Enterprise Strategy
Health Care Landscape
Sg2 Outlook on 2022: Key Topics on the Radar
As we kick off 2022, health systems may feel they are playing out the movie Groundhog Day, where Bill Murray, trapped in a time loop, endlessly relives a day with Andie MacDowell. The movie serves as an omen three decades in the making, shining a light on the importance of perseverance and human connections—attributes that continue to epitomize health care.
It is in the spirit of forging forth and focusing on what matters that we look ahead to 2022 and the issues on the radar of health system leaders and boards.
Workforce
There could be no more apt topic to list first than the health care workforce. Entry-level wages reaching $20 per hour, travel nurses making up to $5,000 per week, the industry seeing its highest turnover rate in a decade and concern of an impending “big quit” paint the picture with excruciating clarity.
As bad as it seems, the Bureau of Labor Statistics through November 2021 determined that the voluntary quit rate in health care isn’t any worse than that of most other industries. Resignations are an economy-wide problem, and those health systems with the infrastructure to leverage scale and a track record of engaging clinicians and employees have an advantage.
Financial incentives to buoy recruitment efforts are a natural first offering. But retention efforts also demand flexibility and creativity through a multipronged approach.
Margin Pressure
With personal protective equipment and labor costs skyrocketing over the past 24 months, it should come as no surprise that average operating margins fell from 5.6% in mid-2019 to 1.5% as of Q3 2021.
Cost likely will bubble up as not only an operational issue but also a strategic one. Strategy leaders may find themselves co-leading transformation workstreams with CFO, COO or clinical leader colleagues.
Health Equity
COVID-19’s impact on communities of color has proved we are not “all in this together.” Health systems are embracing social determinants of health, working in partnership with community organizations to reduce food insecurity and pave the way for affordable housing.
Tackling social determinants of health is a lofty goal, but there are plenty of health inequities we can more directly control. Organizations should ask themselves, Do women in our community enjoy the same cardiovascular outcomes as men? Does our vendor list include local, minority-owned companies?
New Growth Formula
Sg2 members surveyed during our November 2021 Executive Summit conference signaled unequivocally that growth was the top of the agenda heading into the new year—not surprising, following two years of pandemic-incurred volume disruption.
It’s time for a gut check: Does your health system understand consumer preferences? Is it well positioned to activate patients who have recently moved? How does your payer strategy need to evolve if acceleration to value is your goal?
Patient Movement
What does a relocated work-from-home world mean for growth? Data from 2020 suggest generation Z knowledge workers temporarily left urban centers after the COVID-19 pandemic limited in-office presence. Efforts like the Tulsa Remote initiative, in place pre-pandemic, gained popularity. Will this shift become more widespread and permanent?
Permanent moves increased as 2021 brought clarity for many, but 84% of these transitions were characterized by a “suburban shuffle” rather than moves to new major metro areas or out of state. Additional factors influencing movers included families experiencing job loss or exit and individuals seeking more affordable cost of living.
Bottom line, there is opportunity to attract patients new to the area.
Value-Based Care
Seemingly the perennial bridesmaid in health care, true downside risk continues to be a modest percentage of health systems’ revenues today.
Sg2’s accountability readiness map shows progress over the past five years: more markets are ready for value- based care thanks to a focus on behavioral health services, IT infrastructure and efforts at scale. And while programs like CMS direct contracting continue to offer the opportunity to practice with risk arrangements, many organizations tell us they have accepted fee-for-service as their reality for the foreseeable future.
IP Portfolio Segmentation
As the dust settles on a decade of OP shift, hospitals need to take a portfolio approach to assessing and rebalancing their traditional acute care business.
The hard truth is that health systems will continue to compete for the high-margin–producing procedures, roughly half of which are highly complex and historically anchored at tertiary referral centers.
Expect fierce market share battles and ongoing pressure to differentiate for procedures. Interest continues in care-at-home programs—giving CFOs everywhere heart palpitations unless the organization is overcapacity. The remaining, largely medical, DRGs will prompt a doubling down on performance improvement and an integration of behavioral health.
