Hospital Walls Keep Tumbling Down

Arguably, the healthcare industry’s biggest annual event is J.P. Morgan’s Healthcare Conference, which drew thousands of healthcare executives to San Francisco last month for the 43rd time. In a summary of 10 Takeaways from JPM 2025, Modern Healthcare listed growth in outpatient care as #1. Here’s how they put it…???

#1 - Outpatient care remains health systems’ key growth strategy

Outpatient care is still the hot ticket for most health systems.

AdventHealth President and CEO Terry Shaw said the Altamonte Springs, Florida-based system is reinforcing its outpatient strategy and plans to pump $500 million into primary care in the next five years. AdventHealth and Winston-Salem, North Carolina-based Novant Health both plan to use outpatient growth to help propel them to?$30 billion revenue targets.

Sacramento, California-based Sutter Health’s growth plans also center on outpatient care, President and CEO Warner Thomas said. The health system looks to open about two dozen outpatient sites in the next three years, including?an $800 million outpatient hub?in Santa Clara, California.

Chicago-based CommonSpirit Health is another system pushing beyond hospital walls. CEO Wright Lassiter said CommonSpirit won’t be a financially sustainable operation if it only focuses on hospitals.

Brentwood, Tennessee-based Ardent Health added nine urgent care centers in 2024, and in January, it announced the?acquisition of 18 centers?in New Mexico and Oklahoma.

I have had the opportunity to observe the trend towards outpatient / ambulatory care over the course of my career, and I helped to accelerate its growth over the past 20 years through my leadership of RediClinic and FastMed.

During this period (according to Wolf Media), U.S. hospital inpatient admissions declined by 14 percent per capita while outpatient visits rose by 26 percent; and outpatient encounters are projected to grow to 3.2 billion by 2030, three times the expected growth of our population. Reflecting upon this made me wonder whether hospitals are the process of becoming obsolete.

Northwell CEO’s View

My thoughts about the reduced role of hospitals in the care continuum were further stimulated by recent remarks by Michael Dowling, the CEO of Northwell Health, the largest health system in the New York City metropolitan area and one of the nation’s largest.

In a recent webinar and in remarks on Northwell’s website, Dowling characterized their hospitals as just an important “link” in the care continuum that includes (my list): outpatient primary and specialty care practices, urgent care centers, retail-based clinics, freestanding ERs, ambulatory surgery centers, dialysis centers, imaging centers, wellness centers, skilled nursing facilities, rehabilitation centers, nursing homes, assisted living facilities, hospice care, and home care, not to mention the integration of telemedicine in many of these settings and on a stand-alone basis.

Dowling also observed that there were 30 more hospitals in New York City 30 years ago than there are today, and he forecasted that the hospital of the future would mainly consist of an intensive care unit (capability) and a maternity ward.

He doesn’t believe that hospitals will disappear or necessarily that their number will continue to shrink – because our aging and increasingly (chronically) ill population will need them, and the growing number of outpatient sites will function as downstream feeders to them. However, the role of hospitals is changing, and they are becoming less prominent than in the hospital-centric days of old.?

Historical Perspective

In the 19th century, hospitals were often seen as a last resort, primarily serving the poor or those without family support.?The reputation of hospitals improved significantly in the early 20th century due to several factors:

●??????? The introduction of anesthesia and sterile techniques made surgery safer and less traumatic.

●??????? The discovery of X-rays in 1895 enhanced diagnostic capabilities.

●??????? A better understanding of germ theory reduced the spread of infectious diseases.

These advancements led to increased public support for hospitals, and by the mid-20th century, they had become central to the healthcare system. However, this trend has been reversing in recent decades.

Current Trends

Several trends indicate a shift away from traditional hospital-based care:

1. Declining Hospitalizations: The peak year for hospitalizations in the United States was 1981, with over 39 million admissions. By 2016, despite a 40% population increase, hospitalizations had decreased by more than 10%.
2. Reduction in Hospital Numbers: The number of hospitals in the U.S. has declined from 6,933 in 1981 to 6,120 today.
3. Shift to Outpatient Care: Many procedures and treatments that once required hospital admission are now routinely performed on an outpatient basis.
4. Rise of Specialized Facilities: There has been growth in specialized care centers focusing on specific conditions or procedures, often providing more efficient and cost-effective care than general hospitals.

