Healthcare is often viewed as an industry rapidly evolving due to continuous advancements in technology, medical research, and demographic trends. However, in reality, change in healthcare occurs at a much slower pace than many expect. That said, a few weeks into the new federal administration, the proposed pace of transformation seems to be accelerating significantly.

Historic Stability

Historically, hospitals and health systems have thrived under a combination of ten key market conditions:

1. Health Insurance Coverage: Hospitals and health systems are most successful when a large portion of the population has health insurance, enabling more people to afford care. This is especially influenced by government programs like Medicare, Medicaid, and the Affordable Care Act (ACA) exchanges.
2. Healthcare Demand and Aging Population: The aging U.S. population is driving an increased demand for hospital and health system services, particularly for chronic conditions, long-term care, and specialized treatments. This demographic shift leads to heightened demand across virtually all healthcare sectors.
3. Technological Advancements: Hospitals that invest in advanced technologies (such as robotic surgeries, AI-driven diagnostics, and cutting-edge imaging) can distinguish themselves in their local markets and attract more patients. The growth of telemedicine, especially in underserved rural areas, has allowed hospitals to extend their reach and offer remote care.
4. Private Healthcare Spending: Hospitals benefit when commercial health insurers offer higher reimbursement rates, helping to offset the lower rates provided by government-funded programs. This phenomenon, known as cost shifting, is historically critical for hospital finances.
5. Government Funding and Reimbursement: Reimbursement rates from government programs (like Medicare and Medicaid) are crucial to the financial health of hospitals and health systems. An increase in funding or favorable policy changes can significantly enhance hospital profitability and stability.
6. Market Consolidation: Conditions that encourage hospital consolidation can result in greater operational efficiency and stronger negotiation power. This allows hospitals to manage costs better, secure higher reimbursement rates, and offer a broader range of services under one umbrella.
7. A Strong Labor Market: A sufficient supply of skilled healthcare workers is essential for hospitals to deliver high-quality care. Labor shortages can restrict capacity and growth. At the same time, hospitals must balance competitive wages and labor costs with remaining financially sustainable.
8. Competitive Landscape and Reputation: Hospitals with a strong reputation for quality care tend to attract more patients. In highly competitive regions, institutions that distinguish themselves through superior clinical outcomes, better patient access and satisfaction, and specialized services are more likely to thrive.
9. Cost Control and Operational Efficiency: Hospitals that effectively manage costs, including supply chain management, administrative overhead, and staffing, while maintaining or improving care quality, are better positioned for financial success.
10. Regulatory Environment: Hospitals thrive when governmental policies favor growth, such as Medicare payment reforms, support for new hospital construction, and incentives for quality care. Not-for-profit hospitals, benefiting from tax-exempt status, are historically well-positioned to reinvest in their services and maintain financial stability.

Early Administration Proposals & Actions

Three weeks into the new federal administration, there has been a flurry of executive branch proposals and actions that has sparked confusion, angst and opportunity across our industry.  Following is a quick recap:

• House GOP outlines more than $3 trillion in healthcare cuts.
• Hospitals no longer considered a “sensitive location” for immigration enforcement.
• DEI policies rescinded impacting access to healthcare data.
• HHS reproductive care website goes offline.
• Special enrollment period for the federal insurance exchanges eliminated, impacting 3 million.
• Five Biden executive orders related to the COVID-19 pandemic rescinded.
• CMS drug pricing models rescinded.
• Federal agencies to use sex at birth, rather than gender, as a demographic category.
• U.S. begins the process of exiting the World Health Organization.
• Federal agencies no longer required to lay-out the regulatory framework for AI safety and transparency.
• HHS OIG Grimm fired.
• Administration freezes HHS communications.
• A broad pause in federal funding.
• National Institutes of Health cancel scientific meetings.
• Health officials not permitted to travel.
• CDC journal goes unpublished.
• New studies paused for HHS, FDA, CDC, CMS and NIH.
• CDC cancels call with states impacted by the bird flu.
• The White House clarifies the funding freeze, prior to it being blocked by a Judge.
• RFK Jr. pressed on vaccines, raw milk, pesticides, fluoride, stem cells, heavy metals, Ivermectin, COVID and race, cellphone radiation, HIV and AIDS and antidepressants.
• White House reverses spending freeze order that sparked chaos.
• A group representing thousands of US doctors sues the administration over the sudden removal of public health data from government websites.

