A new and unconventional administration, accelerating tailwinds for ambulatory care services, and even tighter financial margins will shape health care in 2025. Here’s what every health system leader should know.
2025 ushers in an administration with new policies and ideas that have the potential to profoundly impact health systems. New administration officials, like Robert F. Kennedy Jr. as Secretary of the Department of Health and Human Services and (potentially) Dr. Mehmet Oz as the Administrator of the Centers for Medicare and Medicaid Services, bring unconventional backgrounds and approaches to their roles. In his new role, Robert Kennedy would be Dr. Oz’s boss if Dr. Oz is confirmed. Unlike his views on public health policies, Mr. Kennedy’s positions on Medicare, Medicaid, and other payment policies are unclear, suggesting that the new CMS Administrator could have wide latitude to enact policies.
Historically, Dr. Oz’s advocacy of Medicare Advantage for all could signal a policy shift in to accelerate its growth at the expense of traditional Medicare just as the bolus of Baby-Boomers moves through the healthcare system. While emphasizing Medicare Advantage would save the federal government money and, at least in the short term, increase benefits for Medicare patients, it would also accelerate a trend that has hurt hospitals financially.
Strategic Planning is Most Needed During Times of Great Uncertainty
Now more than ever, we must take stock of where health care policy is heading and adapt. The key driver of many of the potential policy changes is the extension of the tax cuts that were part of the Tax Cuts and Jobs Act (TCJA), as the new administration says it will do. If that happens, Congress will have to pay for those cuts in some way. Likely offsets include allowing the expiration of programs, including elimination of ACA enhanced subsidies and reduction in Medicaid DSH payments, both of which will ultimately hurt hospitals’ financial position. Congress can also cut spending by further pursuing site neutral payment policies, which will further decrease payments to hospitals and incentivize an accelerated shift of care to freestanding outpatient settings.
In addition, since the incoming administration has stated that it’s not going to touch Medicare and social security, changes to the Medicaid program appear to be the only other path forward to reduce spending. Dr. Oz could shift Medicaid to a block grant program or establish a per capita cap on Medicaid spending, and he is certainly likely to increase approvals of Medicaid waiver requests from states to enable them to do things like impose work requirements on Medicaid recipients, all of which could significantly decrease Medicaid payments to hospitals.
Finally, Medicare Advantage now covers more than 50 percent of the Medicare eligible population – in some states, closer to 60 percent – posing administrative and financial challenges for hospitals. Significantly greater administrative time is required to manage Medicare Advantage claims, increasing labor costs, and Medicare Advantage plans routinely deny claims after services have been provided, resulting in a direct hit to the bottom line. Accelerating the growth of Medicare Advantage would only exacerbate major financial problems for hospitals.
Obviously, no one knows exactly what will transpire under the new administration, but the stage has been set for an unconventional approach to health policy, with many of the changes being discussed having the potential to hurt hospitals and exacerbate existing financial challenges. It is in this environment of great uncertainty and potential peril that strategic planning is essential to anticipate and prepare for the future rather than just attempt to respond to the changes that are coming.
Recommendation #1: Update Your Existing or Create a New Strategic Plan
If you don’t have a strategic plan, it’s time to develop one. If you do, it’s time to revisit and update it. Strategic planning is more important than ever to enable healthcare organizations to control their future. However, many organizations have been there, done that, got the plan, and put it on a shelf. The keys to successful strategic planning are process and implementation – the strategic planning process is as or more important than the plan itself and, if done well, will naturally lead to successful implementation. We’ve found that the best approach is a focused strategic planning process based on our facilitation of your process: we manage project timelines, provide planning templates and formats, work with your planning team to collect, analyze, and draw conclusions from data, conduct confidential interviews and electronic surveys, provide insights on industry and market trends, and facilitate strategic thinking, prioritization, and decision-making, as well as implementation planning and monitoring. By the end of this condensed planning process, your key stakeholders will be aligned on your strategic direction, understand what needs to get done, and be ready to implement the plan.
