2005 AHA Environmental Assessment

To provide insights and information about market influences, the American Hospital Association has compiled the 2005 AHA Environmental Assessment. This assessment identifies emerging trends facing health care providers, consumers and stakeholders. Health care leaders can use it to understand their environment and analyze the effects these trends will have on their organization. The 2005 AHA Environmental Assessment is drawn from more than 50 nationally recognized source materials. Gene J. O'Dell, vice president, strategic planning for the AHA, authored this report. Donna J. Aspy, project manager, was responsible for planning, research and editing. H&HN senior writer Jennifer Towne compiled the information.

The Association Environment

• Members have clear expectations of the value they expect to receive from their associations--information, credibility and a sense of connection to the greater universe of profession or trade. In this environment, they will quickly walk (or click) away if their associations' services or quality is below expectations. ²
• Web sites, listservs and e-mail hold high strategic importance in an association's ability to converse with members. The broadcast mode of communication will not work as associations need to be more focused and engage members. Debate and daily discussion need to be encouraged, and associations need to be innovative with technologies to advance this effort. ²
• Association governance models must evolve to meet two objectives:
  ­Ensure full participation by the membership in the association's affairs
  ­Ensure swift and informed policy-making in an increasingly complex, fast-paced environment. ^AHA
• Associations must focus on a few core competencies and execute them better than any other nonprofit or for-profit entity. ²
• Members will come to expect tangible benefits and measureable results for the dollars they invest in their associations' outreach efforets (e.g.,advocacy) ³

Consumers & Demographics

• In 2000-2002, Mental illness was the second most frequently mentioned causal condition for limiting activity among adults 18-44 years of age and the third most frequently mentioned among adults 45-54 years. ⁵
• In 2005, 133 million Americans had one or more chronic conditions. This number will grow 37 percent between 2000 and 2030, an increase of 46 million people. Patients with five or more chronic conditions have an average of almost 15 physician visits and fill more than 50 prescriptions in a year. In the Medicare population, the average beneficiary sees seven different physicians and fills upward of 20 prescriptions in a year. ⁶
• An estimated 66 percent of Americans are overweight or obese. A study released by the Centers for Disease Control and Prevention shows that death due to poor diet and physical inactivity rose by 33 percent during the past decade and may soon overtake tobacco as the leading preventable cause of death. The study found that 400,000 deaths in the United States in 2000 (17 percent of all deaths) were related to poor diets and physical inactivity. ⁴
• Blacks and Latinos are more likely than whites to be disconnected from the health care system since they are more likely to use emergency room visits for nonurgent care of chronic diseases. This contributes to the problems with continuity and coordination of care. ⁷
• Approximately 70 percent of disabled elders rely exclusively on help from spouses, children or other informal sources, with the greatest burden and indirect cost falling heavily on women. As the baby boom generation ages and the need for caregiving increases, the supply of family caregivers is projected to decline because of lower fertility rates in the next generation and smaller family networks that are more geographically dispersed. By 2030, the ratio of potential caregivers to elders will be reduced to 6-to-1. ⁸

Economy & Finance

• Nearly 1.5 million couples or individuals filed bankruptcy petitions in 2001, a 360 percent increase since 1980. About half cited medical causes, indicating that 1.9 million to 2.2 million Americans (filers plus dependents) experienced medical bankruptcy. Among those whose illness led to bankruptcy, 75.7 percent had insurance at the onset of illness. ¹⁴
• The business environment remained difficult for U.S. hospitals for most of 2004, but both inpatient and outpatient admission volumes are improving, and the pickup in employment growth will aid admissions volumes for the remainder of 2005. ¹⁰
• Health care costs will continue to grow faster than workers' income for the foreseeable future, leading to greater numbers of uninsured Americans and raising the stakes for policy-makers to initiate effective cost-containment policies. ¹¹
• A variety of intensifying factors threaten the future performance and credit quality of the nation's not-for-profit health care system. These include:
  ­An unquenchable demand for health care services and related growth in new health care technology and health care costs
  ­The sustainability of managed care rate increases.
  ­The slow erosion of employer-based health insurance
  ­Reductions in Medicaid eligibility and reimbursement; the growing burden of rising bad debt and charity care
  ­The government's long-term ability to adequately fund Medicare without future reductions­The availability of an adequate and affordable labor supply ¹⁵

