The Transformation of Healthcare Delivery in a Statistically Average American Community
By the year 2025, the U.S. healthcare system will look very different from today. In this first report from its Healthcare Transformation Series, Ascendient tracks the big forces at work, showing how national trends will utterly transform the landscape for local providers.
(A PDF version of this report can be downloaded by clicking here.)
The Future Is a Funny Thing
Healthcare delivery in the “typical” American community of 200,000 residents will change dramatically over the next ten years. Hospitals will disappear, admissions will plummet, and consumers will abandon specialty physicians and emergency departments in droves. On key metrics such as inpatient utilization, the reality of 2025 will fall short of predictions by more than 30 percent. Meanwhile, visits to a primary care physician will increase by more than 80 percent – yet significantly fewer physicians will be needed to keep up with the soaring demand.
Based on demographic trends alone, none of this makes much sense. Over the next 15 years, Baby Boom retirements will grow from a trickle into a torrent, sweeping some 75 million Americans into their golden years. For these newly minted retirees, life won’t be all about cruises and art classes. As bones get softer and arteries get harder, boomers will find themselves more often in need of healthcare than they ever were during their earning years.
Like every other industry in America, the healthcare industry has spent many years planning, strategizing and building for this much-anticipated upswing in a key demographic. After several decades of declining demand for inpatient services, hospital planners have widely assumed that a rapidly graying population would reverse the trend. Untold billions of dollars have been invested in new beds, often with the justification that Baby Boomers would put a strain on existing capacity. In the words of one Midwestern health system CEO:
This is really a 20- to 30-year planning cycle, and what’s happening is there’s an undeniable wave of patients coming our way, with the aging of the population.
But is the trend really as unstoppable as it seems? The aging of the Baby Boom has often been compared to “a pig in a python,” suggesting that this enormous demographic bulge would work its way through the system in a linear, predictable fashion. In nature, however, a funny thing happens to the python’s dinner: The outline that seemed so distinct in the beginning gradually becomes less recognizable. We can’t see exactly what’s going on in there, but it’s safe to assume that changes are afoot, and neither pig nor python will look exactly the same in the morning.
At Ascendient, nearly our entire team has worked for more than a year to create a detailed picture of future healthcare delivery at the local level. Perhaps the most salient point to remember about our model is this: It is primarily descriptive, rather than prescriptive. Yes, we believe it is imperative for healthcare providers to update their delivery model, but that belief is not based on any sort of academic, theoretical or top-down definition of “ideal.” Instead, we reached our conclusions by identifying and quantifying the inescapable trends that are fundamentally altering the way healthcare in America is delivered and consumed. Economics, politics, demographics and technology are among the many pressures pushing and pulling on the healthcare system from every direction. In response to those pressures, we searched out innovative care delivery models that are already working, though they might not yet be widespread or well known. In other words, we know that care delivery can work as we’ve outlined here, because in some cases it already is.
Welcome to Healthytown
Although healthcare trends and statistics tend to be macro in nature, the actual delivery of healthcare is a highly localized activity. Medicare costs about $600 billion a year, but it’s that $50 copay that generates the most consternation on Main Street. While politicians worry about reforming the “system,” patients worry about finding a convenient doctor who accepts their insurance plan.
This constant tension between the national and the local is one of the reasons it’s so hard to present an accurate picture of future healthcare delivery. The most abundant, most reliable statistics tend to describe a national system that has very little bearing on the decision-making process of local consumers or providers.
That’s why we created Healthytown, USA, a thoroughly typical community of 200,000 where big trends play out on a smaller, more familiar stage. Healthytown is a local community built on national averages, so it represents the way most Americans live – particularly in their interactions with the healthcare system.
The Healthytown community includes a mix of suburban and rural homes that lie 30 to 60 minutes from the nearest city. The bulk of population is clustered in the suburbs, which offer a shorter commute to jobs in the city. Like most of America, Healthytown is getting older: Every day for the next decade, four residents will celebrate their 65th birthday, contributing to a nearly 5 percent annual growth rate among the 65-plus population. The overall population, meanwhile, will grow by less than 1 percent a year.
