Strategic Planning for Hospitals: Why Worry About the Surge

Blog,Strategic Planning
A young boy with a Jenga tower illustrates the concept of strategic planning for hospitals

Warning: The next paragraph is going to sound like a brag, but it’s not. It’s actually leading up to a big worry that I have for hospitals and health systems, so please keep reading.

At Ascendient, we’ve been doing healthcare consulting for nearly 30 years, and I can honestly say that I’ve never seen higher interest in strategic planning for hospitals. Almost every day – sometimes twice a day – healthcare organizations are reaching out to inquire about strategic planning. I won’t give exact numbers for competitive reasons, but the interest is unprecedented. We’re seeing a month’s worth of inquiries in a single week.

So, why does that worry me? It’s not just about keeping up with demand. It’s much more than that. My worry is more long-term, more systemic.

If It Ain’t Broke …

Strategic planning for hospitals should be something that’s regular and ongoing, but experience has taught me that’s rarely the case. Instead, I’ve found that too many hospitals and health systems will cruise along with their last strategic plan – no matter how old – until they see incontrovertible evidence that it’s no longer working.

It’s management by maxim: “If it ain’t broke, don’t fix it.”

And that’s why I’m worried. If there’s a spike in demand for strategic planning for hospitals, I suspect it means that more and more healthcare executives see things going off-track at their organizations. Things look “broke,” and the fix is uncertain.

What are the trends and changes that have healthcare leaders so concerned? Here are three big ones:

Workforce

Many thought the incredible shrinking workforce was simply a pandemic blip, but the problem has proven more enduring. Healthcare is the fastest-growing employer in the U.S. economy, but hospitals can’t keep up with current demand – much less the 16% growth forecast by the Bureau of Labor Statistics.

The AMA reports record burnout among physicians, and 20% plan to quit practicing within two years. Meanwhile, hospitals lost nearly 2.5% of their staff nursing last year, as RN turnover hit 27.1% nationwide, a “staggering” increase of 8.4%.

Even as healthcare organizations struggle with the Great Resignation, a more predictable trend – call it the Great Retirement – looms on the horizon. Many healthcare leaders admit they haven’t figured out how to manage Millennial and Gen Z workers who will soon represent a majority of the payroll.

Disruption

First Walgreens invested more than $5 billion in VillageMD, then Amazon said it would spend $3.9 billion for One Medical. Now CVS is promising a “major play” in primary care before the year is out – on top of its $8 billion acquisition of Signify Health, a company best known for bringing back the “house call.”

All of that money flowing into primary care is good for the U.S. healthcare system, because better primary care is vital to bringing down overall costs. But it’s not great for hospitals and health systems that have worked hard in recent years to bolster revenues and control costs by strategically aligning primary care providers.

The big, publicly traded companies often boast strong relationships with corporate payers. But even more importantly, they can disrupt primary care with massive troves of data that no local provider can match. Better data allows the new entrants to participate in lucrative risk-sharing models designed to divert patients from specialist and inpatient care.

“The resulting savings can be huge,” notes the Harvard Business Review, “benefiting patients, purchasers, primary care providers, and their financial backers.”

Hospitals are conspicuously missing from that list of beneficiaries. Without robust, competitive offerings in primary care, hospitals risk decreased operating margins from serving a higher percentage of Medicare, Medicaid, and self-pay patients.

Financial Strains

I suspect this is the single area that’s driving most of the new interest in strategic planning. Our recent blog post on “5 Troubling Financial Signals for 2022” was one of the most-read items we’ve published all year.

Hospital finances have been bolstered for several years by CARES Act funding, and that money is running out at the worst possible time. Medicare Advanced Payment liabilities are coming due just as interest rates and operating expenses are taking off. Meanwhile, stock and bond markets are crashing, forcing many hospitals to further put off capital investments that were already delayed by the pandemic.

All of this is putting a severe strain on one of the simplest metrics of financial health: days cash on hand. That’s a number that boards understand, and many hospital CEOs and CFOs will have some very bad news to share over the next several quarters.

Our resident CPA, Greg Flicek, is doing a lot of research in this area, so be sure to subscribe to our blog for the latest updates and analyses, if you haven’t already.

Conclusion

At Ascendient, our long focus on healthcare transformation puts us ahead of the game in developing strategies for a changing workforce, disruptive competition, and shifting financial models.

Still, there are only so many hours in the day, and there’s nothing we can do about the broader economy. Even with all the recent interest in strategic planning for hospitals, the inquiries still represent a tiny percentage of the thousands of hospitals that make up our healthcare system.

For those without an up-to-date strategy, I worry that the longtime crisis in rural healthcare will spread to urban and suburban providers, as well. The recent closure announcement from Atlanta Medical Center may be just the tip of the iceberg.

Comments

Leave a Reply

Your email address will not be published.