Hospital care is still the largest single category of healthcare spending in the U.S., but its share of total spending has actually declined from 43 percent in 1980 to 33 percent in 2009, according to a recent American Hospital Association (AHA) report. Fully 60 percent of every hospital dollar is earmarked for wages and benefits of those who provide direct care for patients or who support their care. The employment cost index for hospitals rose 38 percent between 2001-2010, compared to 27 percent in the private sector.

With more people over 65 and rising levels of chronic disease and obesity, the need for specialty acute care will increase. The institutional arrangements to provide it, however, will change as more partnerships are formed between hospitals, physician groups, and other organizations to create accountable care organizations; and the alternate method of payment (bundled payments) begins to take hold. The recent announcement of the partnership between Banner Del E. Webb Medical Center and the private CORE Institute (Center for Orthopedic Research and Education) is one example.

Essentially, hospitals will need to find ways of making money outside the hospital through new organizational arrangements if in fact ACOs are successful in reducing unnecessary hospital admissions and readmissions. We are likely to see greater hospital consolidation and mergers, which could conceivably lead to more monopolistic behavior and higher, not lower, health care costs.

So, while traditional hospital care may be shrinking as part of the total health care pie, savvy hospitals will consolidate where possible and reinvent themselves as health networks operating across the entire continuum of care with a broad array of partners. Unless it’s in an area with little competition, the stand-alone community hospital faces rough sledding.