2010 AHA Environmental Scan

Gatefold

2010 AHA Environmental Scan
By Gene J. O'Dell & Lee Ann Runy
The American Hospital Association's 2010 Environmental Scan provides insight and information about market forces that have a high probability of affecting the health care field.

The 2010 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 executives better understand the health care landscape and the critical trends and issues their organizations will likely face in the foreseeable future. The 2010 AHA Environmental Scan foldout is compiled from 35 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 research assistance from Donna J. Aspy, project manager, strategic and business planning. Lee Ann Runy, H&HN's senior editor of custom publications, compiled the information.

To download a PDF of the 2010 American Hospital Association Environmental Scan please click here.

Information Technology & E-Health

The projected IT priorities of hospitals for the next two years are: inpatient clinical information systems (40 percent), the reduction of medical errors and the promotion of patient safety (39 percent), EMR implementation (38 percent), and connecting the hospital with remote environments (30 percent). 14
Hospitals will make significant investments in their systems for measuring and reporting clinical outcomes over the next two years, according to a survey of managers from more than 50 U.S. health systems conducted by Health Care Management Insight. Only 12 percent report that substantial detail is available and easy to analyze for clinical process data and 21 percent for clinical outcomes data. By contrast, 39 percent of hospitals represented in the survey say they can easily analyze detailed data about departmental financial performance. About 80 percent of respondents said departmental financial performance data is available to most managers. The distribution of clinical process and outcomes reports is limited to a few managers at about 42 percent of hospitals. 15
The most significant barriers to implementing IT were: lack of financial support (26 percent), lack of staffing resources (13 percent) and vendors' inability to effectively deliver product (12 percent). 14
Implementing new technology is costly to hospitals, however, the benefits—both financial and nonfinancial—accrue primarily to payers and patients. 16
The American Recovery and Reinvestment Act of 2009 has a number of goals, one of which is to reduce long-term costs by modernizing health care through the use of information technology. To drive adoption of electronic health records by 2015, the federal government will invest $36 billion in Medicare and Medicaid providers and through government agencies between 2010 and 2017. The funding will go to providers that show meaningful use government-certified systems. Analysis shows that an average 500-bed hospital would receive an average of $6.1 million in incentives. 17
Many Americans think that greater access to information would improve health care quality. Seventy-four percent say the quality of the medical care they receive would improve if they had access to more information about the success of different treatment options. Thirty-five percent indicate that quality would improve if they knew the full price of the health care services they receive, not just what they pay. 18

Insurance & Coverage

Medicare now spends more than 25 percent of its budget on patients in their last year of life. 19
Uncompensated care in 2008 totaled $57.4 billion. Of that, $35 billion was provided by hospitals, $14.6 billion by community based providers, and $7.8 billion by private office-based physicians. Uncompensated care has been relatively stable at 6 percent of hospital costs for many years, despite a steady increase in the percentage of people uninsured. 34
While health care costs continue to rise and health insurance becomes less affordable, the public sector has fewer resources to respond to growing needs for coverage or subsidized care. The combination of ongoing state budget constraints, unwillingness to raise taxes and federal budget pressures has left state and local governments hard-pressed to keep up with growing needs for coverage and care. 20
Payers will look to implement a variety of programs that reduce costs and emphasize health outcomes. 21
UnitedHealth Group is testing a new model of health care that will give doctors more authority and money than usual in return for closely monitoring their patients' progress, even when patients go to specialists or require hospitalization. The insurer will also move away from paying doctors solely on the basis of how many services they provide, and will start rewarding them for the overall quality of care patients receive. The theory is that by providing a home base for patients and coordinating their treatment, doctors can improve care, prevent unnecessary emergency room visits, reduce hospitalizations, and lower overall medical spending. 22
If everyone in the United States had health insurance coverage, the possible cumulative health system savings could amount to more than $1.5 trillion over 10 years. Rather than national health expenditures rising from 16 percent of GDP in 2006 to 20 percent by 2017—as is currently projected—spending could be held to 18.5 percent of GDP. 23

Political Issues

On the patient-safety front, Congress and the administration will expand existing reporting requirements and adopt new ones, and will expand existing Medicare policy that penalizes providers financially for medical errors. 24
Medicare, Medicaid and commercial insurance companies are placing additional focus on hospital performance. The Centers for Medicare & Medicaid Services has proposed adding a new index starting in October 2009: the total performance score. It's part of Medicare's move to value-based purchasing. If Congress approves, CMS would replace the current quality reporting system with one in which Medicare withholds between 2 percent and 5 percent of its reimbursements to hospitals, which the hospital would have to earn back through performance and progress on quality metrics. 5
The federal government will use direct and indirect interventions to control Medicare spending. Direct interventions will include the application of traditional techniques for controlling Medicare costs, primarily through reductions in the annual provider rate updates. 24
The sensitivity of state budgets to economic cycles contributes to fluctuations in health coverage, eligibility, benefits and provider payment levels in public programs, as well as support for safety net hospitals and community health centers. Along with bolstering support of safety net providers and raising Medicaid payments for private physicians, some states advanced even more ambitious health reform proposals. Yet across communities, safety net systems face mounting challenges of caring for more uninsured patients, and these pressures will likely increase given the current economic downturn. 25
The current trajectory of increasing utilization and costs of health care cannot and will not be sustained over the long term. Government, business and primary payers have begun initiating reforms that will seek to pay for services based on value and to create a more granular level of detail on the services provided by expanding the diagnosis-related group system. 9

