L.E.K. Consulting Annual Study Describes Changes to Come

BOSTON, MA (October 22, 2019) – The U.S. healthcare provider landscape was transformed during the 2010s, a tumultuous decade marked by tectonic shifts that saw a high level of consolidation. The consolidation was driven by “progressives” — large health systems that have embraced health services that combine acute and non-acute care, large operational scale and new accountability-focused payment programs.

The major trends that drove industry transformation in the 2010s remain firmly in place, and the pace of change is expected to continue. The 2020s are likely to see an increasing shift away from fee-for-service (FFS) and towards value-based payments (VBP), as well as continued hospital consolidation. Health systems will put greater emphasis on building service-line centers of excellence, expand their use of telemedicine and rely on it for more applications, and make more meaningful and regular use of information and analytics in care delivery. An accountable, data-driven, networked industry will be the result.  

Those are among the key insights from L.E.K. Consulting’s 10th Annual Hospital Survey: A Retrospective and a Glimpse into the Future. Every year since 2010, the firm has surveyed health system and hospital executives about their strategic priorities and relationships with suppliers. The latest edition also takes a look back at the previous 10 years’ results and provides a glimpse into key changes expected over the next decade. As in past years, the report also includes L.E.K.’s analysis of economic data and the firm’s industry insights.

“In 2010, the provider landscape was still in many ways dominated by independent hospitals and small local health systems competing for market share,” says Jonas Funk, Managing Director and head of the MedTech practice at L.E.K. and co-author of the report. “That is no longer the case. Economic pressures and the pace of technological change are such that the present — and the future — are likely to belong to large, diversified health systems that are equipped to provide an end-to-end array of services to a wide range of patients, across acute and non-acute care settings. A more accountable, data-driven, networked world is the future of U.S. healthcare.”

“The pace of change in the industry over the past 10 years has been remarkable, and it will be remarkable over the next 10 years as well,” says Ilya Trakhtenberg, report co-author and L.E.K Managing Director. “Healthcare suppliers will have to stay on top of their game and continue to innovate to keep up with the changing expectations and needs of their provider customers.”

Economic pressures and consolidation impact the industry during the 2010s

Among the key developments of the past 10 years:

  • Value-based payments (VBP) went mainstream. Despite some doubts about broad applicability, value-based payments — which make providers more accountable for health outcomes, rather than just delivering service — became a substantial and growing portion of U.S. hospital revenue. On average, traditional fee-for-service (FFS) payments fell from 57% of surveyed hospitals’ payment mix in 2014 to 37% in 2019. VBP is forcing hospital leaders to change their priorities, their decision-making and their perspective on the cost of care.
  •  A consolidation wave hit the industry. Under pressure from declining reimbursement and the rise of value-based payments, announcements of hospital M&A became a near-daily occurrence in the 2010s. The goals were to enhance their negotiating leverage with payers, create economies of scale and strengthen their financials. Consolidation fueled still more consolidation as health systems began to race to scale up in their local markets in order to remain competitive. In 2008, the top 125 U.S. health systems controlled approximately 40% of total hospital spending. By 2017, the figure was approximately 60%.
  • Health systems expanded aggressively into non-acute care. Health systems showed particular interest in building or buying physician practices (primary and specialty), ambulatory surgical centers (ASCs) and urgent care centers. Approximately 50% of surveyed health systems and hospitals owned more than 10 non-acute sites of care in 2015; by 2019 that had risen to 75%. The initial goal of expansion into non-acute was capturing referral traffic, but that evolved into part of a broader integrated care strategy as health systems sought to engineer themselves for a value-based payment reimbursement environment.
  •  “Progressives” led the transformation. The industry split into two camps — “progressive” health systems, which proactively embraced VBP, scale and integration with non-acute care, and “traditionalists,” which changed grudgingly while they tried to maintain the status quo. It’s the progressives that have driven consolidation and have become the dominant force in acute care. Their share of hospital spend rose from 55% to 65% from 2012 to 2017.
  • Health Care Information Technology (HCIT) became a top priority. Enhancing HCIT capabilities was the number one spending priority for hospital executives every year from 2010 to 2019. The trend started with the passage of Meaningful Use legislation in 2009 and continued through the 2010s with the rollout of incentives for the adoption of electronic health records (EHRs). Today the expansion continues, driven by the need for analytics capabilities that unlock the full potential of health system data to improve workflow, efficiency and clinical results.

In the 2020s, larger, data-driven, progressive health systems will lead care delivery

The 2010s laid the foundation for still more change to come. Responses to the 2019 survey indicate that major trends will continue:

  • Health systems will expand their service lines and create centers of excellence (COEs). Larger health systems are becoming increasingly sophisticated as they compete for share in local markets. They are developing areas of specialization and creating centers of excellence. Their goals: to grow revenue, capture profitable patients, attract and retain top physician talent and in some cases contract with large employers to provide specific services to employees, such as spinal surgery or total knee replacement.
  • Telehealth will expand significantly. Telehealth had been used in some capacity over the past five to ten years, but now it’s growing rapidly. Health systems recognize the benefits (access, convenience, better patient and physician experience) and are ramping up investments. Forty-eight percent of executives in the 2019 survey said telehealth is a priority. The vast majority — 75% ­— expect meaningful increases in the next three years in applications that connect clinicians to patients, patients to technology and clinicians to clinicians. They foresee the biggest increases in cardiology, women’s services, the emergency department and pediatrics. Executives predict that telehealth will become part of the care continuum for any service line, whether to streamline intake or deliver care.
  • Data- and analytics-driven care will truly arrive. Over the past 10 years, executives were preoccupied with electronic health records (EHRs). But that was just the first step toward data-driven care. The opportunity is to use data to optimize treatment, reduce variation in outcomes and use AI to free up clinician time for high value-add activities. The highest near-term IT investment priorities involve extracting more value from existing systems
    advancing EHR (81% of executives say it’s very or moderately important), streamlining and integrating their current IT (68%) and enhancing financial data collection and analysis (65%). But they’re also looking farther down the road, toward population health management tools (62%), deploying advanced analytics (54%), increasing the use of telehealth tools (53%) and deploying AI-based programs (48%).

“Given the shifts in the provider landscape,” says Monish Rajpal, L.E.K. Managing Director and report co-author, “we are seeing a broad range of suppliers change how they approach their healthcare provider customers, with more focused offerings, improved customer segmentation and targeting and more thoughtful deployment of commercial resourcing.”

About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,400 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.