US Domestic Migration Creating Health System Winners and Losers
Increased domestic migration has affected the health system financial position more than might be expected from the impact on the income statement. While the current impact on operating margin is relatively small the long-term impact on the enterprise value is far larger than most health system leaders recognize.
The result: health systems in markets losing high-economic value populations must more quickly position for competitive success, while those in markets gaining must work quickly to form, maintain and protect relationships with those individuals.
How has domestic migration changed?
The rise of white-collar remote work reduced the barriers to relocating for the highest economic value populations, particularly the younger age segments.
The rise of white-collar remote work reduced the barriers to relocating for the highest economic value populations, particularly the younger age segments. As a result, domestic migration has accelerated, particularly from large cities to the suburbs, from the northern higher tax states to the south, and from large metro areas to mid-sized metro areas. Recent media coverage and releases of IRS, Census and Bureau of Economic Analysis data also details how the migration has changed from the past, from retirees to younger working populations.
Because most of this migration has been of younger, healthier populations, the impact of this migration change will not be immediately apparent to the health system business model. These are not populations that are in the hospitals and clinics today, but who have the largest total discounted lifetime economic value to health systems (see a further discussion of the Time Discounted Patient Lifetime Value (dPLV) here).
Consider the net losses in four major metro areas detailed in the table to the left.
These population losses, while not a significant percentage of the population within these metro areas, create a healthcare impact is far larger than people anticipate.
As an example, between 2019 and 2021 new census and IRS data show the Chicago-Naperville CSA lost 190,468 people to other parts of the country, more than two-thirds of whom are privately insured. While typical working populations have an average age of 42, those that are most likely to move are materially younger with fewer dependents. However, using a time-discounted patient lifetime value (dPLV)approach, the future economic value of this population to a typical health system is $4.9B.
The high-level calculation assumptions are listed below.
What does it mean that the $4.9B of present value of contribution margin has left the Chicagoland area?
dPLV is not a measure of today’s transaction margin, but the time-discounted cumulative effect of transaction margin over time. The immediate health system financial impact of this same population is only $234M or less than one Chicagoland health system margin point. This is because the privately insured population moving is estimated to be younger, healthier and using less healthcare today. But overtime the relationship with these individuals creates larger and larger margins equaling $4.9B.
The challenge is not today’s cash flow as much as it is the enterprise value of the health system business.
What do the health systems need to do?
Health Systems Losing Domestic Migration: Apart from the usual goals of capturing new growth, cutting costs, demanding more sustainable rates from all payers, and creating alternative sources of margin, health systems must recognize the outsized impact of this small percentage population change on their future viability. Moreover, the first to understand this impact will be able to best position to secure the remaining economically profitable populations and move the losses to other competitors and ensure their mission. But the first step is clearly understanding that the market has changed more than it appears today.
Health Systems Gaining Domestic Migration: Those on the receiving end of the population migration must rapidly form durable relationships with these new populations. These are individuals without an affinity for any health system in the new market, and because of their age, without numerous connections to traditional health system channels. Channels targeted to these new individuals should be a major focus of the health systems receiving this population. This includes primary care, urgent care, ER services, efficient diagnostics, and ambulatory surgery. The nearly $5B of healthcare economic value that left Chicagoland has gone somewhere. Make sure your organization captures the outsized portion of it.
Health System Advisors advises health systems on their competitive market positioning. Our team of motivated, engaged, and inspired strategists brings analysis, insight, and expertise as we facilitate your teams to new ways of thinking and strategies that advance your organization.
Kate Lovrien and Luke C. Peterson are principals at HSA. They can be contacted at Kate.Lovrien@HealthSystemAdvisors.com and