Provider Organizations & Physicians

Hospitals are responding to the economic challenges that are impairing financial performance. Hospitals are: making greater use of board members' financial and investment expertise when formulating budgets, debt plans and investment allocations; garnering board support for expense reductions; delaying nonessential capital spending to increase liquidity until financial performance improves or access to the capital market is more favorable; and re-evaluating return on new investment for large-scale capital projects given current economic realities. 26
There is a growing gap between the have and have-not hospitals. While some hospitals today enjoy healthy profit margins, many hospitals continue to be unprofitable. For hospitals to be economically viable in the future, the following principles must be pursued: align performance and payment systems to meet quality and efficiency-related goals; use process-improvement tools to increase efficiency and reduce costs; pursue coverage options to ensure patient access to, and affordability of, health care services; and address how both general acute care hospitals and specialty hospitals can fulfill the social mission for health care delivery. 27
Hospitals are experiencing an increase in bad debt. Payer mix is shifting away from relatively lucrative commercial insurers toward Medicare, Medicaid and self-pay. Charitable donations and investment income are down, and improvement projects involving capital outlays for IT, facilities and equipment have been put on hold. 5
Physician employment by hospitals will increase. This trend will continue as physicians question the economic viability of the private practice model. Younger physicians have different lifestyle expectations, meaning more physician activity will be split into an inpatient medicine component and an office-based practice component. 35

Quality & Patient Safety

A majority of health care leaders responding to a Commonwealth Fund study believe that the U.S. health care system is not providing sufficiently high quality care and that changes must be made at the highest level. About 95 percent of respondents believe that fundamental payment reform is needed and 56 percent support the creation of a new public-private entity to formulate a national quality agenda and coordinate quality efforts. 28
According to the Agency for Healthcare Research and Quality's National Healthcare Quality Report, aggregate quality of care improved each year from 1994 to 2008. However, the rate of improvement seems to have slowed. The median annual rate of change for the 39 core measures was 1.8 percent over the past six years. NHQR data shows that sustaining a steady rate of improvement over time is a challenge and that there is significant geographic variation in quality of care. 29
It is likely that all hospital boards will have a committee or subcommittee on hospital quality and patient safety by 2014. Boards will devote more of their meeting time to discussing quality than to discussing financial performance. 18
Coordinating care over time and sites, especially for those with complex conditions, can help ensure that patients receive appropriate follow-up treatment and minimize the risk of errors and complications. Having a doctor who is available and serves as a central source of primary care and referral facilitates care continuity and coordination. Yet nearly one-third of adults and more than half of all children do not have such a primary care medical home. 30

Science & Technology

New technology—its introduction and its use—accounted for 20 percent to 40 percent of the annual rise in U.S. health care spending since 1960. 31
Telemedicine is transforming the traditional view of medicine. It can help determine whether or not a patient needs to go to the emergency department or the doctor's office. Physician reimbursement has been a barrier to the use of remote monitoring technology. It's difficult for doctors to support the technology that adds more work to their day without payment. Medical liability and other legal concerns, as well as security and privacy issues, have also come into play as potential obstacles to the growth of telemedicine. 32
The direct-to-consumer market for genetic testing will expand as the cost continues to drop. Direct-to-consumer marketing of these tests bypasses traditional clinicians, raising questions about how the information affects diagnosis and treatment. The National Human Genome Research Institute has set $1,000 as the target price for genome sequencing. Providers, payers and regulators must adhere to the Genetic Information Nondiscrimination Act passed in 2008. Insurers won't be able to deny coverage or raise premiums to individuals based on their genetic predispositions to developing certain diseases. 5
The number of activist disease foundations—foundations that operate with speed and urgency and a business model completely unlike the traditional foundation model—is growing. These groups use all their money to finance targeted research, hold conferences where scientists must share information, and underwrite clinical trials conducted by drug companies. The Michael J. Fox Foundation has used its money to take control of Parkinson's research like few other foundations have ever done. The foundation has upended the way scientific research is done, and the way academics interact with pharmaceutical and biotech companies. It demands accountability and information sharing that is almost unheard of in the broad scientific community. 37

Human Resources

A large part of the employment growth in America over the next two decades will be in the health care sector. The biggest growth will occur in the front-line workforce—nursing, assistants, home health aides, long-term care assistants and others—who will provide essential care and services to an aging population. However, unlike many other health professionals, these individuals are often at risk by making lower wages, having less generous benefits and fewer opportunities for education and advancement. It's likely that much of this workforce is, or soon will be, unionized. 12
Saying they need a more "powerful national movement" to protect nurses, three unions merged in late February. United American Nurses, the California Nurses Association National/Nurses Organizing Committee and the Massachusetts Nurses Association formed the United American Nurses—National Nurses Organizing Committee. The 150,000-member union is part of the AFL-CIO. The group's highest priority is RN unionization. Legislatively, the group will push for nurse staffing ratios, workplace safety rules and a national pension for RNs. 8
Few young physicians are going into primary care and many physicians already in primary care are under such stress that they are looking for an exit strategy, according to the American College of Physicians. Challenges include: declining incomes, high patient volume, rising expenses and policies from insurers that encourage rushed office visits. As a result, more primary care doctors are retiring than are graduating from medical school. 13