Besides getting older, Healthytown is also getting more diverse. White residents make up 65 percent of the population in 2015, but their share will shrink to 58 percent by 2025. Hispanic residents will see a 4-point gain in the coming decade, eventually accounting for one-fifth of the Healthytown population.
The coming decade will be a relatively good one for the finances of Healthytown residents, with median income growing from $54,000 to $61,000. Importantly, a decade of healthcare reform will change the financial picture in one other way, as well: By 2025, every resident will have healthcare coverage of some type, whether Medicare, Medicaid or private insurance. Currently, only 84 percent of the population has coverage at any given time, and the 16-point gain over the next decade — coupled with higher out-of-pocket costs for consumers and fundamental changes in provider reimbursement — will help to drive many fundamental changes in the way local residents access and consume healthcare.
Point A: A Tale of Two Hospitals
Today, Healthytown boasts two independent hospitals for its 200,000 residents. Suburban Memorial is the larger of the two, with 135 patients filling its 200 acute care beds on any given night. Though it prides itself on being an independent community hospital, Suburban does support its cardiology services through a clinical partnership with City Health, the big urban hospital system 30 minutes away. The two hospitals also jointly own and operate the linear accelerator located in Suburban’s cancer wing. In addition to its main campus, Suburban operates a home health service and a hospice service that provide care throughout the community.
Beyond the suburbs, Rural General serves a more scattered population whose average driving time to the city is about one hour. Rural General has 100 licensed acute care beds, but only 45 percent of those beds are filled on any given night. Most of the admissions at Rural are medicine patients, though two surgeons do perform operations a couple of days each week. Rural also has 90 nursing home beds and a small emergency room.
Despite some cooperation, City Health looms large as a competitor for both of the local providers. Each year, 22,800 Healthytown residents are admitted to a hospital, but only 60 percent of those patients choose to stay in Healthytown proper, despite the convenience and service offered by Suburban and Rural. The other 9,100 patients drive up to an hour to check in at City Health, lured by the reputation – and perhaps the marketing – of a big, urban hospital affiliated with a statewide system.
Referrals are another major reason that City Health is so successful in drawing patients away from their local hospitals. Of the 92 primary care physicians (PCPs) working in Healthytown, fully half (46) are employed by City Health, and most are co-located in new medical office buildings alongside select specialists who are also City Health employees.
Suburban Memorial employs 28 primary care physicians under various contractual arrangements, or 30 percent of the local PCP supply. Suburban’s physicians are still located in their original office buildings, and each group maintains its own medical record system. Only 18 primary care physicians in Healthytown, or 20 percent of the total, are still working in fully independent practices. Each of the independent practices ranges in size from one to three physicians, and two are federally qualified health centers (FQHCs).
In 2015, the population of Healthytown needs a total of 121 specialists, both medical and surgical. Only 40 of those specialists — mostly cardiologists, gastroenterologists, oncologists, orthopedists, general surgeons, and ENTs — practice full-time in Healthytown itself; the rest are based in the city. Within Healthytown proper, most specialists are still independent practitioners, although several have approached Suburban in recent months to ask about employment options. Meanwhile, a group of orthopedic and ENT physicians has opened a four-room ambulatory surgery center that represents a direct challenge to both Suburban Memorial and Rural General.
There is healthcare competition in other areas, as well. Several outside agencies compete with Suburban in the hospice and home health space, while two nursing homes – one independent, one part of a national chain – offer alternatives to the 90 beds operated by Rural. The Public Health Department offers traditional clinic services for Medicaid patients, as well as prevention, outreach and education efforts.
In the face of rising competition and a coming shift to population health, Suburban Memorial spearheaded the formation of the Healthytown Care Coalition, which includes representatives of the public health department and FQHCs. The group meets three times a year to discuss the community’s health and social service problems along with various outreach and educational programs that each organization is attempting. The meetings are purely informational: There are no real objectives, and nothing ever gets done.
In 2015, change and competition are the order of the day for Healthytown hospitals. Still, both Rural and Suburban see reason for optimism, because traditional planning models – those that rely primarily on demographic factors like aging and population growth – predict that by 2025 total admissions will rise from 22,800 to 27,700. With admission rates expected to grow by 20 percent, both hospitals are hopeful they can survive as independent entities, even if they have to tinker at the margins with service lines, staffing levels and so forth.