2004 Relevant Trends

Each year, assumptions from the previous years' environ-mental assessment are reviewed. Here is an abbreviated list of 2004 reconfirmed market factors:

• Access to care will remain tiered
  Top--empowered consumers with considerable discretionary income
  Middle--worried consumers with little or no choice of health plans
  Bottom--excluded consumers who don't have access to health insurance ²⁹
  
• Balancing state budgets remains difficult and states will put off problems to FY 2005 and beyond. ³³
  
• The four most critical issues of hospitaltrustees:
  1. Physician alliances
  2. Long-term strategic planning
  3. Patient safety
  4. Employee recruitment/retention ^AHA
  
• Emergency department crowding will continue with insured Americans accounting for most of the increase in visits. ²⁴
  
• Seventy percent of consumers ask friends, family members or co-workers about quality information; 65 percent ask a doctor, nurse or other health professional. ²⁹

Information Technology & E-Health

• More than nine out of 10 adopters of electronic medical records report that the tools have improved overall efficiency and enabled better patient care. EMRs have also proven their worth financially--almost 70 percent of doctors indicate they have saved their practice money. ³⁵
  
• Top IT priorities over the next two years: ¹⁷
  

  Implementing an EMR	54%
  Implementing technology to reduce medical errors/promote patient safety	42%
  Replacing/upgrading inpatient clicical systems	33%

  
  
• Slow adoption of technology by the health industry can be attributed to the misalignment of the investment and the financial return. Providers have to invest in the technology, but benefits often accrue to the payers, or society at large. ⁴
  
• Progress in implementing technology that reduces medical errors and promotes patient safety is slow even though 52 percent of respondents said it was a top priority. National estimates of CPOE implementation hover at 5 percent. The implementation of bar-code technology for medication matching at the bedside is 1.5 percent and the installation rate of robotic distribution systems is 8 percent. ¹⁸
  
• Nearly 60 percent of health care IT executives cited personal digital assistants, bar coding and speech recognition as technologies their facility plans to implement in the next two years. While only 18 percent of respondents reported that a fully operational EMR is in place at their organization, nearly two-thirds indicated they have either developed a plan to implement an EMR system or they have begun to install EMR hardware and software. ¹⁷
  
• Web site functionality for patients, including scheduling, health assessment tools and providing consumer health information is expected to increase in the next two years. Nearly all health care IT executives reported that their organization has a Web site. ¹⁷
  
• The Center for Information Technology Leadership estimates that standardized health care information technology would save the system $395.3 billion over a 10-year implementation period. ¹²

Insurance & Coverage

• The Medicare Hospital Insurance (HI) Trust Fund had negative cash flows in 2004 and annual cash flow deficits are expected to continue and grow rapidly after 2010 as baby boomers begin to retire. Because of growing deficits, HI trust fund reserves will be depleted by 2020. In addition, the Medicare Supplementary Medical Insurance (SMI) Trust Fund will require substantial increases over time in both general revenue financing and premium charges. ¹⁹
  
• Employers doubt that consumer-driven health plans will slow the growth of their health care costs. One concern is that by providing a spending account to all employees, employer payments might increase for their healthy workers. Another concern is that consumer-driven health plans had no better high-cost case management tools than other managed care options. Employers believed there were more opportunities for cost savings by managing high-cost cases rather than reducing utilization among the majority of workers who already use little care. ²⁰
  
• Cost sharing through higher deductibles and co-pays, new consumer-directed health plans and health savings accounts will continue to grow, with employees paying about 19 percent of the total overall cost in 2005, a 15 percent increase from last year. ⁴
  
• The percentage of all workers receiving health coverage from their employer fell from 65 percent in 2001 to 61 percent in 2004. There were at least five million fewer jobs providing health insurance in 2004 than in 2001. ²¹
  
• 78 million people with chronic conditions have private insurance coverage and their care accounts for about 74 percent of private insurance spending. Almost all Medicare dollars and about 83 percent of Medicaid resources are spent on people with chronic conditions. ⁶
  
• Union members are more likely to have employment-based health insurance than nonunion workers. Eighty-six percent of union members were covered by health benefits through their job, compared with 60 percent of nonunion workers. Erosion of union membership is likely to coincide with an overall decline in the percentage of workers with health benefits. ²²
  