Consumers & Demographics

Nearly 44 percent of the U.S. civilian, noninstitutionalized population had one or more chronic conditions in 2005. Of these, one in five reported living with one chronic condition, 10.7 percent reported two conditions, and 13.3 percent had three or more chronic conditions. The most dramatic rise in the presence of chronic disease occurred among adults between early adulthood (ages 20 to 44) and midlife (ages 45 to 64). These age groups had an increase of 32.4 percent and 63.1 percent, respectively, of people with at least one chronic condition. 4
Employers are increasingly interested in incentives to encourage responsible health behaviors and participation in wellness and disease management programs. According to a survey by PricewaterhouseCoopers, large employers are leading this trend, with more than 60 percent at least somewhat likely to offer incentives as a health strategy over the next 12 to 24 months. In addition, half of the small employers surveyed are at least somewhat likely to employ the strategy. However, wellness programs don't work if employees don't participate, and most don't. Less than 15 percent of eligible individuals enroll in wellness programs. 5
Mental illness causes more disability than any other class of illness in the United States. One-in-four Americans experience mental illness at some point in their lifetimes. Twice as many Americans live with schizophrenia as live with HIV/AIDS. A study by the National Alliance on Mental Illness gives the nation's public mental health care system a D grade. As the country faces the deepest economic crisis since the Great Depression, state budget shortfalls mean budget cuts to mental health services. 6
About 66 percent of Americans are overweight or obese, according to the Centers for Disease Control and Prevention. Death due to poor diet and physical inactivity rose by 33 percent in the past decade and may soon overtake tobacco as the leading preventable cause of death. 7

Economy & Finance

Hospitals' median days-cash-on-hand reached a historic low in the third quarter of 2008 of 110 days. The median bad debt percentage is within historic range, while charity care percentage is consistently trending upward. The hospital industry is not recession-proof. Observed impacts that appear related to the recession, include: hospital nonoperating and total margins have decreased dramatically, especially in the third quarter of 2008 and total margins are at historically unprecedented lows. Approximately 50 percent of hospitals are operating in the red. 8
Access to capital will become more strained and expensive. Even solid-performing organizations will experience a change in access to capital due to the overall condition of the capital markets. Providers will have to make serious choices about what services and programs they are able to fund over others. 9
In a survey of 639 hospitals, the vast majority reported that their ability to rely on philanthropic contributions and borrow funds through tax-exempt bonds and bank loans—the three most common sources of capital—has become significantly more difficult or even impossible. 10
More than half of all health care spending, calculated at up to $1.2 trillion of the $2.2 trillion spent nationally, is attributable to defensive medicine ($210 billion annually), inefficient claims processing (up to $210 billion annually) and care spent on preventable conditions related to obesity and overweight ($200 billion annually). 11

Associations

Associations must produce products and services that deliver the highest possible value to members. To be effective, associations should discover their members' unarticulated needs and innovate and develop valuable benefits that meet these needs. Associations should also be aware of programs that provide low value or that distract staff from working on higher value programs. It may be necessary to drop these programs. Associations that identify and articulate a purpose that inspires its members to feel that they are contributing to the advancement of society may hold an advantage over those that do not. 1
To remain credible, associations may have to demonstrate their own dedication to responsible and sustainable business practices while taking care of their own triple bottom line—member value (profit), staff and community (people) and the environment (the planet). 2
Remarkable associations maintain a clear understanding of their core purpose and willingly adapt how they do business in order to remain consistent with that purpose, regardless of whether change is anticipated. Successful associations remain more steadfast in their commitment to their members and their mission. 3
Associations face the constant challenge of remaining trusted and relevant in a world of changing values and attitudes. 2
A potential opportunity to take a leadership role for associations is to facilitate strategic conversations about the future of their sectors or professions. These discussions should address the opportunities and challenges associated with a changing environment and workforce dynamics. 2

