Hospitals' 2030 tipping point

State of play: By 2030, the youngest boomers will be 65 and the oldest will be nearing 85, "creating a simultaneous surge in demand for advanced/additional care and a paucity of available skilled workers," as a recent Fitch Ratings report on nonprofit hospitals put it.

• Absent "significant investment in AI-driven productivity, remote care delivery and alternative staffing models," hospitals could face labor challenges similar to when they emerged from the pandemic or worse, the report warns.
• "We know that as America's population pyramid has turned into a pillar, we can never recruit our way out of the workforce challenge in health care," said Chris DeRienzo, senior vice president of the American Hospital Association.
• "It becomes a math equation. If I can never recruit enough people, I also have to evolve how we approach care delivery."

The big picture: Demographics are just one force transforming the health care sector.

• Care has been moving outside of the inpatient setting for years, prompting massive shifts to hospitals' business models.
• "The number of days that you need in the hospital is changing ... at the same time that the population is aging," said Mount Sinai Health System CEO Brendan Carr. "The question you're really asking is how are these curves going to cross."
• Hospitals also are feeling a financial crunch from Republicans' major changes to Medicaid and the lapse of Biden-era enhanced Affordable Care Act subsidies.

What's more, the political tide has turned against hospitals after years of rising prices. If anything, lawmakers have an eye on further reducing the amount of federal funding certain health systems receive or limiting what they can be paid in the private market.

• "Right now, it doesn't appear that anybody is going to ride in on a white horse to relieve the revenue pressure on hospitals that's coming from the Medicaid cuts, the retrenchment in ACA coverage and the aging population," said Chip Kahn, who led the Federation of American Hospitals for decades.
• Republicans' Medicaid changes have "focused the mind," Mount Sinai's Carr said.
• There will have to be conversations "about how much money we have and what we're going to spend that money on," he added. "We never finished the conversation that we started, which is that there are limited resources and we have to allocate them effectively."

Between the lines: In the emerging world where hospitals face more demand from seniors but are more constrained in their ability to rake in more revenue, cutting costs will be a necessity.

• One prime target is administrative costs — an area already targeted for disruption by AI and other technologies.
• "The big question is, with technology and revenue cycle management being very mature at this point, can you take the management and all the administrative side of hospitals and reduce the cost of it?" Kahn said.

Reality check: There's huge variation in hospitals' finances. Some are struggling to make ends meet, while others are profit machines.

• Many economists have long argued that some hospitals operate inefficiently, and thus pressure to reduce costs is a good thing.

The intrigue: In most sectors, the idea of AI replacing human workers is controversial at best. And while it's also controversial within health care, automating tasks performed previously by humans could be what bridges the looming care gap while cushioning the looming financial crunch.

• "It may be five years away or so, not immediate, but I think that AI will probably end up revolutionizing aspects of hospital care, like other parts of the economy," Kahn said. "And hopefully they can reduce the really heavy workforce costs that hospitals have."
• "Right now there is a very large workforce in hospitals that's involved with coding and billing and all the necessary paperwork," he added. "The question is, can the costs of those processes be significantly reduced?"

Yes, but: "This is not ... AI coming to take all of our jobs," Carr said.

• "The role of health care is evolving, and AI is a piece of that," he added. "How do we land the plane to decrease spend, increase our health and keep a bunch of people from becoming unemployed?"

The other side: There's not much evidence to date that using AI in billing and medical coding is reducing costs for hospitals. It is bringing in more revenue and raising costs for payers and patients.

The bottom line: Demographic change, financial pressure and technological advances are causing a drastic remake of the hospital sector, and the aging population makes the stakes higher than ever.