Health systems face more than one math problem

From his vantage point as CEO of University of Pennsylvania Health System, Kevin Mahoney sees a math problem unfolding for health systems of all types — one that will require stronger responses than many may be ready for. 

Mr. Mahoney, who has led the health system pillar of $10 billion Penn Medicine in Philadelphia since 2019, says that while rhetoric about financial models and reform carries on in healthcare, the scale continues to tip toward one direction for health system revenue.

"I think we have a math problem in healthcare," Mr. Mahoney said April 8 at the Becker's Annual Meeting in Chicago. "Medicare for all, Medicare for none — the debate goes on and on. While we're talking about it, we're becoming a single payer system." 

When Mr. Mahoney began his tenure with Penn Medicine in 1996, its payer mix was approximately 60% commercial and 40% governmental reimbursement. He said it has completely flipped today. The six-hospital system with hundreds of outpatient locations is now nearly 63% government paid. ("You could also say 'government underpaid,'" as he put it.) 

University of Pennsylvania Health System is one of the largest health systems that is privately owned by a university, with 60% of its profit margin going back to research, 25% back to health system capital and 15% back to education.  

"Math problem" is often used to describe healthcare's workforce shortages, but Mr. Mahoney's remarks underscore how demographic shifts over the next five years will intensify funding challenges as well. By 2030, all baby boomers will be 65 or older. In 2000, the U.S. was home to about 35 million Medicare-eligible people; by 2030, that number is expected to reach nearly 70 million. 

"As a healthcare system, we have significant demographic trends that we have to face up to. You can't change your payer mix; people aren't going to get younger," Mr. Mahoney said. 

The current day reality and math problem only intensifies pressure for health systems, particularly academic institutions, to become more efficient. In a recent McKinsey survey of 1,000 academic medical centers, 66% of respondents said they expect margins to remain flat or fall over the next year, and 31% said they anticipate a need to decrease funding for education and research in the next three years. 

The need for efficiency is not debatable, but Mr. Mahoney urged leaders to be cautious about over-crediting interventions that merely rearrange the furniture. Superficial "workflow redesigns" or artificial intelligence overlays may change the appearance of work or yield marginal improvements, but fall short of sustainable, meaningful change. 

For instance, instead of a redesign where four people tackle an inefficiency that once required five, why not strive to eliminate the inefficiency altogether? 

"I hear a lot about AI eliminating repetitive human functions, and I think we should just eliminate repetitive human functions and pre-authorization denials," he said. "We have to deeply get underneath so many of the regulations and things that are just churning up [inefficiencies]."

And like AI band-aids or workarounds, Mr. Mahoney also emphasized that a strategy focused solely on minimizing wage expenses is not sustainable in the long run.

"We have to learn not to balance our budget on the back of the workers, but to use our brains to really step back and truly make the system more efficient," Mr. Mahoney said.

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