The Ebb and Flow of Certificate of Need (CON) Laws
More and more states have eliminated or are considering eliminating Certificate of Need laws that seek to control healthcare costs and ensure new capital expenditures meet community needs. Under a new administration more inclined to deregulation, efforts to repeal all or parts of existing CON laws are likely to continue and may accelerate. In states where these efforts are successful, the level of competition in key markets is likely to substantially increase as existing providers and new entrants will seek to develop new facilities and services in areas from which they were previously blocked in doing so by CON laws, presumably consistent with strategic plans that anticipated the repeal of CON laws.
However, there is certainly significant mass (infrastructure) associated with the status quo. Therefore, despite entering a period oriented to deregulation, CON laws are likely to persist in many states and, where they do, the laws will continue to be a significant impediment to health systems’ ability to develop new facilities and services that meet the needs of the community and achieve other system objectives. Where such “market franchises” are allowed to remain intact and health systems continue to compete for market share, providers will continue to oppose each other’s CON applications because they can, to add cost to and at least delay, if not stop project development.
Recommendation #2: Hire an Experienced CON Consultant
The need for a third-party to facilitate the CON process and application is more important than ever, as projects that are perceived to be needed don’t always get approved and the most suitable applicant doesn’t always win. Rather, the earned insight into the machinations of the CON process is often the most important advantage obtaining CON approval.
The consultant you engage should have extensive experience in preparing, defending, opposing, and reviewing CON applications for most types of facilities and services in many states. Having this experience enables us to develop a cohesive narrative of the need for the proposed project that flows through the application, fully addresses the key review criteria, and anticipates and answers questions the reviewer is likely to have, substantially increasing the chances for approval. In addition, we customize our approach to meet your needs and assist with any aspect of an application, from providing supporting data and analyses; preparing specific components of the application, e.g., completing the need analysis; developing the entire application; or just conducting a peer review to provide suggestions to strengthen a draft of a completed application.
The Time for Serious Service Line Planning & Optimization is Upon Us
The “great resignation” inspired by the pandemic hit the healthcare industry hard, resulting in increases in expenses, primarily but not only labor costs, that have exceeded revenue growth for most, if not all hospitals and health systems. As a result, most hospitals and health systems can no longer afford to provide all services for all patient populations at each facility. At a minimum, they must be more diligent in making decisions about what service lines (or components thereof) to provide and promote, as well as where and how they do so, and what services to simply maintain, curtail, or discontinue.
While some of the severe labor crisis has eased, the damage from it has been done in wage growth – an expense you can’t take back, resulting in ongoing pressure on margins which, as discussed, may become more severe in the future. For many health systems, it’s the time for difficult decisions – identifying what services to offer and where, and what services to discontinue. That harsh reality is one hospitals and health systems may now have to face, along with the difficult political challenges of doing so. No hospital or community is likely to willingly give up a service it previously offered. However, the possible alternative – the closure of the hospital entirely – is worse. Therefore, service line planning must include plans for how the community will access the services going forward and what other investments will be made in programs and services at the hospital to strengthen it and enable it to continue to meet the needs of the community.
Recommendation #3: Conduct a Comprehensive Assessment of Your Service Lines to Ensure Ongoing Viability
The selection of key services lines for growth and development, maintenance, or curtailment should be based on an assessment of community need in the context of the mission and overall strategic direction of the organization and requires purposeful planning to assess and address quality, access, convenience, patient experience, and financial performance. Array Advisors takes a multi-faceted approach to assessing the performance and contribution of your existing service lines, as well as those of your competitors, to determine current service line strengths and gaps. We then generate data-driven, practical recommendations to guide service line growth and development or curtailment to support overall hospital/health system success.
Accelerating Tailwinds for Ambulatory Care
The shift to outpatient care continues, as more and more services you never thought would be provided in an outpatient setting can and are migrating. Total joint replacement is the most recent example of this shift, and providers are increasing looking at doing cardiac catheterization on some patients on an outpatient basis. Fueling this trend is the advent of new, less-invasive technologies, the systematic removal of CPT codes from the inpatient-only procedure list, and a continuing federal focus on site neutral payment policies that would level the playing field for freestanding outpatient facilities.