• Medicaid payments accounted for 46 percent of all nursing home revenues nationally in 2003 (because these payment rates are lower than other payers, people with Medicaid coverage accounted for over two-thirds of all people residing in nursing homes.) Long-term care accounts for 35 percent of all Medicaid spending. ²³

Political Issues

• By 2010, public opinion, increasingly unaffordable health insurance and an estimated 50 million uninsured will drive the American people toward increasing consensus--coverage through a single federal plan for everyone's basic and catastrophic health care needs. ¹²
  
• The Senate Finance Committee convened the Panel on the Nonprofit Sector to examine the sector's governance, transparency and ethical standards and to consider and recommend actions to strengthen these. ²⁴
  
• As Congress wrestles with decisions to raise taxes or cut spending in order to reduce the deficit, Medicare and Medicaid are likely targets. ¹²
  
• Conflicts in deciding whichtreatment protocols will apply to whom will be a political issue during the next decade. Intermediaries, providers and others, including specialty societies and quality organizations, increasingly will issue multiple and conflicting guidelines. However, during the next decade the focus of activity will shift from designing guidelines to enforcing them. ⁸

Provider Organizations & Physicians

• Shock waves from corporate financial scandals in other industries are rippling through health care. Even not-for-profit hospitals are now feeling the impact. Health care chief financial officers must be able to clearly substantiate what makes their organizations credit- worthy. Many will look toward revenue cycle solutions to strengthen their financial position and improve bond ratings. Others will undergo business reorganizations and board management changes because of the Sarbanes-Oxley legislation. ¹⁶
  
• Ambulatory surgery centers have grown 40 percent since 1996, with approximately 3,700 centers operating at the end of 2004. In 2000, nearly 70 percent of all surgeries were performed in surgery centers. ¹²
  
• Five key issues stand squarely in the way of those trying to reengineer the health care delivery system:
  
  1. Paper-based medical records are inefficient, incomplete, isolated from the overall care process, error-prone and not "sharable."
  2. Physicians have inconsistent access to current science.
  3. Many patients either do not understand or do not remember what their physicians advised them to do; others "silently refuse" to follow the advice.
  4. Few mechanisms are available or used today to efficiently track patients' progress, or their adherence to treatment plans or needed tests.
  5. Despite the progress in medical science, relatively little is known about the effectiveness of treatments over the long term. ²⁵
  
• Most physicians work in small groups that lack clinical information technology. Most do not use care management processes to improve the generally inadequate quality of care. ¹²
  
• Steeply rising malpractice premiums are wearing away already declining profits, exacerbated by ever-sinking payment and reimbursement rates, combined with enhanced government oversight that significantly increases administrative costs and overhead. Physicians affected are reacting by limiting the services that they provide, or by moving their practices into other, more hospitable service areas. Some are retiring from the practice of medicine altogether. ²⁶
  
• The number of specialty hospitals tripled nationally to more than 100 between 1990 and 2003, and approximately 30 more were under development at the end of 2004. Of the current specialty hospitals, 52 percent are in surgical care, 22 percent are in cardiac care, and 15 percent are in orthopedics. ¹²
  
• Effectively managing the supply chain will become even more important in health care. The supply chain accounts for an estimated 42 percent of hospitals' and health systems' operating expenses. A 10 percent savings in supply chain costs could improve a hospital or health system's margin by 5 percent. ²⁵
  
• Since 1996, theInternet has become a valuable resource among physicians, with a 50 percent spike in usage. Ninety percent of all U.S. practicing physicians are using online resources. ²⁷

Quality & Patient Safety

• The Medicare Value Purchasing Act would provide financial incentives to health care providers for reporting quality data and achieving certain quality improvement goals. ^AHA
  
• It is likely that improvements in quality will not have a major impact on cost over the next five years because so many factors have to be in place to make high quality an effective driver. ⁸
  
• Although patients in the highest "intensity" hospitals received more tests and procedures, were hospitalized twice as long and experienced twice as many physician visits, they did not receive higher quality care. ¹²
  
