About this time each year, healthcare leaders, boards, and advisers pause to reflect upon the year behind and what lies ahead. In that sense, this year is no different; yet the year in retrospect could not be more different than what most had envisioned. Certainly, most of the key trends and themes cast by industry observers in terms of a 2020 outlook were on point, though the impact or pace of change attributable to many of them was eclipsed by the pandemic.
Few would take issue with the point of view that 2020 was a year that failed to meet expectations, though the pandemic itself and the health, social, economic, and political unrest in its wake have changed the global perception about public health and healthcare. In the US, the pandemic and its disruptive effects have left a lasting impact on the healthcare sector that has set in motion shifts that will perhaps forever change the healthcare delivery and funding model. There will be no shortage of lessons learned and implications for the future; our observations of some of the most important include the following:
1. Mission and People First
The resilience of the provider community and the heroism of our frontline caregivers and support teams illustrate the fundamental truth that health, and healthcare, is about people. Throughout the pandemic crisis, healthcare organizations never lost sight of their purpose—which we sum up collectively across the provider sector as the essential mission to care for those in need and improve the health of their communities. The values of these organizations shone through, and much of the public now see the industry in a more favorable light. We still have dark spots to address, and improvement opportunities abound in areas such as inefficiency, waste, health outcomes, and health status. 2020 has created momentum to address all of these areas.
The ability of a healthcare organization to fulfill its mission is only as good as the people that support it. Now, well into a second surge, we see fatigue on the faces of frontline workers but also a spirt that continues to fight. The reality is that provider workforces have been stressed beyond reasonable limits. Many have left, and others will follow. Organizations must invest in the means to ensure their physicians, nurses, and other frontline caregivers and support personnel are recognized; create a supportive environment that mitigates burnout and brings opportunities for renewal; and encourage future generations to train for careers in the health professions.
The demographics don’t lie. We have an aging workforce and the most ethnically and educationally diverse population in our history, with younger generations showing the least trust in institutions such as healthcare. 2020 has shown we have an industry mandate to reimagine our workforce for tomorrow while not losing any of the best qualities of those who deliver our care today.
2. Public Health and Safety Net Exposure
The social and economic inequity in many parts of the country was stripped bare, exposing health status issues particularly among the aged and minority populations, as evidenced by disproportionately higher COVID-19 infection and mortality rates. Similarly, the criticality of the public health safety net was put on display and revealed to be unprepared, underfunded, overregulated, and hyper-politicized. The safety net in the US is not just the public health and prevention services available through federal, state, and local agencies; it necessarily must also include disaster preparedness and emergent healthcare services, housing, food, and access to coverage—whether through Medicaid expansion, insurance exchanges, or unemployment coverage. We are also experiencing a COVID-19 surge in mental health need, a crisis in its own right that has been building in the US for many years and that, left unaddressed, will put more stress on the healthcare system than ever before. We did receive government support for expansion of these services during the pandemic, though these services are generally disconnected and uncoordinated, widening the already significant social and economic disparities in the US and exacerbating the challenges for providers during a crisis.
The issues of socioeconomic disparities and health equity are gaining serious attention in health system board rooms. Healthcare organizations leapt into the fray to address a deep public health void that need not have been so stark. The public health infrastructure and mental health services across the US require investment and a dialogue that many would argue is overdue.
3. Fiscal Fragility
The imbalance and fragility of the healthcare economic model, with reimbursement rates structured most favorably toward procedural services, was immediately evident when hospitals and other providers were forced to cease elective cases during the pandemic. The financial impact for most organizations was staggering as operating margins plummeted to negative double digits for many, attributable to the cancellation or deferment of as much as 70% or more of elective procedures, similar reductions of diagnostic and emergency department visits, and the deferral of many treatment plans for patients with complex conditions. Many of these patients may return as sicker, more complicated patients in 2021.
Organizations that had mature population health capabilities in care coordination and care management systems were best able to marshal resources to meet the needs of their patient populations. Those with the strongest balance sheets were able to withstand the financial stress, and some even took advantage of the market’s low-cost debt to support strategic investments. Others spent down cash reserves, some were hit with credit downgrades, and many faced the need to furlough or permanently reduce staff.
Even with the return of elective cases, the migration of eligible cases to ambulatory surgery centers continues, a pre-pandemic trend that has accelerated. The CARES Act and other stimulus funding has helped many organizations stabilize operations, though these trillions of dollars pumped into the US healthcare system in 2020 on top of the 2019 national health expenditure base of $3.8 trillion and 17.7% of gross domestic product will only raise further questions about how much spending is too much.
CMS and commercial payers are making adjustments to reimbursement models, and the march toward value-based care and risk sharing will no doubt continue. However, the current economic model in healthcare remains inextricably linked to volume, complicated by an unfunded mandate to health systems and in turn a hidden tax (through cost shifting) to commercial insurers. It is our observation that most health systems lack the level of clinical and economic integration to thrive under a fully risk-based financial model. Many recognize this and will move aggressively to redesign their delivery networks. Others in markets that are too fragmented, or where payers have little interest in sharing risk, must develop the means to go directly to employers or double-down on their current business model. As a result, cost pressures will continue, and organizations must seek opportunities to achieve a sustainable revenue and operational model, including:
- Optimizing revenue and cost structures.