Resources

Further Discussion of Five Super-Trends, by Benjamin Martin, ASAE & The Center for Association Leadership, 2007
Designing Your Future, Key Trends, Challenges, and Choices Facing Association and Nonprofit Leaders by Fast Future and ASAE & The Center for Association Leadership, 2008
Measures of Success, ASAE & The Center for Association Leadership, Fall 2006
Rising Out-of-Pocket Spending for Chronic Conditions: a Ten-Year Trend, Health Affairs Web exclusive, January/February 2009
Top Nine Health Industry Issues in 2009: Outside Forces will Disrupt the Industry, PricewaterhouseCoopers Health Research Institute, 2008
Grading the States, National Alliance on Mental Illness, 2009
Healthcare's Top Business Issues and Response, Cap Gemini, 2005
The Current Recession and U.S. Hospitals, Center for Healthcare Improvement and Thomson Reuters, 2008
Trends for 2008, Noblis Center for Health Innovation, 2007
"Tight Capital Access," Trustee, March 2009
The Price of Excess: Identifying Waste in Healthcare Spending, PricewaterhouseCoopers, 2008
Labor and Management Collaboration in Health Care, by Ed O'Neil, The Center for the Health Professions, 2005
U.S. Primary Care Near Collapse, Physicians Warn, Reuters by MedlinePlus, Jan. 30, 2006
Health Care CIO Results, 19th Annual HIMSS Leadership Survey, February 2008
Hospitals Will Invest to Improve Clinical and Financial Reporting, Healthcare Management Insight, August 2005
Adopting Technological Innovation in Hospitals: Who Pays and Who Benefits?, American Hospital Association and Avalere Health, 2006
Rock and a Hard Place, PricewaterhouseCoopers Health Research Institute, 2009
Health Confidence Survey: Dissatisfaction with Health Care System Since 1998, The Employee Benefit Research Institute Notes, vol. 27, No. 11, November 2006
Futurescan: Healthcare Trends and Implications 2009-2014, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Thomson Reuters and VHA Inc., 2009
Initial Findings from HSC's 2005 Site Visits: Stage Set for Growing Health Care Cost and Access Problems, Center for Studying Health System Change,
Issue Brief 97, August 2005
Global Research Report Business and Reality, Cap Gemini, 2005
"UnitedHealth and IBM Test Health Care Plan," by Reed Abelson, The New York Times, Feb. 7, 2009
Annual Report, The Commonwealth Fund, 2007
Futurescan: Healthcare Trends and Implications 2008-2013, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Thomson Healthcare and VHA Inc., 2008
Relief, Restoration and Reform: Economic Upturn Yields Modest and Uneven Health Returns, Center for Studying Health System Change,
Issue Brief 118, January 2008
Diagnosing Not-for-Profit Hospital Downgrades, Moody's U.S. Public Finance, December 2008
Hospital of the Future: Report Urges Major Changes, The Joint Commission, 2008
Health Care Opinion Leaders' Views on the Quality and Safety of Health Care in the United States, The Commonwealth Fund, July 2007
National Healthcare Quality Report, Agency for Healthcare Research and Quality, 2008
U.S. Health System Performance: A National Scorecard, Health Affairs Web exclusive, Sept. 20, 2006
Futurescan: Healthcare Trends and Implications 2007-2012, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Solucient and VHA Inc., 2007
IRS Exempt Organizations (TE/GE) Hospital Compliance Project, Final Report, Internal Revenue Service, 2009
"Taking Science Personally," by Joe Nocera, The New York Times, Nov. 11, 2008
Covering the Uninsured in 2008: Current Costs, Sources of Payment, and Incremental Costs, Health Affairs Web Exclusive, August, 25, 2008
Trends for 2008, Noblis Center for Health Innovation, 2007

What the experts have to say...

Gene J. O'Dell
AHA Vice President, Strategic and Business Planning, Chicago, producer of the 2010 AHA Environmental Scan

The health care reform debate and economic downturn have brought much uncertainty to hospitals and health systems. How can organizations demonstrate the importance of the strategic planning process?
No one has a crystal ball, but the best performing organizations develop and execute strategic plans through a well-designed planning process that is both flexible to respond to environmental forces and yet remains true in pursuing the affirmed vision, mission and goals of the organization. Attributes of organizations that embrace strategic planning as a cultural imperative include:

The CEO and/or the chairman primarily drive an organization's commitment to, and investment in, strategic planning.
Ownership and accountability are demonstrated through aligning management with strategy development and execution.
Trustees are engaged in the planning process so they are better prepared to guide the organization toward achieving success, and to the benefit of the patients and communities they serve.
The strategic and financial planning processes are integrated.
Monitoring the organization's performance and comparing it with the plan to ensure achievement of the objectives and/or to reflect changes in the internal and external environment.

David A. Kantor
President, Kantor Consulting Group, Shaker Heights, Ohio, and President-elect, Society for Healthcare Strategy and Market Development

Does the current economic environment place greater emphasis on and need for strategic planning?
Given the rapidly changing nature of the health care environment, strategic planning has always been a particularly critical endeavor for hospitals. In difficult economic times, like the present, strategic planning assumes even greater urgency. The essence of planning is the allocation of scarce resources to initiatives of greatest importance at the expense of other activities of lesser importance. When resources are scarce, and the risks presented by the environment are greater, appropriate resource allocation assumes even greater importance-in essence, in this type of situation, the number of bets you can place tend to be fewer, so maximizing the potential for success becomes more important.

What are the most important elements of a hospital's strategic planning process?
All elements of the strategic planning process are important, but there are several activities that merit particular mention for their significance in the process. These include: the performance of an environmental assessment that provides insight into the external dynamic and range of uncontrollable issues that hospitals must consider in developing their strategic plans; the establishment of effective strategic direction that is truly focused and strategic rather than diffused and operational; and the development of implementation plans and the supporting financial plan that confirms the capacity of the organization to implement its plan.

Thomas M. Priselac
President & CEO, Cedars-Sinai Health System, Los Angeles, and Chairman of the American Hospital Association Board of Trustees

How does your organization use the Environmental Scan and planning assumptions in it's strategic planning process?
While the AHA Environmental Scan has always been a useful tool in Cedars-Sinai's strategic planning process, this year's Scan will be even more helpful in our efforts, given the significance of the changes being discussed and debated nationally about health care reform. While every hospital in the nation is appropriately focused on the changes in its local environment, the AHA Environmental Scan provides all of us with not only a broader perspective, but also a look at developing trends that may not yet be on our individual institutional radar screens yet.

As CEO, what is your role in the strategic planning process?
While it's the CEO's responsibility to lead the process, it's very important for the CEO to know when to listen and when to speak. If you jump in too early in a discussion, before different perspectives can be aired, it prevents your institution from really examining all sides of an issue. But since strategic planning is by definition a broad and somewhat open-ended process, it's also important to know when (and how) to keep the planning process on track and how to help the process reach conclusions that will effectively guide the institution. It's a delicate balance for all CEOs.

