By Mark R. Smith, Senior Writer
What’s going on in health care?
That’s a loaded question that can result in a multitude of answers directed from many different angles, thus lengthy discussions. Just ask Rob Montagnese.
Montagnese, president and CEO of Licking Memorial Health Systems, in Newark, Ohio, not surprisingly answered with the observation that, “We’re seeing many trends that cross different areas.”
But to begin, he delved into the industry’s plethora of strengths and weaknesses from the clinical side, where “there are exciting new capabilities in areas spanning from primary care to outpatient care to high-end surgeries. They’ve led to not only faster diagnoses but greater specificity when pinpointing ailments. That’s led to more positive outcomes across our health system.”
That’s encouraging news, but of course, today’s wild card concerns those “capabilities” and is the same trend being parlayed in many other sectors, artificial intelligence. But in health care, AI has been more than a rumor for some time.
First Look
For now, clinical trends are a great starting point when addressing the big picture. But hold on, because there’s often a caveat to that good news. In this case, it concerns (wait for it …) workforce.
“A challenge that is not specific to our industry is the availability of human resources and support staff. We’re fortunate in that we have an outstanding college, Central Ohio Technical College, based locally, as well as a branch campus of The Ohio State University that supports our workforce,” said Montagnese. “That’s critical, as we expect our growing and aging population to expand, and they have greater needs.”
And holding that thought, he added, “As our aging populace retires, that means they vacate our workforce, and another part of the challenge is that as we lose physicians and nurses, we don’t have as many replacements entering the workforce.”
Another trend Montagnese observed is the ongoing consolidation of hospitals and health systems. “Still, we plan to stay independent. Here in Ohio, there are a handful of independent hospitals left around the greater Columbus (Ohio) Metropolitan Statistical Area, but not as many as 10 years ago,” he said.
With physicians, it’s the same deal. “Today far more are employed by hospitals, health systems, etc., than are working independently,” he said. “There are even big companies employing their own physicians, such as investment groups, insurance companies and other corporations.”
Tej Anand, clinical professor of practice/academic director at the University of Maryland’s Smith School of Business, expanded on that observation.
“This complex ecosystem consolidation is driven by the desire of stakeholders to garner a bigger slice of the health care spending pie and increase their negotiating power and leverage,” said Anand. “Larger health systems get bigger by acquiring smaller players and in many regions of the country there is now a concentration of only one or two such systems to serve all the health care consumers in that region.”
Stakeholders are also “seeking to vertically integrate, with payment and benefit administrators acquiring health systems and vice versa,” he said, pointing out that Optum Health, a subsidiary of United Healthcare, acquired physician practices across the country; and CVS Health acquired Caremark and Aetna.
Stakeholders are “also placing bets on the most likely places where health care spending is likely to increase and racing to grow in those areas,” said Anand, noting that this trend also encompassed Walgreens acquiring VillageMD and Carecentrix; CVS Health acquiring Signify Health to complement its Minute Clinics; and Amazon acquiring PillPack and OneMedical.
AI Impact
Montagnese’s perspective on health care trends circled back to the point of this consolidation: treating the masses.
“We’re seeing more work on population health,” he said. “When you ask people what piece of information relates to life expectancy, they will often respond that it has to do with their family history, diet, exercise habits,” etc., he said. But the main data is that determines the length of one’s life might be a surprise.
“It’s their ZIP code,” Montagnese said. “We’ve discovered that much of a person’s general health has to do with outside factors, such as lack of access to healthy foods, [living in] food deserts, food insecurity and the overall lack of having basic human needs met, notably inadequate housing and transportation.”
And today comes, of course, the wild card of health care and many other industries. Might Artificial Intelligence come to the rescue?
“In some cases, yes,” Montagnese said, noting that AI’s influence isn’t recent. “We’ve seen the positive effects of AI for the last several years in the radiology field. In that case, when a doctor would read a mammogram, a computer would provide what’s called Computer Assisted Detection, so every patient would get essentially two reads on the mammogram.”
That heightened access to information led Anand to discuss another reason behind so much consolidation activity: data integration, which “has the potential to reduce costs and improve patient care,” he said. “While this promise has not yet been fully realized, consolidation in the health care industry can improve the data that is available for deploying AI systems.”
