The hospital of the future should look very different

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.

A fourth aspect of this storm is the increased number of services and care coordination hospitals are expected to deliver, resulting from an older, sicker general population, some of whom are uninsured or do not have a usual source of care, making the local hospital the place to go when something happens. This strains hospital emergency departments, which feed into other parts of the hospital. It leaves many hospitals in a position where they are providing more care to patients without adequate reimbursement for it. This has been seen especially with Medicare Advantage patients, for example, as the high service intensity increases the amount of uncompensated work that involves gaining pre-authorizations for needed service delivery, doing the paperwork and communication for making referrals to other providers, and spending time to ensure adequate post-discharge care options for patients.

As alluded to above, reimbursement squeeze is the fifth aspect of the perfect storm. Non-profit and government hospitals that rely significantly on reimbursement through Medicare and Medicaid can likely count on the trend of insufficient reimbursements to continue and accelerate in a political climate focused on government cost cutting. At the same time, commercial insurers create obstacles to hospitals gaining adequate reimbursement.

Finally, there are patient preferences that will grow more pronounced in the near future. This is the sixth aspect of the perfect storm. Many individuals will increasingly prefer to receive as much traditional hospital care as they can at home, especially as they report positive overall experiences with it. On the basis of costs and quality, at home care may compare favorably, if not more so, than the same care provided in the hospital setting. As digital transformation envelops health care delivery over the next decade, the potential for “moving health home” grows larger. Almost all individuals, for example, have access to a smart phone and the internet in their homes, providing the foundation for using wearables and other monitoring devices that enable virtual care to be delivered, without stepping foot inside the physical confines of a hospital.

What the future hospital must do

To deal with this perfect storm, hospitals of the future must embed themselves within a total health care ecosystem. Short-term strategies of pursuing geographic monopolies and market share growth has made hospitals stand alone in their communities, often existing as the dictatorial hub of a fragmented system of care. These hospitals create barriers preventing patients from “leaking” out of their own service offerings and accessing other needed health services or care providers in the community. In this way, hospitals limit consumer choice and provide incomplete service provision, creating gaps in care, access issues and a frustrating buying experience for patients.

The hospital of the future must be one that fully integrates into a larger care ecosystem, not as the sole controlling force but instead as an orchestrator that draws upon and enables the resources and strengths of other stakeholders such as niche-based community organizations and advocacy groups, technology companies, independent primary and urgent care providers, long term care providers and third-party payers. This will allow hospitals to grow nimbler in varying the services they provide; leverage others in the community who can do something more efficiently and at a lower cost for the patient; help these other stakeholders grow; integrate services where feasible to achieve greater scale; build goodwill and trust among providers and patients; and innovate in ways that leverage expertise the hospital may not possess.

Pursuing modularity in form and function

Hospitals of the future must pursue modular designs to meet patient needs quicker and at lower cost, take advantage of shifts in insurance payment, and increase overall service capacity. Modularity would allow hospitals to act chameleon-like in effectively meeting the evolving needs and preferences of their surrounding environment. For example, the modular hospital could respond to sudden shifts in its inpatient census by quickly downsizing or modifying the ward-focused part of its structure into some other use. Modularity would also allow for timely integration of new digital health tools into hospital service delivery, allowing them to become early adopters more often. It also maximizes return on investment for a hospital’s physical infrastructure, allowing lower construction and operating costs to be passed onto patients and payers.

Becoming a health workforce academy

Hospitals must become their own workforce academies, recruiting, training and then retaining longer term their most in-demand health care workers. By incorporating workforce planning directly into their everyday operations, rather than outsourcing it to the general marketplace, and through organizational cultures that emphasize better working conditions, hospitals can reduce the uncertainty associated with trying to obtain externally an adequate number of appropriately trained workers for everyday patient care operations. This would require resource investment up front but being able to hold onto more of their workers ultimately lowers recruitment costs and saves downstream dollars for hospitals.

Partnering to access resources and capabilities

Gaining reliable access to new resources and capabilities is also something hospitals of the future must do. Overreliance on government investment through public insurance programs or grant funding is not a viable strategy to ensure continued growth and responsiveness to local patient care needs. In addition, government funding typically now supports ongoing patient care rather than large improvements in infrastructure or capabilities. Mutually beneficial partnerships with entities such as deep pocketed technology companies loom as potentially sensible ways to fund growth and innovation. Nowhere can this be seen more than in the home health initiatives many hospitals see as an important part of their futures yet cannot fully implement or scale up because of a lack of technological resources and know how. Private equity investment in hospitals remains controversial but is not going away and cannot be ruled out as a viable source of funding for hospitals, albeit needing to be managed carefully and guided by a sense of the hospital’s mission and patient care values.

A mission of patient-centered care that guides everything

Finally, future hospitals have to pursue all the things noted above with a clear sense of mission around the delivery of patient-centered care. This mission must be baked into everything they do. Ecosystem involvement, modularity, workforce development and resource acquisition will have as their driving philosophy making the hospital and its services fully responsive to patients’ needs, wants and preferences. Future hospitals will not dictate to their communities what services they need or how they must access them. Rather, they will engage in the heavy use of analytics to listen to, understand and serve their customers better. They will use tools such as segmentation, design thinking, process improvement and branding to craft highly desirable products and services that span well beyond curative medicine and waiting for people to get sick enough so that they have little choice but to take what the hospital offers them. True patient-centered care will help hospitals diversify their revenue streams, build greater trust between them and their communities, and make the hospital a place that sells different visions of health and happiness, defined primarily by specific groups of customers.

Real hospital transformation requires bold and visionary leadership. Without successful reinvention many more hospitals will close or end up offering an overly narrow, misaligned array of services, resulting in more patients isolated from the care they need and want. It also means the continued drift of hospitals toward being places where neither workers nor patients want to spend their time but instead are forced to for reasons beyond their control. In other words, the hospital of the future will be something that attracts rather than repels.

Timothy Hoff, Ph.D., is professor of management, healthcare systems and health policy at Northeastern University in Boston, Massachusetts, and associate fellow at Green Templeton College at the University of Oxford in the United Kingdom. He is the author of the book “Searching for the Family Doctor: Primary Care on the Brink” (Johns Hopkins University Press, 2022).