• Quality problems exist in many clinical areas and many settings of care. Numerous gaps exist between actual and desirable quality, highlighting opportunities for improving the consistency with which health care is delivered:
  ­Some deterioration in selected measures was noted in almost all components of quality (e.g., effectiveness, timeliness, etc.) and almost all condition areas (e.g., cancer, diabetes, etc.).
  ­Patients in the highest-performing states are getting care at a level of quality many times higher than that of the lowest performing states.
  ­Comprehensiveness of care is lacking. ²⁸
  
• Most attempts to measure individual physician performance have failed, despite the fact that most industry professionals and even physicians believe that such data is crucial to improving quality. ²⁵

Science & Technology

• The information and communications revolution will move into the health care system in the next seven to 12 years. Four main areas will be affected:
  1. Automation of basic business processes
  2. Clinical information interfaces
  3. Data analysis
  4. Telehealth ²⁹
  
• Nine percent of CEOs describe themselves as "significantly well informed" on scientific advancements and emerging clinical technologies, while another one-third believe they are informed. ³⁰
  
• Chief financial officers plan to increase their capital spending by an average of 14 percent in the year ahead, focusing chiefly on three main areas: ¹²
  

  Digital radiology systems	72%
  CPOE systems	64%
  Mjor IT systems	61%

• Currently, 65 percent of surgical procedures do not involve a hospital stay. Experts forecast that 80 percent of surgeries will be minimally invasive within 10 years. ¹²
  
• Point-of-care laboratory testing will enhance productivity. Already used to rule out myocardial infarction and speed other diagnoses in emergency departments, POC testing cuts the time required for common tests from a current norm of 110 minutes to an average of five minutes. ¹²
  
• By 2010, vaccines, research on gene therapy and the use of more efficient vectors to deliver genetic material to specific targets will radically change current methods of preventing and treating such chronic conditions as diabetes, asthma, cancer, and possibly even neurodegenerative diseases such as Alzheimer's. ⁸
  
• The "e-ICU" speeds ICU throughput and reduces emergency department overcrowding. ¹²

The Health Care Workforce

• Hospitals are the second-largest employer in the private sector, offering higher-paying jobs, a range of positions for workers with varying skill levels and a consistent source of jobs even during recessions. ³¹
  
• In 2003, unions won 73 percent of their elections in health care organizations, 18 percent more when compared with other industries (55 percent). This pattern continued in 2004 with health care unions winning 66 percent of their elections, compared to other industry unions at 54 percent. The top states of union organizing were: California, New York, Michigan, Illinois, New Jersey, Ohio and Pennsylvania. ²⁷
  
• Few health systems are found on the annual listings of best places to work. To successfully compete for the best workers in the coming years, health systems will need to remake their workplaces in ways that attract and keep young, highly motivated employees. ¹²
  
• Either directly or indirectly, hospitals support one out of every nine jobs in the United States. In 2002, community hospitals employed nearly 5 million people and spent about $213 billion on goods and services in addition to employee wages. ³¹
  
• A large part of the employment growth in America over the next two decades will be in he health care sector. The majority of new jobs will take place on the front line -- murses, nursing assistants, home health aides, long-term care assistants and others. Unlike many other health professionals, these individuals are often at risk by making lwer wages, and having less generous benefits and few opportunities for eduction and advancemsnt. ³²
  
• Total direct and indirect employment generated by health care is often 10 percent to 15 percent of a rural community's employment. ³¹
  
• A large part of the employment growth in America over the next two decades will be in the health care sector. The majority of new jobs will take place on the front line--nurses, nursing assistants, home health aides, long-term care assistants and others. Unlike many other health professionals, these individuals are often at risk by making lower wages, and having less generous benefits and fewer opportunities for education and advancement. ³²