While AI is working its way into many other sectors of the industry, too, Montagnese made the point that it, too, has limitations.
“We’re now seeing AI in other areas like laboratory and surgery AI-enhancing options for analysis and care,” said Montagnese. “However, it’s important not to undervalue the human element. AI is for assistance, not making decisions while discerning steps to care.”
The Holistic Story
In its quest to treat those masses effectively, with the assistance of AI or otherwise, J.C. McWilliams, vice president of managed care at St. Louis-based BJC HealthCare, said the company “is working to elevate the dialogue with health plans and employers; current and future partners; elected officials and legislators; and ultimately, individuals — our current and future patients.”
The goal is “to help them understand what they’re paying for when they use services,” said McWilliams, “how those prices are determined and the overall value of care they get through an advanced academic medical system.”
A main point concerns costs. “That’s what’s top of mind for most people, given the general cost of care, insurance premium trends,” etc., he said. “We’ve seen a 6% rise from 2022-23 and expect slightly more at a 7 percent rise from 2023-24, which is the figure that Fitch, pwc, Milliman,” etc. “are zeroing in on.”
Those numbers are “relevant because trends are a simple function of the price of services, plus utilization or frequency, plus acuity or intensity. Think of a patient having a certain procedure once,” McWilliams said, “but then others who require more services and more intense surgeries, due to ongoing health issues and the need for continued care.”
That eventual cost, plus a health plan’s profit and risk margin, is why increases in actual insurance premiums to the insured often far exceed the overall cost trend of care, with premium increases upwards of 14% or more. “That’s an added pressure on the cost of care from an insurance standpoint,” McWilliams said.
After examining macro trends, observers can look at micro drivers, “like ongoing inflationary pressure and just the operating costs of health care. We’ve seen unprecedented general inflation at the highest levels in more than 40 years, especially about a year after the pandemic started,” he said. “At about that time came the labor shortages,” he said.
In the health field, “probably the most pronounced is the nursing shortage,” said McWilliams, “where 50% of the overall cost is driven by labor in a health system and much of the workforce is nurses.”
Another trend is the rising costs of drugs and therapies. He noted that in recent years, the Food & Drug Administration has approved about 30 gene therapies, which is “good because just a few years ago there were no gene therapies; in the pipeline, there about 35 more ready for approval in the next year or so.
“From a therapy standpoint that’s wonderful, but drug companies have to cover costs from research and development when they bring the drugs to market, often with millions of dollars to recover,” McWilliams said. “If that wasn’t the case, the rate in the rise in health care costs, overall, could be 5 percent instead of 7 percent that it is now.”
On that note, he pointed out that the U.S. is also a leader in obesity tied to diabetes and other chronic conditions. “So about 15 percent of patients are driving approximately 80 percent of the total health care costs for the entire populace.”
But a positive trend is investment by employers and health systems to better manage the care for patients with chronic conditions, which improves the quality of life ― and productivity, too. It also keeps patients out of the emergency room and avoids unnecessary inpatient admissions by managing the population.
This is “about true Population Health Management,” McWilliams said. “It’s the same with mental and behavioral health. Virtual services are a help, as we found out during COVID-19, for a whole range of services. There are so many benefits that come out of better access to behavioral health services,” such as “60-70 percent of patients with physical chronic conditions, like diabetes, also have mental health conditions.
“If you can address both at once, you can drive much better chronic condition management, improve quality of life and reduce the overall cost of health care. We’ve been talking about holistic health for years,” he said. “It comes back to a simple alignment of incentives between payers and providers of health care through the creation of effective value-based programs.”
Data Crunching
Larry Gigerich also picked up on McWilliams’ points. Gigerich, executive managing director of Indianapolis-based Ginovus, discussed two of the major trends “that cut across the board” in health care.
One is the continual evolution of technology “and how it’s being utilized, from providers to insurers, and from pharmaceutical to medical device companies using software platforms,” said Gigerich. “They not only support the digitization of health care information, they also create ways to further engage patients and develop new products.”
And that trend, he pointed out, also “really started just before COVID-19. The pandemic accelerated these activities due to the need to exchange and deliver information virtually.”
His other important dynamic is how technology and AI have become a strong presence in the sector.
