Capital Project Solutions – June 2013 The New Normal: The Future of Healthcare and Its Impact on Capital Planning Curtis Skolnick, Vice President This is not your father’s hospital. Market dynamics, health system consolidation, the Patient Protection and Affordable Care Act (PPACA), payment reform, technological advances, and the ever-evolving and changing delivery of care are re-shaping the way patients receive care. With an increased focus on wellness and chronic care versus episodic and sick care, the shape of facilities is fluid. Many questions surround any potential capital improvement project. What does the future hold for our healthcare delivery systems and facilities and how can a hospital/health system plan for this unknown? One plausible future is that health care providers’ core assets, Hospitals, will be “leaner” health centers - that just happen to have inpatient beds - and are a point on the continuum of care, not the sole focus. We will see a continued evolution to “outpatient-like hospitals” and a more diversified capital and real estate portfolio that includes a large percentage of assets in medical office buildings, ambulatory care centers, specialty care centers, and home care delivery. The Economics of Healthcare Clearly a large chunk of our national economy is dependent on healthcare. Healthcare costs and utilization have continued to shift dramatically over time, especially during the first decade of this century. According to data published in the American Hospital Association (AHA) Sourcebook, from 2000-2010 inflation adjusted per capita, healthcare expenditures have increased by 72% (36% inflation adjusted using 1980 as a base point). Consumer out of pocket expenses have increased by almost 50% over the same time period. The business of healthcare accounted for 17.9% of the total US Gross Domestic Product (GDP) in 2010, up from 13.8% in 2000, an increase of almost 30%. By comparison, the percentage of GDP in 1990 was 12.5%, or just over a 10% increase from 1990 to 2000. Even with these increases www.klmkgroup.com
Capital Project Solutions – June 2013 moderating in the last few years of the economic downturn, these types of increases are not sustainable and cost controls are necessary. Nearly 5.5 million Americans are employed in hospitals, the second largest source of private sector jobs. More than 15 million Americans have jobs directly with or dependant on healthcare - a full 1 in 9 private sector employees (American Hospital Association, 2011). Utilization of Healthcare Services Healthcare utilization is continuing to change. Inpatient days began a decline in 2009 of 3%, and the trend is continuing into mid 2013. As one hospital administrator stated, tongue-in-cheek of course, “There has been an outbreak of good health in our area that has resulted in low inpatient utilization”. From this, one could argue that outreach efforts to manage and encourage “wellness” are beginning to take hold. However, our nation’s emergency departments (EDs) have seen the opposite trend. From 2000-2010, ED visits increased by 23% (103 million to 127 million) while the number of hospital EDs decreased by 2% (4,650 to 4,564). No wonder our EDs seem over-crowded – 38% of hospitals in 2010 reported their EDs at or over capacity. Perhaps an indication of the epidemic of uninsured Americans who have nowhere else to turn for access then to the ED - 50 million Americans in 2010 (16.3% of the population) did not have health insurance, up from 40 million (and 14.2%) in 2000. The total number of outpatient visits at community hospitals continues to rise. From 2000-2010, there was a 25% increase in provider based outpatient visits at community hospitals (from 1990-2010 there has been a 115% increase). All this growth is occurring as our hospital facilities age. The average age of plant, one indicator of economic and technological health for our hospitals, continues to rise and is currently about 10 years. With this high average of age plant, significant dollars need to be spent re-inventing our healthcare physical and technological infrastructure, or
Capital Project Solutions – June 2013 quality and environment of care will suffer (American Hospital Association, 2011). The Regulatory Response - The Patient Protection and Affordable Care Act The governmental response has manifested itself most dramatically on March 23, 2010 when President Obama signed into law, the Patient Protection and Affordable Care Act (PPACA). The three main goals of the PPACA are to decrease healthcare cost, increase access to healthcare / protect the consumer and improve the quality of care. To do so, the PPACA, over a period of five years from 2010-2015 rolls out initiatives and regulations that, among other things:
Increase healthcare coverage and access to primary care. Cracking down on fraud and abuse and require insurers to not deny coverage based on preexisting conditions. Encourage the management of the population’s health by promoting Accountable Care Organization (ACO) as the mechanism for integrated delivery systems and Medical Home Models. Reform the payment system by “bundling” payments, instituting value (quality)-based reimbursement and increasing funds for primary care, Medicaid, and CHIPs programs. Developing affordable insurance exchanges, enrolling 32 Million Americans into the system, and offering tax credits for low income individuals and families. Finally, the establishment of an independent Medicare Advisory Board tasked with lowering health care costs, improving outcomes, promoting quality and efficiency.
