Hospitals should pursue audacious goals

National Harbor, Md. - Many hospitals are nervous about the prospect of reduced aid for healthcare in the coming years.

President Trump signed the HR 1 tax package a year ago, which includes significant cuts to Medicaid programs and changes in eligibility for Medicaid. Analysts project a reduction of $1 trillion in Medicaid spending over the next decade, with millions expected to lose coverage. In most states, recipients will have to show that they are working or going to school to maintain Medicaid coverage.

Kevin Holloran, senior director and leader of the nonprofit healthcare sector at Fitch Ratings, says hospitals have some time to deal with the bigger impacts in the bill. While work requirements take effect this year and could lead to some losing coverage, most of the bigger reductions in Medicaid funding will begin in 2030, he says.

As Holloran notes, that’s also around the time when the last of the Baby Boom generation will reach retirement age. Hospitals are going to be bracing for what some have called the “Silver Tsunami,” with more older Americans needing more healthcare services.

“It gets tougher to be optimistic as you close in on that 2030 mark, absolutely,” Holloran says. “People are, rightly so, getting nervous about it.”

In an interview with Chief Healthcare Executive at the Healthcare Financial Management Conference last week, Holloran talked about steps hospitals should take, why they need to be adopting AI, and why it’s not a time to take incremental steps.

“I just think there's a whole lot of forces coming together here in the next few years, pushing and pulling, that kind of have to lead to some level of transformation,” Holloran says.

He says it’s a time for “those big, hairy, audacious goals.”

Planning ahead

Holloran says most hospitals and health systems leaders he is talking to are planning to deal with the prospect of less funding, and are devising plans to ride out the storm. It’s worth noting that many of the health systems rated by Fitch are larger organizations with more resources.

“Most of the rated universe has got a pretty good plan for it, and can largely mitigate it,” Holloran says.

Even for some larger systems, it won’t be easy to deal with changes in Medicaid. He notes some have taken steps, including reducing staff, to prepare for more difficult times.

Holloran says some hospitals and health systems project that they will start losing money in 2030. Even some hospitals and health systems with strong finances say they are pulling as many levers as possible, but they’re running out of levers.

Health systems with more modest finances, including those outside of Fitch’s ratings, are going to be in more trouble, Holloran says.

He says some health systems may need to look at closing hospitals that aren’t profitable, or transforming them into facilities providing emergency services and transferring patients to other hospitals. Other analysts have projected hundreds of hospitals may be looking to reduce services or close facilities.

“The closer we get to that 2030 timeframe, the more not only anxiety that might raise up, but the more significant of the actions that could take place as well,” Holloran says.

Some healthcare executives have expressed optimism that a new Congress, or the next president, could act to avert some of the bigger reductions in Medicaid in the coming years. Holloran says that health systems shouldn’t bank on that possibility, and they should prepare for the changes in Medicaid programs spelled out in the HR 1 package.

“HR 1 has been passed,” Holloran says. “It is law.”

Taking steps with AI

The HFMA conference featured plenty of conversations about AI in the industry, and optimism that health systems have new tools to help reduce costs.

Holloran says health systems need to be looking at AI to improve efficiency.

Health systems are finding success in using AI to improve revenue cycle management, and they are seeing encouraging returns from ambient documentation tools that help doctors and nurses save time in updating patient records.

Holloran says that he’s yet to write that a hospital has achieved a better credit rating due to an AI solution. But he says health systems can’t afford to ignore AI.

“Not doing anything is a sure way of failure,” Holloran says. “Do something in the AI space.”

"We're kind of watching, really to see who goes first, who goes hard, who goes deep. We think those organizations have the ability to do it, and they'll ultimately emerge really pretty well.”

Health systems are seeing more success in using AI in the back office, Holloran notes.

But he also cautions hospitals against overestimating AI’s ability to reduce costs. Most of a hospital’s expenses are tied to delivering care at the bedside, Holloran says.

“AI can’t fix that,” he says.

Holloran says health systems are taking a few steps forward with AI, but he also says he’s uncertain what the next few steps are going to look like. He says there could be a longer plateau than some expect with AI.

Those with limited funds to invest in AI can also benefit by watching how other organizations are using AI to tackle similar problems.

“Diving in too deep, too fast, if you can't afford it, not the right thing to do,” Holloran says. “Be a fast follower at that stage of the game.”

While Holloran says health systems should be moving forward with AI technology, he says it shouldn’t be viewed as a panacea.

“Doing nothing with AI is a sure way to fail,” he says. “Assuming that AI will solve everything is also another way to fail.”