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Gatefold 2010 AHA Environmental Scan By Gene J. O'Dell & Lee Ann Runy The American Hospital Association's 2010 Environmental Scan provides insight and information about market forces that have a high probability of affecting the health care field. The 2010 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 executives better understand the health care landscape and the critical trends and issues their organizations will likely face in the foreseeable future. The 2010 AHA Environmental Scan foldout is compiled from 35 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 research assistance from Donna J. Aspy, project manager, strategic and business planning. Lee Ann Runy, H&HN's senior editor of custom publications, compiled the information. *To download a PDF of the 2010 American Hospital Association Environmental Scan* please click here. Information Technology & E-Health The projected IT priorities of hospitals for the next two years are: inpatient clinical information systems (40 percent), the reduction of medical errors and the promotion of patient safety (39 percent), EMR implementation (38 percent), and connecting the hospital with remote environments (30 percent). 14 Hospitals will make significant investments in their systems for measuring and reporting clinical outcomes** over the next two years, according to a survey of managers from more than 50 U.S. health systems conducted by Health Care Management Insight. Only 12 percent report that substantial detail is available and easy to analyze for clinical process data and 21 percent for clinical outcomes data. By contrast, 39 percent of hospitals represented in the survey say they can easily analyze detailed data about departmental financial performance. About 80 percent of respondents said departmental financial performance data is available to most managers. The distribution of clinical process and outcomes reports is limited to a few managers at about 42 percent of hospitals. 15 The most significant barriers to implementing IT were: lack of financial support (26 percent), lack of staffing resources (13 percent) and vendors' inability to effectively deliver product (12 percent). 14 Implementing new technology is costly to hospitals, however, the benefits—both financial and nonfinancial—accrue primarily to payers and patients. 16 The American Recovery and Reinvestment Act of 2009 has a number of goals, one of which is to reduce long-term costs by modernizing health care through the use of information technology. To drive adoption of electronic health records by 2015, the federal government will invest $36 billion in Medicare and Medicaid providers and through government agencies between 2010 and 2017. The funding will go to providers that show meaningful use government-certified systems. Analysis shows that an average 500-bed hospital would receive an average of $6.1 million in incentives. 17 Many Americans think that greater access to information would improve health care quality. Seventy-four percent say the quality of the medical care they receive would improve if they had access to more information about the success of different treatment options. Thirty-five percent indicate that quality would improve if they knew the full price of the health care services they receive, not just what they pay. 18 Insurance & Coverage Medicare now spends more than 25 percent of its budget on patients in their last year of life. 19 Uncompensated care in 2008 totaled $57.4 billion. Of that, $35 billion was provided by hospitals, $14.6 billion by community based providers, and $7.8 billion by private office-based physicians. Uncompensated care has been relatively stable at 6 percent of hospital costs for many years, despite a steady increase in the percentage of people uninsured. 34 While health care costs continue to rise and health insurance becomes less affordable, the public sector has fewer resources to respond to growing needs for coverage or subsidized care. The combination of ongoing state budget constraints, unwillingness to raise taxes and federal budget pressures has left state and local governments hard-pressed to keep up with growing needs for coverage and care. 20 Payers will look to implement a variety of programs that reduce costs and emphasize health outcomes. 21 UnitedHealth Group is testing a new model of health care that will give doctors more authority and money than usual in return for closely monitoring their patients' progress, even when patients go to specialists or require hospitalization. The insurer will also move away from paying doctors solely on the basis of how many services they provide, and will start rewarding them for the overall quality of care patients receive. The theory is that by providing a home base for patients and coordinating their treatment, doctors can improve care, prevent unnecessary emergency room visits, reduce hospitalizations, and lower overall medical spending. 22 If everyone in the United States had health insurance coverage, the possible cumulative health system savings could amount to more than $1.5 trillion over 10 years. Rather than national health expenditures rising from 16 percent of GDP in 2006 to 20 percent by 2017—as is currently projected—spending could be held to 18.5 percent of GDP. 23 Political Issues On the patient-safety front, Congress and the administration will expand existing reporting requirements and adopt new ones, and will expand existing Medicare policy that penalizes providers financially for medical errors. 24 Medicare, Medicaid and commercial insurance companies are placing additional focus on hospital performance. The Centers for Medicare & Medicaid Services has proposed adding a new index starting in October 2009: the total performance score. It's part of Medicare's move to value-based purchasing. If Congress approves, CMS would replace the current quality reporting system with one in which Medicare withholds between 2 percent and 5 percent of its reimbursements to hospitals, which the hospital would have to earn back through performance and progress on quality metrics. 5 The federal government will use direct and indirect interventions to control Medicare spending. Direct interventions will include the application of traditional techniques for controlling Medicare costs, primarily through reductions in the annual provider rate updates. 24 The sensitivity of state budgets to economic cycles contributes to fluctuations in health coverage, eligibility, benefits and provider payment levels in public programs, as well as support for safety net hospitals and community health centers. Along with bolstering support of safety net providers and raising Medicaid payments for private physicians, some states advanced even more ambitious health reform proposals. Yet across communities, safety net systems face mounting challenges of caring for more uninsured patients, and these pressures will likely increase given the current economic downturn. 