Unrelenting Complexity
Recently, I had two reminders of the pleasures I’ve enjoyed in my long career working with and for hospitals of all sizes, types, and stripes.
The first reminder occurred when I was a guest on the Becker’s Healthcare Podcast, hosted by Scott Becker, an extraordinary interviewer and first-class host, who was thoughtful enough to ask me to describe the founding and growth of Kaufman Hall.
Answering his question, I reflected, as I often have over the years, that one of the high points of my career has been the opportunity to talk and share ideas with the executives who run and manage America’s hospitals.
That reflection was brought home once again, a few days later, in a conversation with Chris O’Connor, CEO of Yale New Haven Health.
Chris and I were discussing the particular stresses and strains of running a complex health system at a peculiar moment that features a unique set of externalities. Chris noted that, in his opinion, the job right now is one of “unrelenting complexity.”
That keen observation caused the conversation to pivot to a consideration of the trends and issues that were contributing to, creating, and accelerating such “unrelenting complexity” inside the healthcare C-suite and the Board room.
Chris and I identified five issues and trends that are greatly complicating the day-to-day operations and the strategic decision-making of hospitals throughout the United States.
1. Dealing with fraying revenue
The first and perhaps the most prominent of the complicating trends is the fraying of the hospital revenue ecosystem.
That revenue ecosystem has been in place since 1965, combining commercial insurance with Medicaid and Medicare, self-pay, and other payment programs. This revenue model certainly does not resemble that of any other American industry but somehow and some way, many hospitals have made that revenue model work over the years.
But now, that revenue ecosystem is seriously fraying, starting with the 2026 semi-collapse of the Accountable Care Act, the expected reduction of 12 million Medicaid insureds beginning in 2027, and the proposed 2027 federal budget that, if passed, would reduce the HHS budget by 20%.
It is pretty clear that many hospitals, still suffering from the stresses of the COVID pandemic, don’t have much financial maneuverability in the face of further revenue cuts, the loss of insured patients, and a likely dramatic increase in uncompensated care.
2. Transiting from inpatient to outpatient care
Another unrelenting complexity is the rapid and accelerating transition from an inpatient care platform to an outpatient care platform.
This transition certainly seems in the best interests of both patients and doctors, and is being abetted by rapid innovations in medical devices and pharmaceutical treatments. However, this transition of inpatient to outpatient care has often been characterized by a loss of inpatient services and inpatient revenue that is not adequately replaced by revenue associated with increasing outpatient services.
The strategic creativity required to move away from some forms of inpatient care to a more robust outpatient care structure has been challenging for many hospitals to accomplish and has required sophisticated financial planning techniques and models.
3. Managing innovation
Hospitals have been required to keep up with dramatic changes in clinical technology and capability that has included both medical devices and almost unprecedented innovation in pharmaceutical treatments.
Some of this innovation has been transformative for patient care, but frequently such care innovations have been associated with much higher and unexpected costs of care. Since one of the key “political” words of our day is “affordability,” hospitals are now caught between providing improved care across many modalities and a dynamic that is driving healthcare costs higher.
4. Attaining competitive advantage: superior quality
And then further complexity is driven by two areas of essential competitive advantage. The first is quality of care.
With the internet and the fast-developing uses of AI, patients are more and more able to identify where the best hospitals, doctors, and quality of care are located to treat very specific diseases. Given that hospitals absolutely need to be able to deliver that quality of care, be recognized for that quality of care, and be able to demonstrate proof of concept through the quantitative display of superior outcomes, it has become incredibly complicated to accomplish all of the above and execute it through a range of procedures and disease entities.
5. Attaining competitive advantage: the welcoming journey
The second area of competitive advantage is what has become known as the welcoming journey.
The definition of the welcoming journey is that a patient can enter a hospital’s care system at any point and be well and kindly treated through both complicated and uncomplicated care requirements. This welcoming journey requires timely appointments for doctors and for procedures and for essential and often complicated referrals.
Wait times for all these essential care relationships are too long in almost all parts of the country. Hospitals struggle with all of this, but at the same time patients want an Amazon-like consumer experience—medicine delivered with the equivalent convenience of an Amazon purchase and delivery: a few clicks and an almost immediate drop-off at your front door.
The welcoming journey is easy to discuss and strategically recognize. But it is extremely difficult to provide.
Leading Through It, by Chris O’Connor
Chris O’Connor responded to our “Unrelenting Complexity” blog with a short note as to how he and his team at Yale New Haven Health relate to this evolving situation of managing a complex health system under the current circumstances and pressures. I think Chris’ note is worth the attention of hospital Boards and executive teams alike. —Ken
The way my team and I are approaching this environment may be notable for what it does not include.
We make no claim that the complexity could be reduced to a simple formula. No promise that these pressures would quickly abate. No suggestion that one initiative would solve the problem.
Instead, we focus on a posture.
The starting point is honesty about the moment.
Complexity at this scale is not a phase to wait out. It is increasingly a defining feature of American health care.
And it lands hardest on the institutions where the contradictions of the industry converge.
These are academic health systems and large multi-hospital systems, especially when they also carry substantial safety-net responsibilities.
They are asked to improve access while reimbursement frays.
They are asked to invest in innovation while margins narrow.
They are asked to shift care outside the hospital while sustaining essential inpatient capabilities.
And they are asked to serve communities that depend on them, whether or not the economics make sense.
That is the nature of the complexity.
What the moment requires, then, is not a perfect answer. It requires leaders who can make hard choices in the middle of uncertainty.
They will need to set priorities. They will need to move faster. They will need to make trade-offs.
But for systems with safety-net responsibilities, those choices are not simply business decisions. They affect access, essential services, and communities that rely on the institution.
That does not make trade-offs avoidable.
It makes them more important to get right.
The question is not only how hospitals navigate the pressure ahead. The question is how they do so while preserving the public trust and core commitments that make them essential.
What have we missed?
The phrase “unrelenting complexity” suggests problems and trends converging on hospital management at the same time, with the possibility that multiple problems will combine to create new and unexpected problems. These are the items Chris O’Connor categorized as what he calls “unrelenting complexities,” but surely our list is not exhaustive (although it may feel exhausting). If you have items to add to our list, please send them our way.
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Ken Kaufman is Managing Director and co-founder of Kaufman Hall.
Disclaimer: The views and opinions expressed in this newsletter are those of the author and do not necessarily reflect the views or positions of Kaufman, Hall & Associates, LLC, Vizient, Inc., or their affiliates.