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Can Hospitals Survive? Part II

In 1980, while working at the University of Chicago Pritzker School of Medicine, I wrote an article for the Harvard Business Review entitled “The Health Care Market: Can Hospitals Survive?”. This article, and the book which followed, argued that hospitals faced a tripartite existential threat:

1)  ambulatory technologies that would enable physicians to compete successfully with hospitals at lower cost in their offices or freestanding settings, 2)  post-acute technologies that would enable presently hospitalized patients to be managed at home and 3) rapidly growing managed care plans that would “ration” inpatient care and bargain aggressively to pay less for the care actually provided.

I predicted a significant decline in inpatient care in the future, and urged hospitals to diversify aggressively into ambulatory and post acute services.   Many did so.  A smaller number, led by organizations like Henry Ford Health System of Detroit and Utah’s Intermountain Health Care, also sponsored health insurance plans and became what are called today “Integrated Delivery Networks” (IDN’s).

In the ensuing thirty years, US hospital inpatient census fell more than 30%, despite ninety million more Americans.   However, hospitals’ ambulatory services volume more than tripled, more than offsetting the inpatient losses; the hospital industry’s total revenues grew almost ten fold.

Ironically, this ambulatory care explosion is now the main reason why healthcare in the US costs so much more than in other countries.  We use far fewer days of inpatient care than any other country in the world.  But as the McKinsey Global Institute showed in 2008 ambulatory spending accounts for two thirds of the difference between what the US spends on healthcare and what other countries spend, far outstripping the contribution of higher drug prices or our multi-payer health financing system.

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