Point B: What a Difference a Decade Makes
Fast forward to 2025, and the bricks-and-mortar healthcare map has been significantly redrawn. Even midway through the decade it was clear that something had fundamentally shifted in the way local residents interacted with their healthcare system. Yes, people were getting older, but they were checking into the hospital less, not more. Admissions began a noticeable decline, and by 2025, the annual total stood at just over 19,000—over 30 percent less than planners had forecast.
The most noticeable difference: Rural General is no longer a “hospital,” at least in the sense that word was commonly understood in 2015. There are no inpatient beds and no surgical suites. The second floor of the main building is basically unused now, and jobs have been lost, but the situation could have been much worse.
Rural flirted with insolvency for years while management clung to the idea that an aging population would eventually fill unused beds and shore up the faltering revenue base. When those projections proved untenable, however, the board finally stepped in to transform the organization while remaining true to its healing mission. Rural still operates a profitable nursing home, and its ED is a crucial part of the healthcare system in this sparsely populated corner of the county. But more than anything else, in 2025 Rural is known for its primary care. The first floor of the main building now serves as a large, patient-centered medical home with extended hours, same-day appointments and 6 PCPs available under one roof, supported by 12 advanced care practitioners. As a result, more nearby residents choose to see a doctor close to home, as opposed to driving to the suburbs or the city. Ironically enough, by 2025, the Rural Patient Centered Medical Home (PCMH) sees more patients than Rural General ever did before – even if none of those patients stays overnight.
At Suburban Memorial, executives long believed that the struggles at Rural, combined with an aging population base, would surely allow them to maintain their independence. In fact, during an early strategy retreat, the Suburban board voted to begin an expansion feasibility study based on the projected 20 percent surge in demand for inpatient services. Instead, occupancy rates began to drop, while costs and competition continued to rise. Most worrisome of all, the emergency department experienced an alarming drop in utilization rates — after an initial bump — as newly insured patients found a medical home and avoided routine use of the expensive ED.
Midway through the decade, Suburban’s trustees recognized the inexorable trends and began to explore affiliation options. And so, in 2025, a combined (and rebranded) City-Suburban Health has emerged as the sole inpatient hospital in Healthytown. Due to increased cooperation and coordination between two well-known brands, more residents—about 80 percent now—choose to stay in Healthytown for their inpatient care. As a result, City-Suburban has expanded its inpatient capacity to absorb the shift of inpatients from Rural and most of those who previously sought care at City. In addition, City-Suburban has expanded its sites of care, offering convenient outpatient services alongside primary and specialty physician care in its Major (“MAHP”) and Minor (“mAHP”) Ambulatory Health Parks. This expansion—along with an improved inpatient occupancy rate of 80 percent—has brought a measure of financial stability that had been missing for decades. In addition, City-Suburban has purchased the independent nursing home nearby, allowing for integrated healthcare at every stage of life.
To ensure that most medical issues never require a hospital stay or a trip to the ED, City-Suburban has rationalized its primary care capabilities with a network of nine patient-centered medical homes throughout the community. Staffed at a ratio of roughly two advanced care practitioners for every physician, these primary care homes offer same-day appointments to all who request one; extended morning, evening and weekend hours for patient convenience; and a team-based approach to healthcare – including case managers, nutritionists, psychologists, medical assistants, and scheduling staff. Except for the doctors employed by Rural, every primary care physician in Healthytown is now working in a PCMH affiliated with City-Suburban, and all are connected to the system via the same electronic medical record.
With providers bearing the financial risk the population’s health, planners have also redefined how they look at market share and measure success. Rather than share of previously lucrative procedural volume, population share, actively managed lives, and per capita cost have become the mantra, with 100 percent population share the desired target to minimize risk.
The Tipping Point: Why The Past Is No Guide To The Future
Healthytown 2025 represents a local healthcare system that is not just reformed, but transformed. It represents an ideal delivery network where every patient receives just the right care at the right time in the right place – no more and no less. It represents years of political and economic pressure to deliver on the “Triple Aim” of healthcare reform: care that is safe, effective, patient-centered, timely, efficient and equitable; improved population health; and lower per capita costs.