Resources

AHA Excerpts from AHA governance meetings, AHA News Now: The Daily Report for Health Care Executives, June 17, 2004, and June 20, 2005 American Hospital Association (312) 422-3000 www.ahanews.com		18	The Role of Technology in Medication Management and Prescription Administration North American Pharmaco Therapy Business Briefing, February 2004 Business Briefing LTD. www.bbriefings.com
1	Associations in a Nutshell Reprinted with the permission of The American Society of Association Executives (888) 950-ASAE www.asaenet.org	19	A Summary of the 2005 Annual Reports Social Security and Medicare Board of Trustees www.ssa.gov/OACT/TRSUM/trsummary.html
2	Journal of Association Leadership The Center for Association Leadership (202) 326-9550 www.centeronline.org	20	Rhetoric vs. Reality: Employer Views on Consumer-Driven Health Care, July 2004 Center for Health for Studying Health System Change (202) 484.5261 www.hschange.org
3	Facing the Future, A Report on the Major Trends and Issues Affecting Associations, Rhea L. Blanken and Alan Liff, 1999\, Reprinted with the permission of the American Society of Association Executives (888) 950-ASAE www.asaenet.org	21	Employer Health Benefits 2004 The Kaiser Family Foundation and HRET (650) 854-9400 www.kff.org
4	Healthcare's Top Business Issues and Responses for 2005 Capgemini (917) 934-8000 www.capgemini.com	22	Union Membership a Key to Health Care Coverage, EBRI News, May 9, 2005 Employee Benefit Research Institute (202) 659-0670 www.ebri.org
5	Health, United States, 2004 U.S. Department of Health and Human Services www.cdc.gov/nchs/data/hus/hus04.pdf	23	Medicaid in 2005: Principles & Proposals for Reform, February 2005 Health Management Associates (239) 598-3104www.hma-corp.com
6	Chronic Conditions: Making the Case for Ongoing Care, September 2004 Robert Wood Johnson Foundation (888) 631-9989 www.rwjf.org	24	Strengthening Transparency, Governance, Accountability of Charitable Organizations, June 2005, The Panel on Nonprofit Sector www.nonprofitpanel.org
7	Trends in Health Insurance Coverage and Access Among Black, Latino and White AmericansTracking Study No. 11 The Center for Studying Health System Change (202) 484.5261 www.hschange.org	25	Health System and Hospital CEO/CFO Summit of the World Health Care Congress Cap Gemini Ernst & Young (917) 934-8000 www.capgemini.com
8	Health and Health Care 2010, The Forecast, The Challenge, Second Edition, Institute for the Future, supported by the Robert Wood Johnson Foundation (800) 956-7739 www.iftf.org	26	Hospital-Physician Recruitment Arrangements Physician's News Digest (800) 220-6109 www.physiciansnews.com
9	Public Attitudes on the U.S. Health Care System: Findings from the Health Confidence Survey EBRI Issue Brief, No. 275, November 2004 Employee Benefit Research Institute (202) 659-0670 www.ebri.org	27	ASHHRA/IRI Consultants to Management Inc. Semi-Annual Labor Activities Report, 24th Report, Jan. 1, 2004 ­ Dec. 31, 2004 (313) 965-0350 www.iriSolutions.com
10	Positive Profit Outlook for U.S. Healthcare Facilities, June 20, 2005 Standard & Poor's	28	2004 National Healthcare Quality Report Agency for Healthcare Research and Quality www.qualitytools.ahrq.gov/qualityreport
11	Tracking Health Care Costs: Spending Growth Slowdown Stalls in First Half of 2004, Issue Brief No. 91, December 2004, The Center for Studying Health System Change (202) 484-5261 www.hschange.org	29	Health and Health Care 2010, The Forecast, The Challenge Institute for the Future, supported by the Robert Wood Johnson Foundation (800) 956-7739 www.iftf.org
12	Futurescan, Healthcare Trends and Implications 2005-2010, The Society for Healthcare Strategy and Market Development, and the American College of Healthcare Executives, with support from Solucient and VHA Inc. (312) 422-3888 www.ahaonlinestore.com	30	The Future of Health Care: an Outlook from the Perspective of Hospital CEOs, Ninth Edition 2002 Deloitte & Touche LLP (800) 877-1298 www.healthcareceosurvey.com
13	America's Hospitals: A New Era of Care, Quality and Accountability American Hospital Association (312) 422-3000 www.aha.org	31	Trendwatch, May 2004, Vol. 6, No. 1 The American Hospital Association and The Lewin Group (202) 638-1100 www.aha.org
14	Illness and Injury as Contributors to Bankruptcy, Health Affairs Web Exclusive MarketWatch, Feb. 2, 2005 (301) 656-7401 www.healthaffairs.org	32	Centering On ... Labor and Management Collaboration in Health Care The Center for the Health Professions (415) 476-8181 http://futurehealth.ucsf.edu
15	U.S. Not-for-Profit Health Care Sector 2004 Mid-Year Outlook: Performance Peaking Now Standard & Poor's (212) 438-7280 www.ratingsdirect.com	33	The Current State Fiscal Crisis and Its Aftermath The Kaiser Commission on Medicaid and the Uninsured, March 2004, Publication #4138, The Kaiser Family Foundation (650) 854-9400 www.kff.org
16	Healthcare's Top Business Issues and Responses for 2004 Cap Gemini Ernst & Young (917) 934-8000 www.capgemini.com	34	Insured Americans Drive Surge in Emergency Department Visits The Center for Studying Health System Change (202) 484.5261 www.hschange.org
17	Healthcare CIO Results: Final Report, 16th Annual HIMSS Leadership Survey, Spring 2005 (312) 664-4467 www.himss.org	35	Health Care 2002: A Strategic Assessment of the Health Care Environment in the United States VHA and Deloitte & Touche LLP (972) 830-0000 www.vha.com

