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40 40 CEO/STRATEGY 10 Thoughts on Hospitals and Health Systems in 2017 By Scott Becker and Morgan Haefner T he following are 10 thoughts on hospitals and health systems so far in 2017. 1. Healthcare reform and subsequent uncertainty. With tre- mendous uncertainty as to healthcare reform, we expect hospitals and health systems to take caution in large capital expenditures and acquisitions. As it seems is oen the case, it feels like we are coming into another time of change. Nearly 60 percent of hospital executives listed ACA changes as their chief concern for 2017, an increase from 33 percent in 2016, accord- ing to Capital One's annual survey on M&A trends. In some ways, this must feel exhausting to health system leadership. irty-eight percent of healthcare executives, according to Capital One's survey, name M&A as drivers of their growth plans for 2017. HHS Secretary Tom Price, MD, and CMS Administrator Seema Ver- ma, while highly qualified individuals, have very different perspectives on how the health system should function than did their predecessors. It will be interesting to see how their perspectives clash with top leaders like Rick Pollack, president and CEO of the American Hospital Asso- ciation. Former President Barack Obama and his team, whether you like or hate the ACA, spent a lot of time trying to make deals with the AHA, American Medical Association and so forth. us far, we've not seen that from President Donald Trump. 2. Contingency planning; layoffs return. Some of the system leaders we talk with maintain very serious contingency plans in the extent that reve- nues do not meet expectations. To this end, we see more and more hospi- tals engaging again in a round of layoffs. A couple notable layoffs so far in 2017 include Houston-based e University of Texas MD Anderson Can- cer Center's decision to cut 5 percent of its workforce and Louisville, Ky.- based Baptist Health's decision to cut 288 positions across its eight markets in Kentucky and southern Indiana. Hospitals attribute layoffs to EHR expenses, lower volumes and reimburse- ment than expected under the ACA and a host of other issues. MD An- derson saw its adjusted income drop 76.9 percent year-over-year in the 10 months ended June 30, 2016, a change the UT System primarily attributed to implementation of an Epic EHR. 3. Haves and have nots: A new caste system. Health systems still re- main very much a story of the haves and have nots. It's interesting to see how some of the nation's great systems and hospitals, like Rochester, Minn.-based Mayo Clinic, New York City-based NewYork-Presbyterian Hospital, Cleveland Clinic, Boston-based Massachusetts General Hospi- tal, Baltimore-based Johns Hopkins Hospital and UCLA Medical Center continue to thrive and improve. See, for example, the top hospitals in this year's U.S. News & World Report. Some health systems continue to expand and spend more mon- ey to grow. See for example Stanford (Calif.) Health Care, Chica- go-based Northwestern Memorial Hospital and Rapid City (S.D.) Re- gional Health. RCRH recently unveiled plans to build a $55 million orthopedic hospital and sports medicine facility in Rapid City. In contrast, many health systems are focusing again on reductions in force. 4. Large chains — mixed results; consolidation to win markets may get tougher. e results of the largest systems are mixed. Nashville, Tenn.-based HCA Holdings closed the fourth quarter of 2016 with net income of $920 million, up 58 percent from $582 million in the same period of the year prior. However, Franklin, Tenn.-based Community Health Systems saw its net loss increase from $83 million in the fourth quarter of 2015 to $220 million in the fourth quarter of 2016. Large health chains without particularly dominant markets in their roster seem to be struggling. Health systems that dominate areas tend to do better. e Federal Trade Commission has cracked down on hospital mergers the last few years. See, for example, the FTC's efforts to stop the merg- er of Evanston, Ill.-based NorthShore University HealthSystem and Downers Grove, Ill.-based Advocate Health Care. e parties called off their merger March 7 aer a U.S. District Court judge granted the FTC and state of Illinois' request for a preliminary injunction to temporarily halt the merger. 5. Payers expand provider opportunities; more competition with health systems. e big payers are significantly accelerating their movement into the provider area. For example Minnetonka, Minn.- based UnitedHealth Group subsidiary Optum employs 20,000 physi- cians and is in the process of acquiring surgery center behemoth Deer- field, Ill.-based Surgical Care Affiliates. 6. Telehealth. Telehealth, aer years of gaining steam, has become a real thing with more and more large systems trying to use it in various ways. It's particularly important where parties have risk, because tele- health provides very meaning well to reduce costs. See companies such as American Well, Teladoc, Carena and more. Some systems report as- tonishing growth in telehealth. 7. Predictive analytics. Predictive analytics, like telehealth, aer years of discussion, has become a real thing with more and more sophisticat- ed systems engaging heavily in use of predictive analytics for financial, staffing and clinical reasons. e global healthcare predictive analytics market is expected to grow at a compound annual growth rate of 29.3 percent through 2025, according to a Grand View Research report. See companies such as Qventus, Medecision, GE Healthcare, Intel, Optum, RelayHealth and VigiLanz. 8. Employed physicians. Most systems keep moving toward more and more employed physicians. Accenture projected the portion of inde- pendent physicians would be 33 percent by the end of 2016, down from 57 percent in 2000. Some systems have slowed down in this pursuit. Certain specialties such as orthopedics, gastroenterology and ophthal- mology have stayed relatively independent. 9. Physician-owned and microhospitals. e ACA included a prohi- bition on the development of new physician-owned hospitals. Repeal of part of the Stark Law portions of the ACA can lead to growth in physi- cian-owned hospitals. A separate trend is the growth in microhospitals. See companies like Emerus Holdings, which has more than 21 facilities nationwide and is an external partner with systems like San Francis- co-based Dignity Health. 10. Value-based care moves at different speeds in different re- gions. e shi to value-based care is still moving at vastly different paces in different regions of the country. Hospitals nationwide report- ed about 50 percent of their reimbursement was related to some type of value measurement in 2016. is 50 percent includes a good deal of fee-for-service variations. On the west coast, where the largest provid- er, Oakland, Calif.-based Kaiser Permanente, is as much an insurance company as a health system, it's moving fast. In other parts of the coun- try, it's moving more slowly. n