In 2015, regulation and reimbursement trends are already pushing toward this ideal on the supplier side, while forces such as technology and patient preference are simultaneously suppressing demand for more expensive services. Taken together, these trends are driving the biggest healthcare transformation in 80 years, yet many continue to rely on timeworn assumptions when planning for the future. A look at the following chart on Healthytown utilization shows just how stark the differences can be between a traditional model and a transformed one.
Healthytown Utilization: Quantifying Transformation
^Count of visits in 2015 and 2025 Traditional, but encounters in 2025 Transformed.
*Assumes 60% occupancy in 2015 and 2025 Traditional, but 80% occupancy under 2025 Transformed
Primary Care: From the patient’s perspective, the biggest change in healthcare transformation is the dramatic shift to primary care. There are three major drivers in this tectonic shift: 100 percent insurance coverage, a preference for primary care visits over ED visits, and a preference for primary care visits over specialist visits.
In a transformed system, payors have shifted the financial risk to providers, holding them accountable for quality and outcomes, as well as cost. Rather than simply treating sick patients, providers now have an incentive to keep their populations healthy through an emphasis on wellness and early detection. As a result, the patient-centered medical home has become the go-to model for care delivery: Every resident has a primary care home that is responsible for prevention and wellness, plus management of chronic conditions. When acute conditions arise, the PCMH provides assessment, management and referral services, so fewer patients are turning to specialists as their first source of treatment. Additionally, the convenience and affordability of primary care treatment through a PCMH has markedly changed the behavior of patients who would have once gone straight to the emergency room.
As a result, the demand for primary care increased astronomically in Healthytown between 2015 and 2025. At the beginning of the decade, the average resident saw a primary care physician once or twice a year, or a population total of 315,900 visits. In 2015, Healthytown had 92 primary care physicians – just about the right supply level, given the community’s rural/suburban population mix.
Traditional planning had forecast an increase to 355,000 visits per year, but the rapid pace of transformation resulted in an actual total of 588,000 primary care encounters (or about 3 encounters per person, per year, given the increase in population). Under traditional delivery models, Healthytown would need 168 physicians to handle those visits, resulting in a severe shortage. But transformation in the healthcare system completely reversed that dire scenario: By 2025 Healthytown needed only 50 PCPs, plus 80 to 100 advanced care practitioners, to meet the needs of a growing and aging population. In other words, patient demand increased by 86 percent while physician supply decreased by 45 percent, yet supply and demand remained essentially in balance.
Technology, efficiency and payment reform are the drivers in this turnaround. In a transformed system, only about 30 percent of primary care encounters requires an in-person, face-to-face encounter with a physician. The remaining 70 percent are handled either by remote communication (e-visits, email and phone consultations) or by face-to-face visits with an advanced care practitioner. Because primary care is coordinated through a PCMH with a shared electronic record, physician assistants, nurse practitioners and other team members are able to practice at the top of their license. This ensures same-day treatment for routine health issues, while physician visits are reserved for severe or complex situations that require advanced knowledge and expertise.
Specialty Physicians: In 2015, there were 121 medical and surgical specialists serving the 200,000 residents of Healthytown (with roughly two-thirds percent of them practicing in the city, rather than Healthytown proper). Looking ahead 10 years with traditional assumptions about aging and population growth, hospital leaders expected that 143 specialists would be needed, an increase of 20 percent.
But the transformed landscape in 2025 looks very different, with only 107 specialist physicians required to keep up with demand – more than a 10 percent reduction from 2015 levels. What traditional planning had failed to consider in 2015 was the large shift of routine and preventive visits to primary care. Depending on the specialty, that shift moved 30 to 50 percent of existing demand toward primary care, even accounting for the additional specialty visits that resulted from 100 percent insurance coverage under the ACA.