- Driving value improvement through elimination of waste and duplication.
- Building scale through system integration and consolidation.
- Improving physician alignment and performance of physician enterprise organizations.
- Rationalizing clinical portfolios.
4. Innovation
Out of crisis springs opportunity—and innovation. Over the course of weeks, and in some cases just days, we witnessed healthcare organizations transform their business model from in-person visits to virtual models, including the use of telehealth, artificial intelligence (AI)–enabled chatbots to screen employees and visitors, and HIPAA-compliant electronic means of communication between patients and families to mitigate entrance into isolation areas. Novel uses for virtual care have evolved, such as virtual rounding and emergency room video handoffs. The rapid ramp-up in virtual care alone represents an acceleration by years from traditional approaches to bring new models of care and treatment online. Fortunately, relaxed regulations from CMS and commercial payers helped fund these services that were typically not reimbursable prior to the pandemic. The concept of the digital front door and the need for a consumer-centric approach to drive personalized patient experiences is here to stay, and many providers recognize the need to embrace their communities of consumers and patients with new vigor.
Similarly, we have seen organizations develop new processes of care for hospitalized COVID-19 patients such as hot/warm/cold zones and use of robots for services where human interaction could be eliminated to minimize waste of personal protection equipment (PPE). We have seen development of sophisticated algorithms and AI-based predictive analytics to model future COVID caseloads and to help manage patient populations. Organizations rapidly deployed M.A.S.H.-style testing and treatment facilities and creative means for critical care capacity management and surge capacity planning. Healthcare organizations and suppliers built up scale to manufacture and distribute PPE with new designs to improve comfort for caregivers and patients. And, perhaps most notably, academic organizations, biotech, and pharmaceutical companies have worked tirelessly to rapidly create and test investigational vaccines, with two already having received FDA approval. The pandemic has demonstrated that there is appetite for innovation by providers when some of the legacy regulatory barriers and restrictions are reduced or eliminated.
As negative as the pandemic has been in terms of morbidity and mortality, and the disruption to the healthcare industry and the economy overall, a lasting impact is the realization that innovation in healthcare yields real-time benefit. Organizations learned they can shorten decision timelines, eliminate unnecessary administrative or even regulatory hurdles, and achieve results more quickly. Many will continue to do so, and the industry itself may benefit from a hard look at lessening some of the regulatory burdens placed upon it.
5. Business Models
Few healthcare business models are known for their efficient and agile operations. Fixed costs for many organizations include a large expense base in staff functions and leadership structures multiple degrees removed from direct patient care. Early in the pandemic, organizations made some hard choices to furlough or permanently reduce staff and move others to a work-from-home model. Many are now questioning the need for the depth of staff functions and whether the high costs of maintaining offices is necessary to support those who appear to be just as productive working remotely. The impact to an organization’s culture is a key consideration, though a fair question being asked by many organizations is, why can’t we both achieve gains in strength of culture and reduce the costs of our business model?
Many organizations made great strides in clinical practice standardization during the pandemic. Others have achieved gains in care management across the continuum as an essential means to improve outcomes and reduce costs. A growing number of organizations are adopting service line models across their regional systems to better manage resources and establish a single care signature.
As an artifact of the reimbursement model, most health systems are built around an asset-heavy chassis of hospital campuses and associated ambulatory and support buildings. In the wake of the financial challenges presented during the pandemic, many organizations that were over-leveraged struggled, and many of these will not survive in their current configuration. Maximizing return on assets is a mandate most organizations cannot ignore. With this comes the need to critically evaluate clinical and real estate portfolios, dependency on hospital rate structures, and the need to be closer to patients in ambulatory venues that are convenient and less costly. Asset-light strategies now include establishing delivery sites that stand on their own in geographies where a health system does not have a hospital and partnering with physicians to meet the growth in demand for ambulatory services. Partnering with businesses—perhaps disrupters—who bring a new model to the table in physical care or virtual health, or looking outside of traditional healthcare vendors for business services, are now commonly required considerations. Many organizations are tapping into their EHR data and using it as a strategic asset to better manage patient populations, and some are using this data to inform payer contract negotiations, especially those for value-based contracts.
What a year 2020 has been. Few of us will ever forget it. The key question is whether we can learn from it as an industry.
What’s Ahead?
What does 2021 hold for healthcare sector in the US? We can expect to see trends continue around disruption, digital health, consumerism, transparency, value-based care, consolidation and integration, and many others. And, quite likely, the headline topic will be healthcare reform. In a recent ECG survey of nearly 100 C-suite leaders, most organizations are happy with their strategy but not the pace of implementation. These leaders also are seeking an operating environment that rapidly improves performance on all aspects of their systems of care. These interviews suggest that speed is more essential than ever, as the need to adapt quickly is a key to prevailing in their markets.
We’ll share our more complete 2021 outlook after the holidays, informed by conversations with healthcare leaders who have similarly reflected upon 2020 and are preparing for the year ahead with a spirit of hope, a renewed sense of mission, and purposeful intent to lead healthcare forward.
Published December 30, 2020