3Dhealth’s Recommended Approach

You can quickly understand how the administration’s early actions have caused some friction and angst in comparison to the market conditions that historically allow hospitals and health systems to thrive.  However, we firmly believe that disruption equals opportunity for patients, hospitals and health systems.  The key to success is to not view disruption through a negative lens.

The following are our five core recommendations for Q1 of 2025:

1. Consume Information Wisely.

In a time of significant disruption in healthcare, real impact comes from implementable change – not performative discussions or surface-level engagement on social media.  We recommend staying informed through credible sources and prioritizing execution over optics.

2. Open Access to Your Physicians.

The traditional role of a primary care physician was straightforward but somewhat limited. Physicians were expected to build a practice of around 1,500 patients and focus on managing their “panel.” As their practices grew, workflows were designed to shield them from being overwhelmed.

Over the past few decades, two key factors have made this historic primary care model virtually obsolete.

First, hospitals and health systems have aggressively employed primary care physicians, with over 70% now working within these systems. As employment surged, the purpose of primary care shifted. Physicians were still responsible for their 1,500 patients, but they also became a critical entry point into the broader health system.

Second, the evolution of patients into informed consumers has further disrupted the traditional model. Patients no longer passively appreciate being part of a practice—they expect convenience, transparency, and immediate access to care.

This shift in purpose has transformed primary care access. As the front door to the health system, primary care practices must seamlessly integrate new patients rather than making them wait behind 1,500 established ones. In this new reality, closing a practice to new patients is simply not an option. No successful business turns away customers.

3. Grow & Differentiate Your Primary Care Base.

For hospitals and health systems, a shortage of primary care physicians presents at least three significant costs and business risks.

On average, each primary care physician (Family Medicine & Internal Medicine) manages approximately 1,460 patients, oversees 136 inpatient discharges annually, and generates 1,065 hospital outpatient encounters. According to a 2019 Merritt Hawkins survey, each primary care physician contributes $2.4 million in inpatient and outpatient net revenue to the hospital.

Beyond direct financial impact, a lack of primary care physicians creates an opportunity cost in terms of market share. Losing just one primary care physician means 1,460 fewer patients connected to the hospital or health system. A simple but effective test we conduct with our partners is comparing a hospital’s inpatient market share to its primary care market share. If inpatient market share is higher, the discrepancy in primary care market share represents a real business risk. We often ask, “Do you believe that, over time, your hospital market share will be a direct reflection of your primary care market share?” If the answer is yes, then investing in primary care becomes a fundamental cost of doing business.

Finally, even in today’s partially fee-for-service landscape, having enough primary care physicians is critical for supporting specialists. Many specialists still depend on referrals from non-employed (or “non-captive”) primary care physicians. As competitors work to tighten their referral networks, specialists within a hospital or health system may face a shrinking patient base—creating a serious long-term risk.

4. Fill Obvious Holes in Your Specialty Base.

Investing heavily in primary care also requires closely monitoring your specialty base for any critical gaps. A single missing specialist in a key service line can significantly reduce both inpatient and outpatient activity within that line. Ensuring a balanced and strategically aligned physician network is essential to sustaining patient flow, optimizing revenue, and maintaining a competitive market position.

5. Create Predictability Through Focused Planning.

Hospitals and health systems can reduce market chaos by implementing structured, data-driven strategies that enhance stability, predictability, and patient access. A Provider Development Plan is essential for hospitals and health systems to ensure they have the right mix of physicians and advanced practice providers (APPs) to meet current and future patient needs.

By focusing on Provider Development Planning, access optimization, referral retention, and data-driven forecasting, hospitals and health systems can create predictability, reduce market volatility, and ensure long-term success.

For questions or more information, please contact Ron Flower at RFlower@3Dhealthinc.com or Shane Foreman at SForeman@3Dhealthinc.com.