Demographic shifts and changes to the modes in which patient care is delivered are changing the ways hospitals earn revenue. In today’s dynamic environment, health system leaders are faced with the daunting task of strategic planning for facilities’ needs for five, 10, or even 20 years out — often with limited data to inform their decisions.
Major trends affecting the revenue of healthcare systems in the US
Changing demographics and the tipping point
Across the US, demographic shifts vary regionally due to migration of retirees into or out of a state, as well as younger early-career individuals moving to access employment opportunities. In addition, states’ participation in Medicaid Expansion and other programs can impact migration, and therefore a state’s average age. While the population of the US is aging in general, with the number of senior citizens projected to increase by about 15 million in the next 10 years and almost 40 million over the next 40 years, the impacts are already being experienced to varying degrees across the country. We therefore have an opportunity to observe these regional variations and adapt as needed when making changes in how care is delivered.
Most health systems depend on a minimum ratio of commercially insured patients to Medicare/Medicaid-insured patients to stay in the black. As that ratio shifts over time with changing demographics, healthcare providers will be faced with the possibility of reduced revenues, even as the healthcare needs of the aging population increases.
The map below groups each state into one of three segments, based on projected demographic mix in 2030 and the cost differential between commercial insurance, Medicare, and Medicaid reimbursement levels. The states in the “highly sensitive” areas, which have the largest expected reduction in average reimbursement, are likely to feel the financial impacts and reach the tipping point first.
Technology-driven changes in patient care
Healthcare delivery methods are changing to the extent that the hospital itself is becoming less central to certain aspects of care. Technology-driven trends such as remote patient monitoring, hospital-at-home, and more effective pharmaceutical interventions that can halt progressions are making some forms of hospital based treatment less necessary.
Also, due to technological advances and financial incentives to drive value based care, many medical procedures are moving away from being traditional inpatient procedures to being performed at outpatient facilities, or in the home. Ambulatory surgeries and medical imaging are trending toward increased outpatient care, while incentives exist for high-cost services performed in an outpatient facility such as infusions and dialysis to move to lower cost settings such as the patient’s home.
As a result, hospitals must think differently about how their facilities are most likely to be used in the coming decade(s) and prioritize technology investments, infrastructure, and facilities accordingly. These decisions have far-reaching impacts and will inform calculations for optimal bed counts and building plans, as well as strategies for budgeting, marketing, and hiring the professionals they will need to operationalize their plans.
Time for a new operating model
The trends above will have a significant impact on healthcare providers and health systems with other changes on the horizon. Changes like site-neutral payments, lower Medicare Advantage reimbursements and the ultimate impact of Medicaid redeterminations. These will all impact the demand, supply, and profitability of healthcare services in different regions and markets. The demographics of patients requiring care are changing, the means of treatment are changing, and the locations where cost and revenue are incurred are changing as well. Within health systems, it’s imperative for leaders to understand exactly where their organization fits in the spectrum of the commercial and Medicare/Medicaid cost differential, and how to best leverage their finances to survive and thrive for years to come.