It may be the worst kept secret, but hospitals in the United States will have to reinvent themselves over the next two decades. A perfect storm of change, neglect, financial distress and deteriorating conditions in the health care system will force hospitals, at least the ones that plan on remaining open and financially viable, to look much different than they do today. Some will make this transformation successfully, others will not.
A perfect storm in six parts
One aspect of this perfect storm are the rising costs many U.S. hospitals face. According to the American Hospital Association, hospital expenses are increasing faster than the general inflation rate. About half of these expenses involve personnel costs, which are growing disproportionately given ongoing shortages of physicians, nurses and other lesser skilled health workers. This is the second aspect of the perfect storm, the overall state of the hospital workforce. Additional dollars spent on recruitment, retention and higher salaries add up. Hospitals will continue to spend more to find and hold onto an adequate number of workers for their existing operations. Many who work in hospitals now see their settings as unsafe, dissatisfying and unsupportive. Many are burned out and face everyday workloads that are too demanding. Given the challenges in recruitment and retention, hospitals must redesign and modify their service delivery in dramatic ways, knowing that an adequate workforce may never materialize if they continue to look the same.
While for-profit hospitals enjoy higher operating margins, in part because of their ability to focus on profitable services and patients with commercial insurance that pays better, non-profit and government hospital margins remain dangerously thin. This is a third aspect of the perfect storm. Hospitals located in rural areas fare even worse, often barely breaking even in the best case scenario. Among other things, smaller margins translate into less ability for hospitals to invest in infrastructure, which means physical plants increase in age and repair costs become more frequent and expensive. This is exactly what has been happening over the past several decades, leaving many hospitals to face a reckoning in terms of needing to incur full replacement costs for expensive infrastructure. It raises the question, even if hospitals could make these investments, what should they build and how should they build it? Hospital leaders and investors that understand the perfect storm will certainly not choose to build a replica of the outdated, inefficient and high-cost facilities that now typify U.S. hospitals.
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