News & Analysis

The Importance of Hospital and Health System Planning in an Uncertain Healthcare Environment

Portrait of Dawn Carter

Dawn Carter

An empty hospital corridor with a bright light at the far end||

Healthcare leaders sometimes say they don’t see the value in health system planning because no one can predict exactly what the future healthcare delivery environment will look like. They reason that, without a crystal ball, there is little point in planning any differently than they have in the past.  

We believe this viewpoint is misguided because it exposes healthcare organizations to risks that – with a little proper planning and foresight – could be greatly reduced or averted.

Today’s healthcare leaders face significant challenges. These decision-makers must balance their institutions’ financial viability under the old market rules of the game – and prepare for major market and payment shifts to come.

The inconvenient truth is that organizations cannot be successful if their approach to health system planning assumes that reimbursement and delivery models will operate the same way in 5, 10, and 20 years. Dramatic shifts already underway will put push more services into lower-cost settings. There also will be pressure to reduce utilization of, and payment for, many high-cost specialty services and procedures that remain the biggest drivers of hospital margins today.

In this transformed environment, many hospital beds will become obsolete or disappear altogether, while the demand for some medical specialties and procedures will decline significantly despite an aging population.

Without some consensus on what the future will look like, stakeholders will be headed in different directions. For example, a progressive physician-run ACO may be vetting evidence-based practices and pushing its patients toward lower-cost settings. Meanwhile, the hospital may be planning to build a new bed tower or suite of hospital-based operating rooms on the incorrect assumption that these physicians will continue to admit patients and perform procedures in the hospital setting at rates similar to historical patterns.

While it is certainly true that we cannot know detailed specifics about how the future healthcare delivery system will shape up, we have enough information to know which way the winds are blowing. We also have tools and approaches to help healthcare leaders navigate through and prepare for possible scenarios so organizations can be best positioned to thrive no matter what the future brings.

The Limitations of Most Hospital and Health System Planning Tools

Many traditional hospital and health system planning tools and approaches widely in use today fall short when it comes to key critical planning areas, such as provider staffing, service line development, regional system planning, and mergers and acquisitions, to name just a few. For example:

Traditional analyses and planning methods fail to consider fundamental changes occurring in payment for healthcare services and perpetuate the status quo by simply projecting historical utilization trends into the future. Care delivery has always been heavily influenced by payment: Recall how adoption of Medicare’s Prospective Payment System (PPS) for inpatient care in the 1980s led to dramatic shifts to outpatient care.

No matter how you look at it, reimbursement mechanisms in the U.S. are changing from volume-based to value-based. Even if payers in your market are not making that change today, they will in the future. This will lead to major care delivery shifts that will impact the bottom line.

Many health system planning tools are static or based on dissimilar markets. Tools that are not scalable or not truly applicable to the local market or individual health system are unhelpful at best, and misleading at worst.

Most states have good data on inpatient utilization, but very few have good, comprehensive data across the care continuum that can be easily acquired for health system planning and analysis. Executives can purchase data from private companies that are based on claims data, but these are often very expensive and not always available with precision in every market.

Many analyses fail to factor in emerging population-based provider needs and changing industry dynamics. These dynamics will drive more services to be delivered outside of hospitals and reduce the need for some specialties. These will in turn impact hospital and health system service line and medical staffing priorities.

Regarding medical staff planning, if your organization still relies on traditional physician-to-population ratios – those have been outdated for decades – and many are based on faulty physician lists. Better approaches are available, including tools that look at actual utilization data based on visit volume per specialty area.

Emerging Tools and Approaches Executives Can Use Today

The good news is that there are health system planning tools based on peer-reviewed research and analyses, and other practical approaches that can help healthcare executives better navigate and plan for the terrain ahead – regardless of the uncertainties. Here are three things leaders should consider as part of their health system planning efforts:

1. Conduct scenario planning: Scenario planning allows executives to look at different situations that may arise based on certain unknown variables. These can range from best-case scenarios, to in-between, to worst case – based on the variables considered.

For example, you can look at how much your current outpatient volume contributes to overall margins. Then look at how much of that volume or revenue may be vulnerable as more outpatient services shift to less costly settings outside the hospital (because payers mandate site neutral payment), or because competition in your area starts operating profitable and less costly freestanding outpatient surgery centers, imaging facilities or urgent care centers. What could you do to offset those losses?

Even if payers or competitors in your market aren’t applying these pressures today, they will likely do so in the future. So it’s best to anticipate these possibilities and have a Plan B.

2. Leverage internal data: Hospitals and health systems should gather internal data so they can analyze what is happening across their organization, even in the absence of good market data for non-inpatient services.

For example, look at the composition of volume from your clinics. Where is that volume originating and what is our market share of expected primary care volumes? Are you capturing the appropriate proportion of referrals? If not, what’s causing that to occur?

You should also be evaluating patient volumes across your own continuum to understand the number of primary care patients that utilize your emergency department or inpatient services. Who are our highest utilizers, what similarities exist relative to the diagnoses of those frequent flyers, and how might we proactively impact the care of that population to limit inappropriate utilization.

3. Utilize scalable statistical models: Some forward-thinking healthcare leaders are starting to use emerging robust statistical models that show how national healthcare trends will likely play out in transforming the healthcare system at the local, community level. Such models can provide a good on-the-ground glimpse of what a transformed healthcare system will actually look like locally in the coming years.

Using real-time variables as inputs, these models quantify and place into context different projected care delivery scenarios and utilization trends in key areas such as ED visits, inpatient beds needed, surgical cases (inpatient and outpatient), primary care utilization, primary care physician demand, and specialty physician demand. These can assist greatly in scenario development and planning.


In today’s period of blurred lines, shifting definitions, and emerging payment models, healthcare organizations simply cannot take previously long-held common assumptions for granted. Forward-thinking healthcare leaders see the writing on the wall, and are reassessing their traditional health system planning approaches and assumptions. Scenario planning, leveraging internal data, and robust statistical models are helpful for revisiting long-held assumptions when approaching hospital business planning and provider planning for the future.