Payment reform is moving forward rapidly. Providers that are prepared with the appropriate clinical, administrative and financial resources will be best positioned to prosper in the new environment. So what might this new reality look like?
Capital Project Solutions – June 2013 Bolstering themselves for a world that encourages population health management and the access to care through an integrated delivery system, healthcare organizations are changing. While the number of hospitals in the nation has remained around 5,000 for the past decade, there has been an increase in those merging with a “system”. In 2010, about 58% of all hospitals were part of a system and that trend has continued to increase over the last couple of years. In many markets, it is hard to find a hospital that is not part of a system (American Hospital Association, 2011). This trend will continue as hospitals strive to implement an ACO or ACO like structure, gain purchasing power, align themselves with high quality care and obtain access to capital. Being part of a system allows for a rationalization and deployment of assets across both a continuum of care and geography. Most systems typically have a “flagship” with several “satellites”. It used to be that these “satellites” were smaller versions of the flagship and services were duplicated in a hospital-centric model. This model is changing and providers are beginning to re-think the role of the community hospital while taking advantage of system synergies to reduce operating costs and increase quality. Focusing on the community hospital integrated delivery systems, organizations are beginning to transform themselves into wellness systems with distributed networks that focus less on episodic care and more on how best to manage the health of populations. These systems are preparing themselves for a realistic future where fee-forservice is significantly reduced or goes away completely and providers are reimbursed for value and quality, not how many patients pass through an inpatient bed. The incentive will be to keep only those that absolutely need a hospital stay (e.g. trauma patients, critically ill, and birthing mothers) in inpatient beds. Providers will be “rewarded” by demonstrating that they have impacted, positively, the quality of care. By more aggressively placing resources in the community (e.g. primary care providers, “hoteling” specialists, ambulatory diagnostics) to manage chronic conditions, the hope is to avoid high cost hospital stays
Capital Project Solutions – June 2013 and improve the health of the population. Patients suffering from chronic diseases such as diabetes, congestive heart failure, chronic obstructive pulmonary disease, and hypertension account for a large portion of hospitals stays. If diagnosed early and managed appropriately overall health can be improved and costly hospital stays can be avoided. This is what the new system of care is set to do. Will the “hub and spoke” model of driving patients to a high-cost hospital campus be over as we know it? The core hospital is going to be necessary, but with incentives to care for patients in the community in lower-cost, easier to access settings as a way to “manage health”. Health care organizations may seek to keep patients away from hospitals and develop “constellation” strategies to see patients in the most appropriate setting with the intent of avoiding costly hospitals stays. Many hospital administrators trained to capture market share by gaining inpatient hospital admissions are struggling with this new reality. Those that have already adjusted their delivery models, or are in the process, are ahead of the curve. Healthcare providers are shifting gears and the “hospital on the hill” as we know it, will look very different. By in large, growth in inpatient demand and additional inpatient capacity is not the reason hospitals are spending money. In fact, some predict that inpatient use rates will decline by 5% - 15% over the next decade. Therefore, capital facility improvements will only be made if at least one of the following needs exist:
To meet a changing strategic, service, or clinical need that has to be provided in an inpatient hospital setting. To address critical infrastructure issues and upgrade. To address standard of care issues to ensure high quality of care.
The center of the healthcare world is shifting from the inpatient core asset. Hospitals are trending to health centers that are outpatient-like in operation…that just happen to have beds. The focus on “bedded care”, except for the most critical of patients, will be appropriate
Capital Project Solutions – June 2013 observation and shorter-stays. There will be an emphasis on managing emergency department workloads and throughputs with an increasing attempt to develop high performing and easily accessible primary care and “urgent” care networks to alleviate ED congestion. Conclusion The incentives over the last several decades for our healthcare providers have been to treat the sick, get rewarded when people get sick, and build monolithic monuments to the sick. Wouldn’t it be something if the system shifted to keeping people well to avoid getting sick and to manage chronic conditions better to keep people from lengthy and expensive hospital stays? The focus on episodic healthcare delivery needs to shift to one of managing the health of populations. In response, our healthcare facilities and the deployment of our assets need to change. While there will always be a need for core hospital assets, the most successful organizations will be those that have begun shifting their focus to the community. Outpatient care with lower costs and more accessible ambulatory settings along with the financial, clinical, and care-giver resources necessary will become the new normal.
Data Source: Avalere Health. “Trends Affecting Hospitals and Health Systems.” American Hospital Association. 2011.