Failure to Prepare for the Boomers is Risky

What Can We Expect as the U.S. Population Ages?
The oldest of the 80+ million “baby boomers” (more than 25 percent of the entire U.S. population) turn 65 years old and become Medicare eligible in 2011. Medicare enrollment will reach nearly 80 million, or about 22 percent of the U.S. population, by 2030. That’s nearly double the enrollment in 2006.

What actions will be required to sustain the Medicare program? Raise taxes, reduce benefits, prolong eligibility, increase contributions, change behavior, reduce the cost of care, or all of the above?

What Will the Aging of the Population Mean to Providers?
Industry leaders are increasingly uneasy about potential responses to this challenge. Many expect the ratcheting down of payment levels as a likely element of any plan for paying for the care of the increasing Medicare population. Boomers are heavy users of hospital and healthcare services. What would happen in your local market if your Medicare population were to double in 2020 or 2030? How would you respond?

How will you prepare your organization for the likely increased demand particularly in light of the recent under-investment in plant and equipment and expected shortages of beds, physicians and nursing and support staff? Will you have enough beds, physicians, staff and ambulatory facilities? Will you respond to all demands for service or offer only a select portfolio of clinical services? Will you have created plans and relationships that permit you to respond in an orderly fashion while ensuring that the healthcare need of the communities you serve are met?

How Can Providers Prepare?
A current “working” understanding of the implication of the aging of the boomer generation is critical to setting strategic direction particularly given the time and expense required to adjust clinical portfolios, design, build or remodel facilities and recruit and train clinicians and other workers.

Many hospital organizations focus their attention primarily on 3-year time horizons avoiding the time and expense associated with longer term planning. These plans resemble 3-year capital budgets with limited attention to how these investments will help prepare for the longer term.

How do you provide a framework that puts short-term planning and investments decision-making in the context of potential market changing events? The same question pertains to other potential longer-term market-changing events other than the aging of the boomers. The implementation of a universal healthcare program, a major breakthrough in biotechnology or the coming of age of the generation following the boomers comes to mind.

Here is a straightforward approach that might help:

1. Create a High-Level Understanding of the Potential Demand for Services for 2020 and 2030. Get beyond the “policy” discussions. Don’t get trapped by debates over methodology. Do not seek a level of precision that is not available.

• Review age- and gender-adjusted demographic data. Look for an “order of magnitude” understanding.
• Review use-rate trend data. Look for likely changes that could have a significant impact.
• Define the assumptions you are using and the “unknowns” that will need clarification over time.
• Create 2-3 plausible demand scenarios including a simple forecast of current use rates moving forward, a high demand and a low demand alternative.
• Identify the impact of future demand on your organization, your physicians, your competitors including potential new entrants and your community.

2. Create a High-Level Vision for 2020 and 2030 for Your Service Area and Your Organization. A doubling of the Medicare population in your service area will likely produce additional demand for beds, emergency departments, ambulatory facilities, and physicians. How much of this demand would you plan to meet? Would your plan change your current facility plans? Will your plan require a shift in physician recruitment and alignment strategies? How will you recruit sufficient nursing and other staff? What investments must you make now to meet your longer-term requirements? What are your lead times for these initiatives?

• Cleary define the assumptions that are driving your vision.
• Define the clinical portfolio you’d like to offer to match the needs and demands of your community and your organization’s vision and capabilities.
• Identify the performance requirements, level, and kinds of facilities, technology, physician, staff resources and organizational relationships that will be required to implement your vision.
• Complete a high-level financial plan to test your ideas particularly about investment and financial performance requirements.
• Make adjustments as necessary.

Be as clear and specific as possible. Consider this kind of vision statement to be a blueprint for the future not a paragraph to put in the annual report.

3. Build a high level “Roadmap” to 2020 and 2030. Pharma and Biotech companies make big bets on offerings likely to come to market in 20 or 30 years. While hospitals and health systems do not operate under the same business model, we must create the roadmaps and bridges that more effectively link the longer-term vision or model with a shorter-term investment strategy. Being able to respond flexibly for demand that will take years to mature requires careful ongoing monitoring and investment management. Healthcare related investments in facilities and clinical programs also require years to complete.

• Determine how you will change your clinical portfolio over time to achieve your intended results.
• Determine how you would change your current facility plans, and physician recruitment and alignment strategies.
• Consider how you will recruit sufficient nursing and other staff, a special problem given the aging nursing workforce.
• Determine how you will work with or compete against other providers in your market.
• Create links between your long and short-term investments strategies.

Consider lead times for these initiatives and what investments you must make now to meet you longer-term requirements. Build in monitoring mechanisms to make certain that adequate attention is paid to the longer-term vision.

4. Review 3-Year Strategic Plans and Prepare 1-Year Action Plans Annually. Kick off your 3-year planning cycle with a review of the vision for 2020 and 2030. Complete this work at the beginning of your traditional planning cycle. Be disciplined so that this effort informs your shorter-term planning. Make adjustments as necessary as more information becomes available or you change your view of the market and vision. Draw implications for the short term clearly and factor them into the 3-year and 1-year plans.

• Critically review progress against strategies and actions contemplated in the prior year’s plan. Acknowledge what worked and what did not.
• Complete the necessary updates with careful attention to the longer-term vision.
• Define a limited number of actions and investments required for success.
• Monitor execution carefully.
• Be prepared to make adjustments to prepare for the longer term.

Make the development of this longer-term working vision an opportunity to explore possibilities with important stakeholders including community leaders, physicians and staff. Be prepared to iterate or create alternative scenarios. Review your thinking on a quarterly basis while you review your annual and 3-year plans. Regular reviews, updates and accountability assessments will help focus your organization.