Blog Post January 10, 2020 2020 Healthcare Industry Trends Authors Meagan O'Neill Dan Cosentino Disruption and uncertainty have defined the healthcare landscape over the last several years, keeping healthcare leaders across the nation awake at night fretting over how to keep their organizations above water amid a tide of change. As 2019 came to an end, ECG interviewed CEOs and other C-suite leaders of more than 40 provider organizations to discuss their perspectives on major industry trends from 2019, as well as their plans, concerns, and key imperatives for 2020. Below are eight key themes that emerged from our conversations. They help paint a picture of what the healthcare industry will be most concerned with in 2020, according to providers across the country. 1. Continued Margin PressureMargin pressure continues to be the biggest concern for provider organizations. Executive leaders identified numerous major issues that will further squeeze margins in 2020, including: Flat or reduced reimbursement rates.Migration of high-volume, revenue-generating inpatient surgical cases to outpatient settings.Constant and heightening battles with payers over claim and/or level-of-service denials.An unfavorable payer mix, consisting increasingly of Medicaid and uncompensated care.Intensifying competition for commercial payer business.Sustained growth of salary and other operating expenses at a higher rate than revenue. Overall, continued margin pressure is making it more difficult for systems to pay growing subsidies to their employed medical groups. This issue puts an unprecedented strain on hospital and physician relationships and drives the need to consider more innovative and sustainable arrangements. 2. Top-Line Growth and Focused Service OpportunitiesHeading into 2019, C-suite leaders voiced much more doom and gloom and uncertainty, but there appears to have been a shift in the last year. At the end of 2019, feedback was optimistic, with several provider organizations pointing to new opportunities for top-line revenue growth. This positive outlook can, at least partially, be attributed to the development of strategic plans in 2019; many provider organizations now possess a blueprint for execution in 2020. These strategic plans allow health systems to prioritize and pursue revenue and growth opportunities in their key service lines. Additionally, systems are realizing that they cannot be all things to all patients, with one executive stating, “We will focus where it makes sense, and get out of those service lines where that makes sense, as well.” At the same time, a trend carrying over from 2019 into 2020 is a shift from “buy” to “align” strategies that will maximize partnerships to cover a broader continuum of care or develop a stronger regional presence. 3. Physician Network Growth and StabilizationThe trend in 2018 was for hospitals to employ their own physicians; this seemed to peak, with increased pressure on physicians and medical groups to choose a side. In 2019, network growth remained important but had arguably plateaued as hospitals maximized their primary care base (including advanced practice providers). Today, health systems are hyper-focused on stabilizing their physician enterprises. Several years of rapid expansion have created an execution risk for health systems, with leaders expressing concern about a lack of systemness, weak coordination, and inconsistent patient experience. In 2020 and beyond, hospitals will be challenged to move past surface-level relationships with their physician and medical group partners and instead create deeper partnerships with greater clinical, financial, and organizational integration. Meaningful alignment will require a shift from traditional hospital think (own and control) to smarter and more innovative arrangements with physicians (CINs, joint ventures, comanagement models, etc.). 4. Ambulatory Development to Increase Access and Lower CostsThe healthcare industry, driven by consumer trends and cost pressures, is increasingly moving care delivery to the ambulatory setting. Given the heightened focus on the patient experience in the current era of consumerism, these ambulatory and convenient care strategies are no longer viewed as peripheral but imperative. Consequently, provider organizations must focus on developing their ambulatory services footprint and continue to make strategic investments in new or expanded ambulatory centers and alternative care settings (ASCs, retail clinics, telehealth, etc.). At the same time, forward-thinking leaders understand a robust ambulatory strategy is necessary to reduce costs, with one executive explaining, “This will require a completely different operational model and cost structure than most health systems are used to or have been able to do on their own … not built around the capital-intensive, wholly owned, bricks-and-mortar model that we have today.” 5. Facility Investments and Operational OptimizationThe focus on healthcare consumerism and intensifying competition will continue to drive health systems to invest in facility expansions or renovations, add high-tech offerings, and enhance the patient experience. Many hospitals currently lack capacity or have outdated facilities; one executive said, “We must ensure that our infrastructure is ready for the next few decades, because those lacking sufficient sophistication and capacity for the future will be at a disadvantage and become indisputable candidates for consolidation.” Increasingly, systems are exploring opportunities to increase their efficiency through new technologies such as AI. But investment decisions must weigh concerns about maximizing facility space and adopting new technologies against the ability to secure enough volume to support the business case. Fundamentally, provider organizations will struggle to strike the right balance between remaining competitive in today’s marketplace while planning for future needs. 6. Pressure to Demonstrate the Value of IT and DataDigital connectivity was commonly acknowledged as a 2020 imperative, as healthcare’s digital transformation promises to enhance the patient experience and improve clinical and operational effectiveness. The digital ecosystem of healthcare is still budding relative to that of other industries, and leaders acknowledge there is a huge opportunity to innovate, particularly with the recent entrance of nontraditional players like Amazon into the market. In the current state, provider organizations feel pressured to demonstrate the value of their EMRs but are overwhelmed by the multitude of IT bolt-ons and unsure where to make the appropriate investments. In this and coming years, providers will focus a great amount on developing comprehensive IT strategic plans with forecasts of five years or more; this type of planning will create an organization’s digital roadmap and position optimized EMRs as one of the fundamental building blocks of their future digital ecosystems. 7. Unsustainable Compensation and Funds Flow ModelsThere is a growing urgency among healthcare leaders to address unsustainable compensation and funds flow models. Many of the executives we interviewed lamented being forced into bidding wars for key providers in their community. At the same time, the boom of recent M&A activity has created the need to address discrepancies between previously disparate physician groups. Looking to 2020, hospital leaders see the need to continue moving away from traditional WRVU compensation agreements toward models that support long-term partnerships and an integrated system culture. Some organizations are going so far as to establish new compensation metrics for both clinical and nonclinical leaders that aim to increase accountability and systemness. 8. Planning for Value in a Fee-for-Service Environment Leaders of provider organizations acknowledge that the shift from volume to value is inevitable, but this transition is taking longer than expected, meaning providers must operate with a foot in each world. As we move into 2020, providers are pursuing fewer intentional, or at least less aggressive, strategies around value and risk-based models compared to 2018 or 2019. Models like the next-generation MSSPs, ACOs, and CINs will help advance the value shift in 2020, but commercial payers continue to lag behind and slow the transition. With neither the payer risk contracts nor the incentive components of compensation models sufficiently advanced, buy-in from physicians is minimal. The business model for providers will truly pivot from volume to value when commercial payers catch up, but until the shift happens, providers will continue to struggle to find the appropriate balance. Entering an Era of StabilizationOverall, providers described 2020 as a year for stabilization after the rapid growth and political uncertainty of the previous few years. Healthcare policy will remain turbulent and ambiguous in the shadow of the looming 2020 US presidential election, but providers clearly see the writing on the wall: regardless of who is elected in November, the pressure to reduce costs and increase transparency is unwavering and universal.