Though specialty demand is lower in 2025, Healthytown residents have an easier time seeing those physicians than ever before. As a result of its affiliation with Suburban, City Health has expanded the number of specialists practicing full-time in Healthytown, and most of the previously independent specialists have since sought employment by City-Suburban. These specialists have been consolidated into several Major and Minor Ambulatory Health Parks distributed throughout the market, alongside primary care and related outpatient services.
Inpatient Utilization: Healthytown 2015 had about 22,800 hospitalizations among its 200,000 residents – as it happens, the statistical average for communities of that size. Because 40 percent of all patients sought treatment outside the immediate community, Suburban Memorial and Rural General admitted about 13,700 patients between them. Using traditional planning assumptions, the two hospitals expected inpatient growth rates in excess of 20 percent, or 16,600 total patients by 2025.
But transformation led to a very different scenario. Instead of growing by 20 percent, total inpatient demand actually dropped throughout the decade, leaving just 19,100 patients overall. Put another way, the transformed reality is more than 30 percent lower than traditional expectations. Much of this decrease was due to better monitoring and outpatient options for diabetes, hysterectomies, kidney infections and other top admission categories.
In this environment, any hospital counting on demographic growth to make up for low occupancy rates is bound to be sorely disappointed – as Rural General discovered, just in time to make the shift from inpatient services to a PCMH with expanded services.
In Healthytown 2025, a patient’s average length of stay (ALOS) is one of the few metrics that doesn’t drop. Healthcare transformation means that less acute cases are treated outside the hospital setting, so patients admitted in 2025 tend to be the more difficult cases that require a longer stay – 5.1 days, on average, compared to 4.8 days in 2015.
The combination of lower admissions and new payment methodologies also means that successful hospitals in 2025 must operate at 80 percent occupancy, compared to the average occupancy rates in 2015 that hovered around 60 percent nationwide. Even with a slightly longer average stay, this increased efficiency combined with the overall drop in admissions means that far fewer beds are required to serve Healthytown residents than the 370 that had been anticipated early in the decade.
Helping to counteract this trend is City-Suburban’s realization that many of the Healthytown residents served by City in 2015 can be served more appropriately and efficiently in their home community. The resulting combination of all these forces is a need for 270 beds at City-Suburban to serve residents seeking care in Healthytown— slightly fewer than the 300 beds shared by Suburban and Rural in 2015, but significantly more than just the 200 beds needed if outmigration to City Health had remained unchanged.
ED Utilization: Even in 2015, you wouldn’t need a crystal ball to see that the emergency room was in trouble – not just in Healthytown, but throughout the industry. Payor pressures, combined with wider healthcare coverage, meant that more patients were choosing primary care visits over a trip to the emergency room – a trend that only accelerated as patient-centered medical homes reached a critical mass. With robust primary care services, extended hours and same-day appointments, the PCMH model was embraced by Healthytown residents, especially among newly insured patients who had previously relied on the ED.
So while traditional efforts predicted slower ED growth of “just” 9 percent, the transformed reality caught many by surprise: In 2025, there are only about 55,200 visits to an emergency room by Healthytown residents, compared to 89,100 in 2015. This greater than 40 percent drop in ED utilization is arguably the single biggest change for providers in the transformed healthcare system. It means better care for patients and billions of dollars in savings, but it is potentially life threatening to an under-utilized hospital focused on growth in inpatient care as roughly 75 percent of admissions may originate in the ED.
Inpatient Surgery: In 2015, even with 40 percent of all patients opting for surgery in the city, both Suburban and Rural had reason to believe they would soon see an increase in high-margin surgery cases. All those aging residents would surely need new hips and knees and heart valves, helping to drive up demand for both surgical suites and recovery beds. From a baseline of 6,600 cases in 2015, planners believed they would see a 19 percent increase, reaching 7,900 cases by 2025.
But a funny thing happened on the way to the future: Actual surgical caseload turned out to be just 5,100 for all of 2025, a 23 percent decline from the 2015 baseline and 35 percent lower than forecasted growth. As with inpatient utilization for all services, much of this drop is the result of better prevention and monitoring of patients with chronic conditions, as well as the ongoing shift to outpatient surgery settings.