“First, consider the massive amount of data that AI can aggregate and analyze in order to crunch important information to identify trends,” said Gigerich. “AI can summarize key takeaways much faster than a human can at a provider organization, pharma company and/or insurance firm because it allows them to see what’s coming down the pipeline.”
Josh Sol agreed. The managing director of FTI Health Solutions, in Houston, supported Gigerich’s observations, adding “By harnessing AI, organizations can extrapolate meaningful claims data and address anomalies rapidly, without human intervention. This capability enables reduced errors and improved turnaround time for claims processing.
“During the next year,” said Sol, “we certainly anticipate these AI trends will continue to evolve at a rapid pace. Leveraging AI in a responsible way within health care will be a business imperative.”
Another great point about the impact of AI on health care is the amount of modeling that it can provide “to offer snapshots of the trends and market needs five to 10 years down the road. AI can extrapolate what will happen in various sectors of the industry such as pharma, medical device and nuclear medicine” Gigerich said, “as well as include the demographics of various ethnic groups.”
It’s also important to remember that AI, from a treatment standpoint, enhances the huge explosion of innovation in nuclear medicine, which involves low-level radioactive treatment protocols that are most often used in cancer treatment.
“AI can model results for how cancer patients are likely to respond to oncology care and help in the development of nuclear medicine products,” said Gigerich. “That’s key because once produced, they have a shelf life of no more than 10 days.”
This approach also helps companies determine the best way to allocate cash and make key decisions on investment. That’s “where AI’s predictive modeling provides critical insights,” he said.
That financial angle of AI means that health care organizations “will want to galvanize their efforts to find effective ways to leverage the multitude of AI opportunities,” said Sol.
He also noted, however, that it “will be important to create strong governance controls to protect themselves against risks that a reliance on AI can potentially bring. Smart and methodical AI strategies will result in a more integrated, technologically advanced and hopefully more patient-centric, cost-effective health care landscape.”
New Uses
These challenges, advances and hopes for the health care industry inspire deep thought and spirited discussion, but what often gets lost in the conversation is its impact on the commercial real estate market ― an impact that was becoming more important even before COVID-19 for myriad reasons.
While they now include backfilling office space, health providers have been filling neighborhood and regional retail footage for even longer. Owen Rouse, senior vice president for MacKenzie Commercial Real Estate Services, in Baltimore, keyed in the latter part of that evolution.
“There has been a trend toward turning suburban large retail strip centers that once housed 40,000-square-foot-plus grocery stores into satellite medical campuses for large health care systems,” said Rouse.
It makes sense, because many medical facilities that operate in single-story buildings with multiple types of tenants are often parking-constrained due to the variety of uses of a given building. That equation can be as low as three spaces per 1,000 square feet for older buildings.
“Now, the medical users have way more than they need,” said Rouse, “so that can lead to expansion by the landlord for new pad sites.”
As for the office market, it’s also getting diverted to health care uses “among many other options,” said Rouse, “from self-storage to apartments to vertical indoor farming ― bowling lanes wouldn’t surprise me at this point. It’s in flux, so don’t rule anything out.”
What he thinks the market will see more of is commodity suburban office buildings trending to medical on the first floor, “say 7,000 square feet per floor of a 21,000-square-foot building,” said Rouse. “First-floor medical could be coupled with another use on the second floor,” which would create “enough income to preclude needing to lease the third floor in a demand-constrained post-COVID-19 world.”
He also addressed the flex market. “There are a number of flex and R&D buildings that have been converted to office and we may see that generic office migrate to medical office usage.
This is the same as the return to the office, really. That’s not about not liking to come into the office, it’s about the commute. And this health care trend is about making accessing care more convenient for patients.”
Rouse also offered his take on health care system operations that could fuel further changes. “Landlocked hospitals are getting very prejudicial about what practices they choose to operate on their campuses. If your practice isn’t favored on the hospital campus,” such as general practices and basic services “like radiology and labs,” etc., “they have to find a new home.”
And the focus when finding a new home, as noted, is basically to give the people what they want: access and convenience.
Those often suburban off-campus sites “make for good conversions since they have lots of space and acreage, more parking than they’ll ever need and improved proximity to the customer ― which is why the grocery chain located in that space in the first place.”
About the Author: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
