One of the most unique parts of the J.P. Morgan Healthcare conference is the non-profit health system track, something I haven’t seen at other major banks’ healthcare conferences. Listening in on a handful of these sessions at the conference last week, I was intrigued by their financial presentations. These presentations are geared at least in part at demonstrating the financial strength needed to access debt markets – an important resource for health systems as a financial backstop in tough times and to support capital investments. While the broader health system presentations covered strategic initiatives, growth plans, and partnerships, their financial sections covered key metrics such as health system revenue, operating income, and liquidity (e.g., cash balance, cash flows, days cash on hand).

A striking aspect of the presentations was health system leaders’ focus on driving growth. Modern Healthcare reported that multiple nonprofit health systems, including AdventHealth and Novant Health, each announced $30B annual revenue targets this year. Johns Hopkins’ recently installed CFO complained that unique state laws in Maryland financially disincentivize health systems from growing the volume of care they deliver, which is apparently a goal of the system. Sutter’s new-ish CEO, brought in from Oschner 2 years ago to lead an organizational turnaround, touted “same-store growth” (inpatient admissions) up 6.8% since last year. The presenting CEOs all proudly announced plans to build new facilities and increase the range and volume of services they offer. The presentations seemed to take for granted that nonprofit health systems should be continuously increasing the volume of care they deliver.

But why should this be the case? U.S. healthcare costs are rising unsustainably, spending time in the doctor’s office or hospital is generally unpleasant, and nonprofit hospitals don’t have the same kind of mandate for continuous growth as for-profit companies that are obligated to maximize shareholder value. As recipients of healthcare and as U.S. taxpayers, don’t we want our healthcare system to invest in preventing us from getting sick and needing care, and when seeking care is unavoidable, to only provide the amount of care we really need and in the most comfortable setting for patients? I would argue that it may not be in our society’s best interests for health systems to persistently pursue growth.

1. Health system growth increases healthcare costs

The more care that is delivered, the more we pay. By “we” I mean literally everyone: the U.S. taxpayer, who funds the bulk of U.S. healthcare (~67% of healthcare expenditures in 2024); anyone who works, since a meaningful portion of employees’ earnings are diverted to the health insurance premiums that employers subsidize; and anyone who pays out of pocket healthcare costs. I wrote a few weeks ago about the disproportionate growth in U.S. healthcare costs in recent years. Those who want to decrease overall healthcare costs are incentivized to reduce the volume and unit costs of healthcare delivered – not to grow it, as nonprofit health system leaders often have in mind. Furthermore, hospital consolidation is linked to increased healthcare costs, making the social value of nonprofit health system M&A often questionable.

2. Being in the hospital sucks

Would you like to feel your worst while in a cold, windowless room with harsh fluorescent lights, constantly beeping monitors and alarms, barely edible food, half your body hanging out of a barely-closed piece of fabric undeserving of being called a “gown”, and with no control over your day? Welcome to the hospital. Speak for yourselves, but personally, I’d rather be home reading Onyx Storm.

Nobody wants to feel sick or spend time as a patient in the hospital or doctor’s office when we could instead be living our best lives – feeling well or at least receiving care in more comfortable settings, like our own homes. Yet in my experience as an Administrative Fellow at a Sutter hospital, maximizing “heads in beds” was a key metric that administrators reviewed every day – and this focus clearly isn’t unique to Sutter. While health systems are to some extent shifting their stated focus from inpatient to ambulatory growth, the JPM presentations reinforced that many health system leaders still believe they should be increasing the number of patients they serve and the number of services they deliver to patients. With many large health systems’ operating margins in the 1-2% range, it’s understandable that their leaders feel pressure to grow higher-margin lines of business, but this is not necessarily in the best interest of patients and society. While it is obviously sometimes needed, care in the hospital or doctor’s office tends to be costly and unpleasant for patients.

3. Nonprofits don’t have a specific mandate for growth

John Kenneth Galbraith’s The Affluent Society is famous for challenging the conventional wisdom of relentlessly pursuing economic growth. Although his argument was controversial in some circles, it’s worth making a distinction between the growth of public and private companies. Public companies have shareholders who have paid money (or, in some cases, sweat equity as employees) to own a portion of the company. In exchange, shareholders expect to receive a financial return on their investment. Public company managers work to grow their earnings in order to provide this return to shareholders (owners). They want investors to remain interested in buying their stock so they can use these funds to invest into the business.

This is not the case for nonprofits. Instead, nonprofit health systems receive funding from U.S. taxpayers in the form of tax breaks and from lenders who offer debt in exchange for interest payments. Growing the volume of care that nonprofit health systems deliver does not benefit the provider of that tax break. And lenders care about a borrower’s ability to repay debt, which means the borrower must generate enough cash for repayment. This requires the borrower to manage its costs efficiently, but it does not necessarily require them to grow their business.

So why might nonprofit health systems push for growth?

Modern Healthcare noted that “it isn’t clear why that specific [$30B revenue] number has repeatedly been systems’ goal….Many health system executives say that regional and national scale can help their organizations lower costs, boost revenue and improve quality. However, studies have shown that an organization’s size does not guarantee cost savings, and in fact can drag operations.” The Johns Hopkins CFO’s case for growth at JPM was that it is “unusual” to not be able to grow a business. This can be easy to take for granted at a conference focused predominantly on for-profit companies, but for a non-profit, I would argue it is less relevant for the reasons mentioned above.

Another argument, based more on first principles, might be that health systems should grow because the local demand for services outpaces supply. For example, Johns Hopkins’ CEO mentioned that all of the system’s hospitals have been running consistently at 92-98% occupancy. This can make sense in specific geographies – perhaps due to an aging population or other demographic shift – or medical specialties in which disease burden is growing. It can also apply after the introduction of new and innovative types of medical care that haven’t yet been made available broadly. Back in my days at Sutter’s San Francisco hospital, CPMC, we launched a new program offering TAVR, an innovative heart valve replacement procedure shown to improve outcomes and speed up recovery compared to the previous standard of care, open heart surgery.

A health care landscape that better serves our society would have a greater emphasis on preventive care and a smaller footprint of hospitals and expensive care services. We can accomplish this in part by improving efficiency – which has become easier than ever with today’s automation and AI tools. Deprioritizing growth – or even shrinking footprints – may sound like heresy to nonprofit health system leaders, but it’s not out of step with their mandate to operate for the benefit of their communities, and it’s already the direction we’re going, with the advent of microhospitals and trends towards prevention and providing care, from dialysis to hospital-grade support, at home. Sutter’s leadership pointed out at JPM that the health system is now focusing much more of its investments on ambulatory care than inpatient facilities, a marked shift from the milieu when I worked there 7 years ago. We don’t need health systems to focus on growth for its own sake when we can instead invest in preventing illness and helping people live their healthiest lives.