How We Did It:

This gatefold for H&HN was compiled by working with American Hospital Association staff and governance leadership.

Research & Analysis: Gene J. O'Dell godell@aha.org

Research Assistant: Donna J. Aspy daspy@aha.org

Senior Writer: Jennifer Towne jtowne@healthforum.com

Design: Chuck Lazar clazar@healthforum.com

What the experts have to say...

There are many new issues in this year's assessment. How do you identify new trends and issues that will have a major impact on the health care environment?

AHA staff examines about 50 nationally recognized health and nonhealth studies and reports. When a significant new trend is spotted, it is evaluated by other internal staff with expertise in respective areas to determine if it is an emerging issue within health care. The entire report is critiqued by executive management and by AHA governance committees before it's submitted as part of the strategic plan for final approval by the AHA board of trustees. About 50 percent of this year's environmental assessment is newly discovered trends and issues, which confirms the AHA's position that health care is one of the most dynamic of any environment, whether for-profit or not-for-profit.

What is the significance of the AHA publishing an environmental assessment?

The environmental assessment is published to provide AHA members with a set of market indicators across a broad scope of topics, which have the potential of significantly impacting the health care delivery system in the foreseeable future. Additionally, the EA raises awareness of the complexity of the health care market and the multiple and evolving challenges hospitals face. Health care leaders report that they use the environmental assessment as the foundation for their organization's strategic planning process as the AHA does. They also comment that the EA is useful to confirm their own organization's environmental assessment findings and/or to alert them to trends or issues not previously identified on the planning horizon.

What significance does the AHA environmental assessment have for hospital strategic planning?

AHA's environmental assessment is a well-researched, comprehensive view of a rapidly changing field. It provides vital information to our strategic planning process in the area of trends, issues and demographics.

How do you incorporate trends from the AHA environmental assessment into your own hospital's strategic planning?

Without the AHA's national environmental assessment as a backdrop, we would certainly miss some indicators of change that could impact our performance. It is an important foundation element in producing a comprehensive strategic plan.

How can individual hospitals assess the importance of these trends as it relates to their own marketplace?

Using the AHA's environmental assessment, planners have a road map of trends that may impact hospitals in the future. Awareness of these trends is the beginning of the process and the guide to the topics planners may wish to investigate. Each trend can be separately evaluated in the context of the local market by compiling relevant local data, interviewing physicians, conducting consumer surveys and focus groups, meeting with payers, local business executives and local chambers of commerce. The environmental assessment suggests key questions to be asked and high-level benchmarks that planners can use to gauge their specific hospital's market compared to national trends.

There are 10 different categories of trends in this year's environmental assessment. Why is it important to look at all these different areas when creating a planning document?

Although the trends provide a national viewpoint, health care is still a local experience. Adaptation to change, physician practice patterns, state regulations and other factors vary widely by market. Planners typically look at all trends and create potential scenarios on how their hospital may or may not be affected. Similarly, trends never occur in isolation. The impact of one scenario may negate or mitigate the outcome of another. Preparing scenarios that incorporate all potential trends allows strategists to build plans that accommodate many environmental factors.

This article 1st appeared in the December 2099 issue of Trustee Magazine.

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