Outpatient Surgery: In a transformed healthcare system, outpatient surgery is one of the few growth areas. Technological advances mean that routine surgeries like hip and knee replacements can now be performed without an overnight stay – an option that is vastly preferred by both patients and payors.
As the sole surviving inpatient hospital in Healthytown, City-Suburban was caught somewhat off guard by the rapid shift to outpatient surgery. Planners in 2015 predicted demand would grow by about 15 percent over the decade, but actual growth was closer to 35 percent, setting off a scramble for more outpatient operating rooms. As surgical technology continues to improve, planners see no letup in the shift to outpatient services. Rather than starting from scratch, City-Suburban opted to enter into a joint venture with the existing ASC, expanding capacity from four operating rooms to eight. The expanded ASC is now co-located with a PMCH, specialists and related outpatient services to create a Major Ambulatory Health Park that serves as a second medical hub for City-Suburban to decompress its hospital campus and significantly improve patient convenience.
The Point of It All
By 2025, every corner of the bricks-and-mortar healthcare system will look very different in the typical American community. Consumers will move sharply away from emergency care and specialty care, while providers will see a plunge in demand for inpatient beds. Squeezed by payment pressures and consumer expectations, some hospitals will close their inpatient operations entirely, morphing into smaller, more modular providers of community health services. Remaining providers will continue to consolidate, bringing together ever more primary care and specialty physicians in networks that share information and coordinate care for maximum quality and efficiency.
Beyond the availability of 100 percent insurance coverage, little of this has to do with high-level systems engineering. Experts have long bemoaned the fractured, irrational nature of the American healthcare system, but the theoretical ideal has remained remarkably elusive, while the status quo has remained stubbornly resistant to master planning. This inertia has lulled some healthcare leaders into a false sense of security. “Nothing ever really changes,” according to the conventional wisdom in some circles, “and these reforms, eventually, will fizzle out as well.”
But transformation and reformation are two different things. What we’re seeing today is a “perfect storm” of smaller trends that are converging to transform healthcare from the bottom-up, top-down, and inside-out. Consumer preferences are changing just when consumers are nearing 100 percent insurance coverage, and payors are figuring out how to reward efficiency just when technology is changing the rules of productivity. Washington has enabled some of this, but Washington could never force it. Economics, demographics, technology and public opinion – any one of these is a powerful force in its own right, but when they all come together at just the right moment, that’s when transformation becomes inevitable.
Our message is that the convergence has occurred, and the transformation is happening, whether we like it or not. In just a few short years, communities across America are going to look a lot like Healthytown, and it’s pointless to resist based on nostalgia or loyalty or political principle. Instead, healthcare leaders need to transform their outlook and find their place in a transformed world.
As pioneers in transformation thinking, Ascendient is here to help you understand where your organization fits into this likely future. We designed the Healthytown model for maximum flexibility and utility. Whether your organization is most like City, Suburban or Rural, we can help you:
- Survey the local landscape with all its variables and complexities.
- Assess the pace of transformation in your community.
- Strategize your ideal delivery model.
- Position for a more secure future while fulfilling your mission today.
Ascendient can provide the data, interpretation and forward visibility that allow you to lead the change, instead of merely following the trends.
Call us today to discuss your questions or concerns. And watch for future installments in our Healthcare Transformation series, including:
- Primary care and specialty physicians — why the “physician shortage” is never going to happen.
- The ideal hospital in a transformed world — benchmarks for efficiency, utilization, quality, and financial performance.
- Transformation case studies for three hospital types — small rural facilities, large community/regional referral centers, and large academic medical centers.
Please contact Ascendient to be notified as additional reports are released: firstname.lastname@example.org.
For a deeper discussion of this topic, call us at 919.403.3300. Our principals are happy to custom-tailor a presentation with supporting material for your board, medical staff, executive team and more.
Ascendient is a Top 50 healthcare strategy, planning and feasibility firm with offices in Chapel Hill, North Carolina and Washington, D.C. Since its founding in 1994, the firm has offered fresh approaches and innovative solutions to clients in both the public and private sectors. Working exclusively with health and healthcare organizations, Ascendient is dedicated to helping its clients envision and embrace a transformed future that will fundamentally alter every corner of the industry.