As patient care increasingly shifts to outpatient settings, the options available to patients that receive care are increasing. Physicians are now more likely to develop their own ASCs and imaging centers to capture outpatient volume with the help of a wide range of for-profit entities eager to partner with them. Patients are likely to go where their physicians tell them to go, and/or where the wait time is shorter and the cost is less. For hospitals, the era of “if we build in (on campus), they will come” will soon be over. Patients and physicians are demanding that care be provided in settings that are more convenient, more efficient, and less costly. Although reimbursement may still be higher for many services provided on campus, that differential is not likely to last much longer, and the adage still applies – it’s better to have 50% of something than 100% of nothing – because, once it’s gone (to a freestanding setting), it’s likely gone for good. Therefore, it is becoming increasingly important for hospitals to supplement their ambulatory footprint with market competitive, geographically distributed outpatient service offerings, whether wholly owned or in partnership with physicians and/or organizations that specialize in a specific outpatient service. Doing so requires careful planning to optimize revenue while meeting community and physician demands and preventing encroachment by competitors and market disruptors.
Recommendation #4: Create an Ambulatory Care Network Development Plan
Despite the ability to consolidate resources in limited locations and the potential for higher reimbursement for care delivered in the hospital or on the campus, it is becoming increasingly imperative for hospitals and health systems to provide appropriately convenient geographic access to care in lower cost settings. To this end, ambulatory care network planning is vital.
We have found that the best approach to ambulatory network planning aggregates data from multiple sources to provide a comprehensive and dynamic view of the market. That analysis typically includes demographic and socioeconomic data, current and target market share, projected market demand by service line and sub-service line, estimated payer mix, competitor locations and activity, physician presence and referral patterns, and other factors to provide a quantitative assessment of market needs, opportunities, and risks (of inaction). In addition, identifying which physicians drive the most volume and are most likely to take that volume elsewhere is an important component of the planning process. We can help you identify those physicians early in the process and facilitate discussions about potential partnership opportunities and/or assist in developing strategies to mitigate the potential loss of volume.
Growing Importance of Operational Efficiency
Building a new facility is always a significant capital investment, but there is additional risk associated with such an investment in the current highly uncertain healthcare environment in which only one thing appears to be clear – margins will continue to get squeezed as expenses continue to increase faster than revenues.
Adding physical capacity through construction of a new facility may be the easiest answer, but it is not always the right answer, particularly in these uncertain times. Optimizing throughput and resource utilization increases efficiency, decreases cost, and may ultimately eliminate the need for new construction or, at least, reduce the square footage required to accommodate increasing demand. Understanding bed need based on market and health system utilization trends is also important. Array Advisors has worked with numerous clients, either as part of master facility planning or a separate engagement, to help them understand if they are experiencing a physical constraint, an operational issue, or both.
Recommendation #5: Assess Current Operational Efficiency as Part of Facility Planning
Prior to embarking on a major capital project and/or during the facility planning process, we recommend that our clients evaluate relevant departments using multi-faceted assessment criteria and benchmarks to improve workflow and throughput to ensure efficient utilization of space and resources. We apply lean methodologies and simulation modeling using readily available data from electronic medical records to analyze workflows and pinpoint the root cause of perceived capacity issues, leading to a more realistic determination of bed demand and other key planning units and, therefore, a more focused investment of capital dollars. In addition, by using simulation modeling, we help our clients quickly visualize the results of different future-state scenarios to make strategic and operational decisions supported by data analysis.
The Rapidly Changing Environment Requires Organizations to Reconsider Their Master Plan
Post COVID, health system financials seemed to be improving, leading to an uptick in requests to build facilities. With pending policy changes that may lead to additional financial challenges, including the on again off again imposition of tariffs that are likely to impact construction costs, it’s likely time to revisit campus and facility planning. Nimbleness and flexibility are usually not characteristics ascribed to many healthcare organizations, but they are essential in the rapidly changing healthcare environment in which most hospitals and health systems currently operate. Although streamlining organizational decision-making processes is a prerequisite, master campus and facility planning can also help hospitals and health systems stay ready and adaptable in dealing with an uncertain future.