Factors Driving the Decline

Several factors are contributing to the potential obsolescence of traditional hospitals:

1. Technological Innovation: Advancements in medical technology have made it possible to perform complex procedures in outpatient settings. Minimally invasive surgeries, for instance, often require shorter recovery times and can be done without overnight stays.
2. Telemedicine: The rise of telemedicine has enabled remote consultations and monitoring, reducing the need for in-person hospital visits for many conditions.
3. Home Health Services: Improved home health technologies and services allow patients to receive care in the comfort of their own homes, often at a lower cost than hospital-based care.
4. Preventive Care: There is an increasing focus on preventive care and early intervention, which can reduce the need for hospitalizations.
5. Cost Considerations: As healthcare costs continue to rise, there is pressure to find more cost-effective care delivery models. Hospitals, with their high overhead costs, are often seen as less economically efficient than other care settings.
6. Quality and Safety Concerns: Hospitals have faced scrutiny over issues such as hospital-acquired infections and medical errors. In 2002, it was estimated that there were 1.7 million cases of hospital acquired infections causing nearly 100,000 deaths. While hospital performance has improved since then, quality and safety issues remain.?

Urban and Rural Hospital Challenges

Urban hospitals face unique challenges that contribute to their potential obsolescence:

1. Suburbanization: The migration of middle-class populations and healthcare providers to suburban areas has left many urban hospitals struggling to maintain their patient base and staff.
2. Aging Infrastructure: Many urban hospitals have aging facilities that are expensive to maintain and upgrade, making it difficult to compete with newer suburban facilities.
3. Changing Demographics: The shift in urban populations has often left hospitals serving predominantly low-income communities with high portions of uninsured patients and those covered by Medicare and Medicaid plans, which generally don’t reimburse hospitals enough to cover their costs.
4. Competition: Urban general hospitals face increasing competition from suburban facilities and specialized care centers, which can offer more modern amenities and targeted services that are less costly and produce equivalent or better outcomes.

Meanwhile, rural hospitals are also under financial pressure. More than 100 such facilities have closed in the last decade, and, according to a recent report by the Center for Healthcare Quality and Payment Reform, more than 700—over 30 percent of all rural hospitals—are at risk of closing.

Rural hospitals have their own set of unique challenges:

1.??? Low Patient Volumes: Hospitals located in less densely populated areas tend to attract fewer patients and thus generate lower revenues than hospitals in metropolitan areas. This makes it more difficult for rural hospitals to cover hospitals’ generally high fixed costs.

2.??? More Low-Income Patients: Rural hospitals tend to have a higher portion of low-income patients who are uninsured or covered by public plans. The reimbursements provided by these Medicare and Medicaid plans are lower than rural hospitals’ costs to provide care.?

3.??? Insufficient Private Insurance Reimbursements: Due to the inefficiencies related to low patient volumes mentioned above, reimbursements from private health insurance plans are insufficient for rural hospitals to offset losses from uninsured patients and those covered by public plans.

4.??? Investment Limitations: Low public and private plan reimbursements make it difficult for rural hospitals to invest in remote monitoring and other technologies that have been shown to cost-effectively improve population health in their large catchment areas.??

5.??? Staffing Shortages: Rural hospitals face difficulties in attracting and retaining clinicians and other healthcare workers, resulting in increased labor costs and reductions in services (e.g., fewer than half of rural hospitals still offer labor and delivery care).

Hospitals in the Future

While hospitals may be facing challenges, it’s unlikely that they will disappear entirely. Instead, the healthcare system will continue to evolve into a more diverse and distributed model:

1. Specialized Centers: Hospitals will evolve into highly specialized centers focusing on complex procedures and critical care, while routine surgeries and other basic care shift to outpatient settings.
2. Virtual Hospitals: Some healthcare systems are experimenting with "virtual hospital" models, where patients receive hospital-level care at home through a combination of telemedicine and visiting healthcare providers.
3. Community Health Hubs: Hospitals may transform into community health centers that coordinate care across various settings, including outpatient clinics, home health services, and specialized facilities.

Implications for Healthcare Delivery

The reduced role of traditional hospitals has significant implications for the U.S. healthcare delivery system:

1. Infrastructure Investment: Healthcare executives and policy makers will need to consider how to allocate resources between maintaining existing hospital infrastructure and investing in new models of care delivery.
2. Regulatory Framework: Current healthcare regulations are often centered around hospital-based care. New regulatory frameworks will be needed to ensure quality and safety in diverse care settings.
3. Workforce Training: The shift away from hospital-centric care will require changes in how healthcare professionals are trained and deployed.
4. Access to Care: As care delivery models evolve, ensuring equitable access to healthcare services, particularly in underserved areas, will be a critical policy consideration.

All of this reminds me (showing my age) of a 1985 song by a British band called Style Council called, “Walls Come Tumbling Down.” That in essence is what has happened and continues to happen to traditional hospitals, as many of the services once provided only within their walls are now being more conveniently and efficiently delivered to the communities they serve through a complex network of smaller physical and increasingly digital channels.

Respectfully yours,

Web Golinkin