Mergers and Acquisitions
Shaky financials and a quest for scale have kept health care M&A activity rolling despite a global pandemic.
Boardroom conversations debating “necessary” size to weather industry changes have influenced health system deal focus, which is now dominated by megamergers. But a variety of players are making moves to acquire all manner of assets across the continuum. Private equity “aggregators” continue to consolidate and grow ambulatory segments—physician practices, ambulatory surgery centers and consumer-focused digital offerings.
Medical Group Optimization
Health systems sit at a fork in the road as they think about the physician enterprise.
Increasingly attractive offers from private equity–backed groups challenge efforts to align with independent physicians to bolster Medicare Advantage networks or capture OP shift. The employed medical group has grown organically and become culturally more complex as a result of M&A, which puts even more pressure on an entity under scrutiny for subsidization.
Add in organizational transitions to value contracts and ongoing reimbursement pressure and, not surprisingly, CMOs are revisiting employed medical group size, composition, compensation and incentives.
Behavioral Health
The pandemic challenged an already fragile care continuum, as behavioral health–related ED visits soared with record-setting overdoses and widespread anxiety and depression, particularly among adolescents. Employers increased mental health benefits, but that begs the question on whether or not that offering only exacerbates the supply/demand mismatch.
Even the most innovative solutions seem reactive. We are on the cusp of behavioral health shredding its stigma, presenting opportunities for health systems as both provider and large employer to rethink how behavioral health services are described, offered and integrated to improve health and well-being.
Digital
Investment in digital infrastructure reached $7 billion a quarter across the economy, and health care is in the thick of it. Progress is happening at leading organizations as well as progressive community hospitals. Expect to see continued budget allocation, designated digital leaders and more centralized decision making.
Artificial Intelligence
Health care has long struggled to realize productivity gains from new technology, but artificial intelligence (AI) is poised to change that. No longer the stuff of science fiction, applications spanning the enterprise will make a material impact in the next three to five years.
Revenue cycle leads the way with opportunities to improve both revenue and labor expense, thanks to smart automation. AI also serves as a workflow enabler, supporting triage and routing tasks to enable team-based care and increase job satisfaction.
Successes and failures will be encountered on the road ahead, but Sg2 believes 2022 will be remembered as the year AI simply became part of what we do.
Concluding Thoughts
This list of issues is a long one. So what is our advice for health system executives and board members? Listen, focus and have some bad ideas—but have more good ideas. Folklore says the time lapse represented in Groundhog Day is 33 years and 350 days—perhaps that helps put entering Year 3 of a pandemic in perspective. Eventually, we’ll get to celebrate just as the characters did in the movie: “Today is tomorrow. It happened!” Let’s make sure we are prepared; the future waits for no one.
Not an Sg2 member? Contact us today for help with prioritizing your organization’s strategic initiatives and assessing growth opportunities for the year ahead.
Sources: US Bureau of Labor Statistics. Table 4. Quits levels and rates by industry and region, seasonally adjusted. Economic News Release. January 4, 2022; Konish L. 31% of young adults relocated during Covid. But they aren’t giving up on cities altogether. CNBC. March 15, 2021; Patino M et al. More Americans are leaving cities, but don’t call it an urban exodus. Bloomberg CityLab. April 26, 2021; Eschner K. As COVID surges, ‘travel nurses’ are in more demand than ever, and can make $5,000 per week. Fortune. December 21, 2021; Elassar A. Do you work remotely? This program could pay you $10,000 to do so from Tulsa. CNN. November 23, 2020; MobiHealthNews. HIMSSCast: Digital Health’s $7B Q1 and what it means for the space. April 23, 2021; Vizient/Sg2 Benchmarking Study, 2021; Center for Connected Medicine. Survey: Apps, other digital tools a critical or high priority for half of health systems [news release]. Accessed October 2021; Sg2 Analysis, 2022.
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