25 The current trajectory of increasing utilization and costs of health care cannot and will not be sustained over the long term. Government, business and primary payers have begun initiating reforms that will seek to pay for services based on value and to create a more granular level of detail on the services provided by expanding the diagnosis-related group system. 9 Provider Organizations & Physicians Hospitals are responding to the economic challenges that are impairing financial performance. Hospitals are: making greater use of board members' financial and investment expertise when formulating budgets, debt plans and investment allocations; garnering board support for expense reductions; delaying nonessential capital spending to increase liquidity until financial performance improves or access to the capital market is more favorable; and re-evaluating return on new investment for large-scale capital projects given current economic realities. 26 There is a growing gap between the have and have-not hospitals. While some hospitals today enjoy healthy profit margins, many hospitals continue to be unprofitable. For hospitals to be economically viable in the future, the following principles must be pursued: align performance and payment systems to meet quality and efficiency-related goals; use process-improvement tools to increase efficiency and reduce costs; pursue coverage options to ensure patient access to, and affordability of, health care services; and address how both general acute care hospitals and specialty hospitals can fulfill the social mission for health care delivery. 27 Hospitals are experiencing an increase in bad debt. Payer mix is shifting away from relatively lucrative commercial insurers toward Medicare, Medicaid and self-pay. Charitable donations and investment income are down, and improvement projects involving capital outlays for IT, facilities and equipment have been put on hold. 5 Physician employment by hospitals will increase. This trend will continue as physicians question the economic viability of the private practice model. Younger physicians have different lifestyle expectations, meaning more physician activity will be split into an inpatient medicine component and an office-based practice component. 35 Quality & Patient Safety A majority of health care leaders responding to a Commonwealth Fund study believe that the U.S. health care system is not providing sufficiently high quality care and that changes must be made at the highest level. About 95 percent of respondents believe that fundamental payment reform is needed and 56 percent support the creation of a new public-private entity to formulate a national quality agenda and coordinate quality efforts. 28 According to the Agency for Healthcare Research and Quality's National Healthcare Quality Report, aggregate quality of care improved each year from 1994 to 2008. However, the rate of improvement seems to have slowed. The median annual rate of change for the 39 core measures was 1.8 percent over the past six years. NHQR data shows that sustaining a steady rate of improvement over time is a challenge and that there is significant geographic variation in quality of care. 29 It is likely that all hospital boards will have a committee or subcommittee on hospital quality and patient safety by 2014. Boards will devote more of their meeting time to discussing quality than to discussing financial performance. 18 Coordinating care over time and sites, especially for those with complex conditions, can help ensure that patients receive appropriate follow-up treatment and minimize the risk of errors and complications. Having a doctor who is available and serves as a central source of primary care and referral facilitates care continuity and coordination. Yet nearly one-third of adults and more than half of all children do not have such a primary care medical home. 30 Science & Technology New technology—its introduction and its use—accounted for 20 percent to 40 percent of the annual rise in U.S. health care spending since 1960. 31 Telemedicine is transforming the traditional view of medicine. It can help determine whether or not a patient needs to go to the emergency department or the doctor's office. Physician reimbursement has been a barrier to the use of remote monitoring technology. It's difficult for doctors to support the technology that adds more work to their day without payment. Medical liability and other legal concerns, as well as security and privacy issues, have also come into play as potential obstacles to the growth of telemedicine. 32 The direct-to-consumer market for genetic testing will expand as the cost continues to drop. Direct-to-consumer marketing of these tests bypasses traditional clinicians, raising questions about how the information affects diagnosis and treatment. The National Human Genome Research Institute has set $1,000 as the target price for genome sequencing. Providers, payers and regulators must adhere to the Genetic Information Nondiscrimination Act passed in 2008. Insurers won't be able to deny coverage or raise premiums to individuals based on their genetic predispositions to developing certain diseases. 5 The number of activist disease foundations—foundations that operate with speed and urgency and a business model completely unlike the traditional foundation model—is growing. These groups use all their money to finance targeted research, hold conferences where scientists must share information, and underwrite clinical trials conducted by drug companies. The Michael J. Fox Foundation has used its money to take control of Parkinson's research like few other foundations have ever done. The foundation has upended the way scientific research is done, and the way academics interact with pharmaceutical and biotech companies. It demands accountability and information sharing that is almost unheard of in the broad scientific community. 37 Human Resources A large part of the employment growth in America over the next two decades will be in the health care sector. The biggest growth will occur in the front-line workforce—nursing, assistants, home health aides, long-term care assistants and others—who will provide essential care and services to an aging population. However, unlike many other health professionals, these individuals are often at risk by making lower wages, having less generous benefits and fewer opportunities for education and advancement. It's likely that much of this workforce is, or soon will be, unionized. 