The U.S. healthcare provider landscape is being transformed by a consolidation wave that began in the 2010s and will continue into the next decade, according to a new survey.
The trend is driven by “progressives”-large diversified health systems that have embraced value-based payments, integration of acute and non-acute care, and large operational scale, according to L.E.K. Consulting’s 10th Annual Hospital Survey: A Retrospective Analysis and a Glimpse into the Future. The study surveyed health system and hospital executives about their strategic priorities and relationships with suppliers.
“The arrival of value-based payments (VBP)-a major force in the drive for accountability-is causing these systems, and their competitors, to seek M&A partners as they drive for scale; expand into non-acute care in a quest for referral traffic and revenue, and spend heavily on healthcare information technology in order to generate the data and analytics that the VBP environment demands,” says Ilya Trakhtenberg, managing director at L.E.K. Consulting.
While in 2010 the provider landscape was still in many ways dominated by independent hospitals and small local health systems competing for market share, that is no longer the case, according to Jonas Funk, managing director at L.E.K. Consulting.
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“The 2020s will see an explosion in the use of data and analytics, expanded use of telehealth, and the creation of centers of excellence as the next step in service line expansion,” Funk says. “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 findings reflect current trends and the industry leadership’s highest priorities, according to Monish Rajpal, managing director at L.E.K. Consulting.
“They indicate what hospital executives are grappling with and how they are responding to competitive pressures from consolidation as well as economic pressures caused by the arrival of VBPs and the end of the fee-for-service era,” Rajpal says. “Healthcare executives can see what their peers are thinking about and what they are doing-and get a window into the progressive systems that are driving consolidation and that increasingly represent the future for U.S. providers, either as competitors or, more likely, as an example to be followed.”
The study looked at executives’ priorities in two time periods-the decade just past, and the coming decade of the 2020s.
Specifically, the study found that in the 2010s:
- Value-based payments went mainstream. On average, fee-for-service payments fell from 57% of surveyed hospitals’ payment mix in 2014 to 37% in 2019. VBP is forcing hospital leaders to change their priorities, their decision-making and their perspective on the cost of care.
- A consolidation wave hit the industry. Pressure from declining reimbursement and the rise of VBPs led to a wave of hospital and health system mergers and acquisitions. Health systems raced to scale up in their local markets to stay competitive. In 2008, the top 125 U.S. health systems controlled approximately 40% of total hospital spending. By 2017, the figure was approximately 60%.
- Health systems expanded aggressively into non-acute care, focusing on building or buying physician practices, ambulatory surgery centers and urgent care centers. The goal was initially to capture referral traffic but that evolved into an integration strategy aimed at the VBP environment. Approximately 50% of surveyed health systems and hospitals owned more than 10 non-acute sites of care in 2015; by 2019 that had risen to 75%.
- Health Care IT became a top priority. It was the number one spending priority every year from 2010 to 2019. The trend started with Meaningful Use legislation in 2009 and continued, driven first by electronic health record adoption, then by the need for analytics to improve workflow, efficiency and clinical results in a VBP environment.
In the 2020s, large, integrated progressive systems will lead care delivery:
- Health systems are expected to increasingly focus on key service lines and create centers of excellence as they compete for share in local markets. The goal is to grow revenue, capture profitable patients, attract and retain top physician talent, and in some cases contract with large employers to provide specific services to employees, such as spinal surgery or total knee replacement
- Telehealth will expand significantly. Forty-eight percent of executives in the 2019 survey said telehealth is a priority. The vast majority – 75% – expect meaningful increases in the next three years in applications that connect clinicians to patients, patients to technology, and clinicians to clinicians. They foresee the biggest increases in cardiology, women’s services, the emergency department and pediatrics. Executives predict that telehealth will become part of the care continuum for all service lines, whether to streamline intake or deliver care.
- Data- and analytics-driven care will truly arrive. Several key opportunities exist including using data to optimize treatment, reduce variation in outcomes, and leverage AI to free up clinician time for high value-add activities. The highest near-term IT investment priorities involve extracting more value from existing systems – advancing EHR (81% of executives say it’s very or moderately important), streamlining and integrating their current IT (68%) and enhancing financial data collection and analysis (65%). But they’re also looking farther down the road, toward population health management tools (62%), deploying advanced analytics (54%), increasing the use of telehealth tools (53%) and deploying AI-based programs (48%).