In many healthcare organizations, strategic, facility, and financial planning occurs separately, inevitably leading to conflicting priorities and outputs after the fact, often requiring time-consuming reconsideration of strategic, facility, and/or financial decisions before the organization can proceed with what may be a critical project. None of these planning processes should occur in a silo. For instance, in addition to conducting an existing facility assessment as part of a master plan, operational assessments must also be incorporated, as discussed above. Programming is also a key component. Savvy master planning integrates strategy, operations, facility, and financial considerations in an iterative process to more efficiently develop a master campus or facility plan that can be implemented and provides the flexibility to accommodate future unknowns in a rapidly changing healthcare environment.
Recommendation 6: Apply an Integrated Strategic, Operational, Facility, and Financial Approach to Campus/Facility Planning
Whether an organization has a robust internal strategic planning department or utilizes a third party to facilitate strategic planning, we have found that it is essential that the campus/facility planning team include people with a depth of strategic planning experience to ensure that the organizational strategic direction is reflected in the master campus/facility plan and, ultimately, that the campus/facility plan is consistent with the strategic plan.
A typical master campus/facility planning process begins with market analysis and demand forecasting to estimate the key planning units that will support the master plan. Array Advisors can either support your team in conducting these analyses and provide another set of eyes and a national perspective to the analyses to ensure that the output is what is required to support the master plan and appropriately accounts for anticipated market changes; or complete the required analyses ourselves, using data aggregated from multiple sources and predictive modeling to project how the market is likely to change and the likely impact of that change on your organization and future volumes.
In finalizing critical planning units, we recommend that the results of a high-level operational assessment be included to make sure that the projections are consistent with operational changes the organization may seek to make to optimize efficiency. In addition, to translate key planning units (KPUs) into space requirements, it can be necessary during the master planning process to do some preliminary programming, particularly for support departments where KPUs don’t completely drive the space requirements.
Of course, conducting an existing facility condition assessment allows you to identify immediate, short-term, and long-range capital investments needed to meet regulatory requirements and helps us understand if and how existing facilities can be utilized to address master planning space needs.
Based on the previous analyses, many design options surface during the master planning process. We work with the planning team to estimate the financial repercussions of individual planning scenarios and compare the advantages and disadvantages of the various options to support decision-making. This iterative process helps our clients clarify and prioritize strategic goals, leading to the development of an actionable facility plan that provides the flexibility needed to address an uncertain future.
You Don’t Need to Go It Alone
Strategic decision support is vital to the success of health systems as they grow. While many health systems have internal teams who do this work, financial pressures may necessitate smaller teams dedicated to this work. Even if you have access to resources and a team, it may still be beneficial to seek assistance from a third-party with the expertise to gather data, interpret it, visualize it, and facilitate decision making based on the findings. Outsourcing is a valuable tool to this end. Your team may not have the bandwidth to do analytics for a particular project, for example, so it may be more efficient to engage someone who already has access to the resources and can bring them to the table and help your team interpret them in a way that allows you to reach conclusions.
Recommendation 7: Face Your Toughest Challenges with Backup
Array Advisors takes a data-driven approach to solving our clients’ toughest challenges. We have access to a myriad of data resources, including a map-based, claims-driven analytics platform, from which we extract data that we aggregate, synthesize, analyze, and visually present in a meaningful way to help drive decision-making. In addition, through the use of analytical tools, such as simulation modeling, detailed process time studies, and exploratory data investigation, we help clients discover solutions that are unique to their organization.
We incorporate these resources and capabilities in all of our work with clients, but we can also bring them to bear in partnership with you and your team to meet your internal planning needs, either on an ad-hoc, as-needed basis when internal bandwidth is stretched thin, in an oversight capacity, or on an outsourced, longer-term basis when internal resources are simply not available. In essence, Array Advisors personnel can become part of your planning team, supporting your data and analytical needs for specific projects or more broadly as long as the need persists.
In Summary
We are truly living in an era of unprecedented uncertainty in healthcare, with potential policy changes likely to exacerbate already tight margins and stretch limited resources. Array is uniquely qualified and poised to assist you and your team at any point along the capital project development continuum, from strategic planning to facility planning, design, and development, and we are prepared to do so when and in whatever way makes the most sense for you and your planning team.