12 Saying they need a more "powerful national movement" to protect nurses, three unions merged in late February. United American Nurses, the California Nurses Association National/Nurses Organizing Committee and the Massachusetts Nurses Association formed the United American Nurses—National Nurses Organizing Committee. The 150,000-member union is part of the AFL-CIO. The group's highest priority is RN unionization. Legislatively, the group will push for nurse staffing ratios, workplace safety rules and a national pension for RNs. 8 Few young physicians are going into primary care and many physicians already in primary care are under such stress that they are looking for an exit strategy, according to the American College of Physicians. Challenges include: declining incomes, high patient volume, rising expenses and policies from insurers that encourage rushed office visits. As a result, more primary care doctors are retiring than are graduating from medical school. 13 Consumers & Demographics Nearly 44 percent of the U.S. civilian, noninstitutionalized population had one or more chronic conditions in 2005. Of these, one in five reported living with one chronic condition, 10.7 percent reported two conditions, and 13.3 percent had three or more chronic conditions. The most dramatic rise in the presence of chronic disease occurred among adults between early adulthood (ages 20 to 44) and midlife (ages 45 to 64). These age groups had an increase of 32.4 percent and 63.1 percent, respectively, of people with at least one chronic condition. 4 Employers are increasingly interested in incentives to encourage responsible health behaviors and participation in wellness and disease management programs. According to a survey by PricewaterhouseCoopers, large employers are leading this trend, with more than 60 percent at least somewhat likely to offer incentives as a health strategy over the next 12 to 24 months. In addition, half of the small employers surveyed are at least somewhat likely to employ the strategy. However, wellness programs don't work if employees don't participate, and most don't. Less than 15 percent of eligible individuals enroll in wellness programs. 5 Mental illness causes more disability than any other class of illness in the United States. One-in-four Americans experience mental illness at some point in their lifetimes. Twice as many Americans live with schizophrenia as live with HIV/AIDS. A study by the National Alliance on Mental Illness gives the nation's public mental health care system a D grade. As the country faces the deepest economic crisis since the Great Depression, state budget shortfalls mean budget cuts to mental health services. 6 About 66 percent of Americans are overweight or obese, according to the Centers for Disease Control and Prevention. Death due to poor diet and physical inactivity rose by 33 percent in the past decade and may soon overtake tobacco as the leading preventable cause of death. 7 Economy & Finance Hospitals' median days-cash-on-hand reached a historic low in the third quarter of 2008 of 110 days. The median bad debt percentage is within historic range, while charity care percentage is consistently trending upward. The hospital industry is not recession-proof. Observed impacts that appear related to the recession, include: hospital nonoperating and total margins have decreased dramatically, especially in the third quarter of 2008 and total margins are at historically unprecedented lows. Approximately 50 percent of hospitals are operating in the red. 8 Access to capital will become more strained and expensive. Even solid-performing organizations will experience a change in access to capital due to the overall condition of the capital markets. Providers will have to make serious choices about what services and programs they are able to fund over others. 9 In a survey of 639 hospitals, the vast majority reported that their ability to rely on philanthropic contributions and borrow funds through tax-exempt bonds and bank loans—the three most common sources of capital—has become significantly more difficult or even impossible. 10 More than half of all health care spending, calculated at up to $1.2 trillion of the $2.2 trillion spent nationally, is attributable to defensive medicine ($210 billion annually), inefficient claims processing (up to $210 billion annually) and care spent on preventable conditions related to obesity and overweight ($200 billion annually). 11 Associations Associations must produce products and services that deliver the highest possible value to members. To be effective, associations should discover their members' unarticulated needs and innovate and develop valuable benefits that meet these needs. Associations should also be aware of programs that provide low value or that distract staff from working on higher value programs. It may be necessary to drop these programs. Associations that identify and articulate a purpose that inspires its members to feel that they are contributing to the advancement of society may hold an advantage over those that do not. 1 To remain credible, associations may have to demonstrate their own dedication to responsible and sustainable business practices while taking care of their own triple bottom line—member value (profit), staff and community (people) and the environment (the planet). 2 Remarkable associations maintain a clear understanding of their core purpose and willingly adapt how they do business in order to remain consistent with that purpose, regardless of whether change is anticipated. Successful associations remain more steadfast in their commitment to their members and their mission. 3 Associations face the constant challenge of remaining trusted and relevant in a world of changing values and attitudes. 2 A potential opportunity to take a leadership role for associations is to facilitate strategic conversations about the future of their sectors or professions. These discussions should address the opportunities and challenges associated with a changing environment and workforce dynamics. 2 Resources Further Discussion of Five Super-Trends, by Benjamin Martin, ASAE & The Center for Association Leadership, 2007 Designing Your Future, Key Trends, Challenges, and Choices Facing Association and Nonprofit Leaders by Fast Future and ASAE & The Center for Association Leadership, 2008 Measures of Success, ASAE & The Center for Association Leadership, Fall 2006 Rising Out-of-Pocket Spending for Chronic Conditions: a Ten-Year Trend, Health Affairs Web exclusive, January/February 2009 Top Nine Health Industry Issues in 2009: Outside Forces will Disrupt the Industry, PricewaterhouseCoopers Health Research Institute, 2008 Grading the States, National Alliance on Mental Illness, 2009 Healthcare's Top Business Issues and Response, Cap Gemini, 2005 The Current Recession and U.S. Hospitals, Center for Healthcare Improvement and Thomson Reuters, 2008 Trends for 2008, Noblis Center for Health Innovation, 2007 "Tight Capital Access," Trustee, March 2009 The Price of Excess: Identifying Waste in Healthcare Spending, PricewaterhouseCoopers, 2008 Labor and Management Collaboration in Health Care, by Ed O'Neil, The Center for the Health Professions, 2005 U.S. Primary Care Near Collapse, Physicians Warn, Reuters by MedlinePlus, Jan. 30, 2006 Health Care CIO Results, 19th Annual HIMSS