Hospital landscape to see further consolidation and digitization in 2020s

25 October 2019 Consulting.us

The 2010s saw rapid change in the US healthcare provider landscape, with widespread consolidation, increased popularity of value-based payments (VBP), movement into non-acute care, and digitization. According to L.E.K. Consulting’s 10th Annual Hospital Survey, these trends will continue in the 2020s, with added steam propelling service line expansion, telehealth, and data analytics-driven care.

"In 2010, the provider landscape was still in many ways dominated by independent hospitals and small local health systems competing for market share," said Jonas Funk, managing director and head of the MedTech practice at L.E.K. and co-author of the report. "That is no longer the case.”

“Economic pressures and the pace of technological change are such that the present – and the future – are likely to belong to large, diversified health systems that are equipped to provide an end-to-end array of services to a wide range of patients, across acute and non-acute care settings. A more accountable, data-driven, networked world is the future of U.S. healthcare."

The report found that in the past 10 years, value-based payments went mainstream – making providers more accountable for health outcomes in lieu of the traditional fee-for-service model (and its inherent tendency to over-treat for higher revenues). On average, fee-for-service payments declined from 57% of hospitals’ payment mix in 2014 to 37% in 2019.

2010s - a retrospective

A consolidation wave also hit the hospital scene in the past decade, with providers responding to the financial pressures of declining reimbursement and the rise of value-based payments. Hospitals used mergers and acquisitions to boost their negotiating leverage with payers, while increasing their economies of scale. The L.E.K. report noted that from 2008 to 2017, the top 125 US health systems boosted their share of total hospital spending from 40% to approximately 60%.

Providers also expanded into non-acute care, buying up physician practices and ambulatory surgical centers. While 50% of health systems surveyed by L.E.K. had more than 10 non-acute sites in 2015, that percentage had risen to 75% by 2019. The move towards non-acute care was made to capture referral traffic and to build an integrated care strategy for a value-based payment environment.

The report notes that “progressive” health systems led the industry change, embracing VBP, non-acute care, and driving consolidation, with their share of hospital spend rising from 55% to 65% from 2012 to 2017. “Traditionalists” changed grudgingly, while attempting to maintain the status quo.

Finally, the 2010s saw healthcare IT become a major priority, with execs consistently tagging it as their number one spending priority. This phase was dominated by the move to electronic healthcare records, which was spurred on by government legislation and incentives.

Foresight 2020s

L.E.K. projects that the next decade will see larger, data-driven, progressive health systems lead care delivery in the United States.

Health systems will continue to expand their service lines, creating specialized centers of excellence (COE). The goal of the medical COEs will be to grow revenue, capture profitable patients, and attract top medical talent, while contracting with large employers to provide specific services like spinal surgery and knee replacements.

Expected change in use of telehealth in three years

The report also expects telehealth to expand rapidly to make good on the tech’s access, convenience, and experience benefits. Forty-eight percent of executives said telehealth is a priority in 2019, with 75% expecting meaningful increases in the next three years. Cardiology, women’s services, pediatrics, and emergency departments are expected to see the biggest increase in telehealth services.

After being preoccupied with electronic healthcare records in the 2010s, hospitals will begin to use data to optimize treatment and free up clinician time. Though near-term investment priorities will still focus on electronic health records (85%), executives are already looking toward deploying population health management tools (62%), advanced analytics (54%), telehealth tools (53%), and AI-based programs (48%).

"The pace of change in the industry over the past 10 years has been remarkable, and it will be remarkable over the next 10 years as well," said Ilya Trakhtenberg, report co-author and L.E.K managing director. "Healthcare suppliers will have to stay on top of their game and continue to innovate to keep up with the changing expectations and needs of their provider customers."


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