widely disseminated and feedback is incorporated. The success of a good strategic plan is that it remains dynamic and can be adjusted according to changing market conditions.
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2. "Legal Risks of Social Media," by Whitney Redding, Associations Now, ASAE, December 2011.
3. "Bringing Behavioral Health into the Care Continuum: Opportunities to Improve Quality, Costs and Outcomes," TrendWatch, American Hospital Association, January 2012.
4. "Measuring Progress in Obesity Prevention Workshop Report," Institute of Medicine, February 2012.
5. "The Burden of Chronic Disease on Business and U.S. Competitiveness," an excerpt from the 2009 Almanac of Chronic Disease, Partnership to Fight Chronic Disease and the
U.S. Workplace Wellness Alliance, May 2009.
6. "The Concentration and Persistence in the Level of Health Expenditures over Time: Estimates for the U.S. Population, 2008-2009," by Steven B. Cohen and William Yu,
Medical Expenditure Panel Survey, AHRQ Statistical Brief 354, January 2012.
7 . Futurescan 2012, Healthcare Trends and Implications 2012-2017, Society for Healthcare Strategy & Market Development and the American College of Healthcare Executives
with support from VHA Inc., Dec. 29, 2011.
8. "U.S. Not-for-Profit Healthcare Outlook Remains Negative for 2012," Moody's Investors Service, Jan. 25, 2012.
9. "New Forces Driving Rise in Not-for-Profit Hospital Consolidation," Moody's Investors Service, March 8, 2012.
10. "Economic Outlook," Premier Inc., 2012.
11. "Improving Access to Adult Primary Care in Medicaid: Exploring the Potential Role of Nurse Practitioners and Physician Assistants," Kaiser Commission on Medicaid and the Uninsured, March 2011.
12. "Quick Thinking: Four Key Findings from Health Reform," PricewaterhouseCoopers Health Research Institute, 2011.
13. "A Perfect Storm Ignites Hospital Consolidation and Partnerships Nationwide: What's Your Position?", Kaufman, Hall & Associates, Spring 2012.
14. "Healthcare CEO Turnover Higher than Other Industries," by Karen M. Cheung, FierceHealthcare, Feb. 28, 2012.
15. "Healthcare Industry Not Ready for ICD-10: Survey," by Nicole Lewis, InformationWeek, March 23, 2012.
16. "Massively Coordinated Care," by Ian Morrison, H&HN Daily, May 1, 2012.
17. "Tapping the Unmet Potential of Health Information Technology," by A.S. O'Malley, M.D., 364:1090-1091, The New England Journal of Medicine, March 24, 2011.
18. Results of Hospital Executives Survey, U.S. News and Fidelity Investments, July 18, 2011.
19. "Employer-Sponsored Health Insurance: Down But Not Out," by Jon B. Christianson, Ha T. Tu and Divya R. Samuel, Center for Studying Health System Change Issue Brief No. 137, October 2011.
20. "Saving Billions of Dollars — And Physicians' Time — By Streamlining Billing Practices," by Bonnie B. Blanchfield et al., Health Affairs, 29 (6):1248-1254, June 2010.
21. "Report to the Congress: Medicare Payment Policy," Medicare Payment Advisory Commission, 2011.
22. "Top Health Industry Issues of 2012, Connecting in Uncertainty," PricewaterhouseCoopers' Health Research Institute, November 2011.
23. "The Supreme Court Forces States to Make a Big Medicaid Deci