Healthcare Outlook 2018: The Providers

With the arrival of 2018, many health systems are finding themselves stuck between to very different strategies – value-based care and fee-for-service (FFS) care.  Had there been no disruption in the Affordable Care Act, most agree we would be moving quickly toward value-baed care. Now with the likely repeal of the individual mandate through tax policy changes, congress is slowly dismantling the fundamentals of that strategy. Yet, investments are already made in this new strategy, and health systems are in the middle of transition. Not a pretty place to be.

Trying to operate under these two completely different financial models is a real concern. The industry has been talking about the shift to value-based care for the past several years now. But let’s be honest, the adoption is occurring far more slowly than many hospital and health system CEOs anticipated. 

Nearly 30% of all health care payments are tied to alternative payment models. However, I expect value-based care adoption will increase in 2018: driven by CMS (Medicare), state Medicaid systems that are financially challenged, and by self-insured employers who no longer wish to pay retail nor settle for a percentage discount of an ever-increasing charge.

Here are a few of the challenges (and opportunities) that hospitals, health systems, and physicians will likely face over the next 12-24 months - and some thoughts to mitigate these risks:

1. Sustaining Inpatient Margins. Margin erosion is one of the biggest issues for hospitals. Inpatient revenue has fallen 18% over the past 15 years. Inpatient revenues went flat in 2012. The actual cost of delivering care will continue to increase faster than inflation, but inpatient revenue increases won’t likely keep up. New sources of revenue (urgent care, care management, narrow networks with area employers) will be necessary to bridge this gap.

2. Good Data. Most health systems are using electronic health records (EHRs) in some capacity, but many are several generations old and are little more than data repositories. The key is to figure out how to extract data from these (and other) systems and use it to optimize patient care and operations through the use of data analytics and better care coordination. Employer collaborations can provide new data hospitals do not typically see.  Taking on at-risk contracts means health systems become financially responsible for the health of their members. While health plans seem to understand this, some health systems aren’t there yet.

3. Virtual Care. Telehealth is poised to reshape care delivery (and the hierarchy of the health system referral model) in 2018. Provider visits conducted through a smart phone are becoming more prevalent. Consider the phone as a “new site of care” and a point where specialty referrals may be directed in non-traditional ways. The biggest barrier for significant adoption of virtual visits is the lack of payment for these visits. I expect this to change rapidly.

4. Consumer Engagement. The most successful health systems in the future will likely be those that focus more attention on the member experience. Historically, this has not been the top priority for hospitals; but, we are seeing a shift. Hospitals with the highest patient-reported experience scores, for example, reported an average net margin of 4.7 percent. Hospitals with “low” ratings, by contrast, reported an average net margin on 1.8 percent.

Hospital systems should help members manage chronic diseases, and keep patients out of the hospital through the use of preventive medicine and wellness programs. Patients also want to understand their bills, and ease of scheduling visits or support. To win the hearts and minds of patients we must create a sense of belonging and complete and convenient access 24/7/365.


We are at a moment in time where the fusion of people, process and a technology can re-define the patient experience, improve patient access points, and manage total costs. Such innovation will likely be found as traditional players collaborate with new entrants and form non-traditional partnerships along the healthcare value chain. Regardless of what happens, 2018 will be a very interesting year! Love to hear your thoughts.