Leadership Survey, February 2008 Hospitals Will Invest to Improve Clinical and Financial Reporting, Healthcare Management Insight, August 2005 Adopting Technological Innovation in Hospitals: Who Pays and Who Benefits?, American Hospital Association and Avalere Health, 2006 Rock and a Hard Place, PricewaterhouseCoopers Health Research Institute, 2009 Health Confidence Survey: Dissatisfaction with Health Care System Since 1998, The Employee Benefit Research Institute Notes, vol. 27, No. 11, November 2006 Futurescan: Healthcare Trends and Implications 2009-2014, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Thomson Reuters and VHA Inc., 2009 Initial Findings from HSC's 2005 Site Visits: Stage Set for Growing Health Care Cost and Access Problems, Center for Studying Health System Change, Issue Brief 97, August 2005 Global Research Report Business and Reality, Cap Gemini, 2005 "UnitedHealth and IBM Test Health Care Plan," by Reed Abelson, The New York Times, Feb. 7, 2009 Annual Report, The Commonwealth Fund, 2007 Futurescan: Healthcare Trends and Implications 2008-2013, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Thomson Healthcare and VHA Inc., 2008 Relief, Restoration and Reform: Economic Upturn Yields Modest and Uneven Health Returns, Center for Studying Health System Change, Issue Brief 118, January 2008 Diagnosing Not-for-Profit Hospital Downgrades, Moody's U.S. Public Finance, December 2008 Hospital of the Future: Report Urges Major Changes, The Joint Commission, 2008 Health Care Opinion Leaders' Views on the Quality and Safety of Health Care in the United States, The Commonwealth Fund, July 2007 National Healthcare Quality Report, Agency for Healthcare Research and Quality, 2008 U.S. Health System Performance: A National Scorecard, Health Affairs Web exclusive, Sept. 20, 2006 Futurescan: Healthcare Trends and Implications 2007-2012, Society for Healthcare Strategy and Market Development and the American College of Healthcare Executives, with support from Solucient and VHA Inc., 2007 IRS Exempt Organizations (TE/GE) Hospital Compliance Project, Final Report, Internal Revenue Service, 2009 "Taking Science Personally," by Joe Nocera, The New York Times, Nov. 11, 2008 Covering the Uninsured in 2008: Current Costs, Sources of Payment, and Incremental Costs, Health Affairs Web Exclusive, August, 25, 2008 Trends for 2008, Noblis Center for Health Innovation, 2007 What the experts have to say... Gene J. O'Dell AHA Vice President, Strategic and Business Planning, Chicago, producer of the 2010 AHA Environmental Scan The health care reform debate and economic downturn have brought much uncertainty to hospitals and health systems. How can organizations demonstrate the importance of the strategic planning process? No one has a crystal ball, but the best performing organizations develop and execute strategic plans through a well-designed planning process that is both flexible to respond to environmental forces and yet remains true in pursuing the affirmed vision, mission and goals of the organization. Attributes of organizations that embrace strategic planning as a cultural imperative include: The CEO and/or the chairman primarily drive an organization's commitment to, and investment in, strategic planning. Ownership and accountability are demonstrated through aligning management with strategy development and execution. Trustees are engaged in the planning process so they are better prepared to guide the organization toward achieving success, and to the benefit of the patients and communities they serve. The strategic and financial planning processes are integrated. Monitoring the organization's performance and comparing it with the plan to ensure achievement of the objectives and/or to reflect changes in the internal and external environment. David A. Kantor President, Kantor Consulting Group, Shaker Heights, Ohio, and President-elect, Society for Healthcare Strategy and Market Development Does the current economic environment place greater emphasis on and need for strategic planning? Given the rapidly changing nature of the health care environment, strategic planning has always been a particularly critical endeavor for hospitals. In difficult economic times, like the present, strategic planning assumes even greater urgency. The essence of planning is the allocation of scarce resources to initiatives of greatest importance at the expense of other activities of lesser importance. When resources are scarce, and the risks presented by the environment are greater, appropriate resource allocation assumes even greater importance-in essence, in this type of situation, the number of bets you can place tend to be fewer, so maximizing the potential for success becomes more important. What are the most important elements of a hospital's strategic planning process? All elements of the strategic planning process are important, but there are several activities that merit particular mention for their significance in the process. These include: the performance of an environmental assessment that provides insight into the external dynamic and range of uncontrollable issues that hospitals must consider in developing their strategic plans; the establishment of effective strategic direction that is truly focused and strategic rather than diffused and operational; and the development of implementation plans and the supporting financial plan that confirms the capacity of the organization to implement its plan. Thomas M. Priselac President & CEO, Cedars-Sinai Health System, Los Angeles, and Chairman of the American Hospital Association Board of Trustees How does your organization use the Environmental Scan and planning assumptions in it's strategic planning process? While the AHA Environmental Scan has always been a useful tool in Cedars-Sinai's strategic planning process, this year's Scan will be even more helpful in our efforts, given the significance of the changes being discussed and debated nationally about health care reform. While every hospital in the nation is appropriately focused on the changes in its local environment, the AHA Environmental Scan provides all of us with not only a broader perspective, but also a look at developing trends that may not yet be on our individual institutional radar screens yet. As CEO, what is your role in the strategic planning process? While it's the CEO's responsibility to lead the process, it's very important for the CEO to know when to listen and when to speak. If you jump in too early in a discussion, before different perspectives can be aired, it prevents your institution from really examining all sides of an issue. But since strategic planning is by definition a broad and somewhat open-ended process, it's also important to know when (and how) to keep the planning process on track and how to help the process reach conclusions that will effectively guide the institution. It's a delicate balance for all CEOs. 2010 AHA Environmental Scan