1. The Big Picture: Hospitals in a Volatile Healthcare Environment James Bentley, Ph.D. Senior Vice President for Strategic Policy Planning American Hospital Association Washington, DC

2. Jim Bentley Today’s Major Issues Financial stability Workforce Regulatory mandates Safety and error reduction Professional liability

3. Jim Bentley Hospital Financial Overview 1/3 operating at a loss on total bottom line 1/3 operating at a loss on patient care but achieving minor margin on non-operating income 1/3 achieving a margin on patient care and total bottom line Financial market results are a big unknown for 2002

4. Jim Bentley Vacancy Rates for Selected Hospital Personnel 2001 Hospitals face severe workforce shortages… Source: The Healthcare Workforce Shortage and Its Implications for America’s Hospitals, First Consulting Group, Fall 2001

5. Jim Bentley The labor shortage will reach crisis proportions unless action is taken. Forecast of Total RN FTEs vs. Requirements 2001-2020 Supply Shortage of 800,000 nurses by 2020 Demand Source: Bureau of Health Professions, National Center for Health Workforce Analysis, Projected Supply, Demand, and Shortages of Registered Nurses: 2000-2020, released July 2002 20002005201020152020 1,500 1,700 1,900 2,100 2,300 2,500 2,700 2,900 FTEs (in thousands) NEW DATA

6. Jim Bentley …and skyrocketing professional liability premiums. Percent of Hospitals with a 10% or Greater Increase In Professional Liability Premiums 2000-2002 Percent Change in Premiums Source: AHA/ASHRM Survey of Hospital Experience with Professional Liability Insurance.

7. Jim Bentley Change Drivers New science: new knowledge base Coverage/financing: employer role Demography: aging, diversity of society Consumerism: service expectations Workforce supply: long-term shortage Community organization: virtual Societal decision-making: market-based “Niche” providers: Loss of profitable

8. Jim Bentley Greatest Risk Small volume hospitals Can’t make the utilization underlying current payment approaches High uncompensated care hospitals Mandate for care not matched by mandate for payment High debt load hospitals Financial inflexibility

9. Jim Bentley Strategies for Hospitals Retain hands-on care as a core purpose Continue 24x7x365 care Reflect distinctive local characteristics View institution as programs, not facilities Focus on consumers Develop information service strategy Create own workforce “Partner” for capital Encourage innovative leadership

10. Jim Bentley Changing Hospital Roles Backstopping the system: 24x7 Increasing intensive care Increasing emergency care Terrorism preparedness Rural hospitals: providing the continuum of care