Healthcare providers across the US have gone on to keep a close eye on rising expenses as countrywide labor shortages, inflation, as well as a dried-up COVID-19 relief funding have all gone on to push the health systems’ operating margins into the red.
However, in spite of hospital executives’ best push at cost management, 2024 is not going to bring a reprieve from the razor-thin operating margins when it comes to most systems, warn experts.
As per the senior director at credit agency Fitch Ratings, Kevin Holloran, 2024 is not going to be markedly better and, of course, not the V-shaped recovery one can hope to have. Not-for-profit hospital margins still happen to be below both pre-pandemic levels, but more significantly, they are going to be trending below the operating margin of 3%.
It is well to be noted that analysts happen to be in a split state when it comes to how bleak the picture happens to look for the provider sector. The three major credit agencies of the likes of Moody’s Investors, Fitch Ratings, and S&P Global Ratings, have gone on to predict an adverse to stable condition for 2024.
But neither the credit agencies nor the sector experts anticipate a complete financial turnaround for the industry this year. The fact is that the provider’s personal outlook is based on their capacity to make sure to pull the right combination of levers that not just lift revenues but at the same time deplete costs, say experts.
Providers to fund outpatient care, move away from expensive service lines
Health systems are going to elevate the investments in ambulatory care centers in 2024, thereby going ahead with the trend that started in the latter half of last year, as the hospitals looked out to grow their geographic footprints at comparatively low costs and at the same time make an appeal to evolving patient preferences.
It is well to be noted that hospitals may go on to be more tempted to invest in 2024 as advancements in technology go on to make additional outpatient processes possible and systems start to witness returns from basic investments, said the experts.
As per healthcare senior analyst with management consultancy RSM US, Danny Schmidt, healthcare happens to be moving to where the patient wants it to be. Making sure to place free-standing sites across convenient locations that are able to embrace emerging technological trends can go on to attract recurring patients and thereby can be less capital-intensive as compared to traditional large hospital brick-and-mortar settings.
It is worth noting that major health systems across the US have gone on to announce plans to expand. In 2023, HCA went on to place a multi-billion-dollar bet when it came to emergency services, including the acquisition of free-standing care sites. In addition to this, Ascension announced plans to move towards outpatient services.
Apparently, health systems may go on to opt to buy existing facilities, such as HCA, or even go ahead and build facilities from the ground up, completely depending on their strategy, said Holloran from Fitch. Notably, in November 2023, nonprofit Kaiser Permanente made a land purchase adjacent to its San Jose, California, facilities for a possible outpatient expansion.
On the other hand, struggling hospitals may go on to make the stressful decision to either shutter or lessen the underperforming service lines in 2024, opined Holloran.
Closures when it comes to maternity services, inpatient rehabilitation services, or behavioral units are most likely to take place at smaller hospitals or even rural facilities, experts remarked.
Across the country, rural hospitals have already started to shutter more expensive service lines so as to keep facility doors open. Importantly, hospitals that shut services have gone on to cite dearth of financial reserves to staff service lines having low volumes.
Although hospitals would like to go ahead and keep the service lines open, economic conditions as well as fee-based reimbursement models may enforce more hospitals to follow the same path this year. It is well to be noted that closures can go on to prove disruptive for patient care, especially for patients of color, thereby forcing some patients to drive for hours to another facility, as per research from Harvard T.H. Chan School of Public Health’s Alecia McGregor, who happens to be an assistant professor of health policy and politics.
Patients may as well have to depend on non-traditional venues like free-standing emergency centers when it comes to services, as per the Center for Health Quality and Payment Reform’s spokesperson.
The fact is, hospitals will insource where it matters, but outsource where they can
Hospital executives took into account the earnings call in 2024, which elevates labor expenses, which is the new normal post-pandemic.
However, while the executives said they are going to pay a premium in order to attract nurses as well as physicians moving forward, in all likelihood, hospitals are not ready to give up on initiatives that are aimed at controlling labor expenditures.
This year, the health systems are going to further invest when it comes to grow-your-own nursing programs, in which the systems partner with or otherwise acquire a nursing college so as to develop a direct recruitment pipeline, as per the experts.
It is well to be noted that executives at HCA, Tenet, as well as CHS said nursing programs happened to be instrumental when it came to helping to surge recruitments in 2023.
Importantly, nursing program partnerships are most likely going to be the norm throughout the industry this year as hospitals go on to further invest in grow-your-own nursing programs. But the health systems are going to be less inclined when it comes to spending on their IT as well as administrative departments.
Notably, in 2023, one witnessed a wave of IT as well as administrative layoffs, such as at Kaiser Permanente and Mass General Brigham, where providers either cut, automated, or even outsourced roles.
As per experts, Multi-State Systems specifically will go ahead with the consolidation of administrative and tech functions in a want for efficiency.
According to Wiggins, one can expect a surge in outsourcing to third parties, specifically for IT and revenue cycle services, in 2024. Possible candidates for offshoring have highly repeatable tasks like medical billing as well as coding and transcription services, in addition to telehealth support services. However, in all likelihood, health systems may have their hands tied by union contracts when they look to lay off the workforce. This fall, around 75,000 Kaiser Permanente workers went on to negotiate outsourcing protections in their employment agreements. Over a period of time, when Kaiser went on to announce a decrease in the workforce, no union members were impacted.
Consolidation goes on despite pushback from regulators and physicians
It is worth noting that providers will continue to look into consolidation as economic pressures go on put light on the functional upsides of combined management. But experts disagree on the avenues health systems are most likely to pursue.
Because of the fact that the healthcare mergers may go on to face heightened scrutiny in 2024 post the Federal Trade Commission and Department of Justice made an announcement of the new guidelines for merger and acquisition oversight in December, some experts happen to be betting that health systems will go ahead with roll-ups, wherein they would acquire market share in a series of transactions.
Health systems may go on partner with non-traditional partners such as tech giants, retailers, or even telecom companies as the sector goes on to experience more pressure towards convergence, says Deloitte Center for Health Solutions’ senior manager, Wendy Gerhardt.
Apparently, large system-to-system mergers within the non-contiguous markets will go ahead. But they are likely to experience closing delays because of the antitrust scrutiny, as per the sector lead of the U.S. not-for-profit healthcare group, S&P Global Ratings, Suzie Desai.
Merger activity decreased during the pandemic, but larger mergers are anticipated post-pandemic, as per Kaufman Hall.
Not all physicians are going to be happy with consolidation. Almost 60% of physicians working with hospitals as well as other corporations expressed in a survey conducted by the Physicians Advocacy Institute in 2023 that non-physician ownership goes on to harm quality of care. The physicians pointed to a reduced time with patients, and 44% of the respondents remarked that they would look to join a trade union if one happened to be available.
August from Cornell said that he has fielded inbound interest from physicians who are looking for guidance on how to plan or leverage the professional affiliation memberships so as to affect the transition as healthcare consolidation goes on.
He added that he is not sure he has ever seen anything so radical take place in an industry as rapidly as it has within the doctor community. However, he also thinks that they are at a tipping point where conversations are fast, furious, and, at the same time, almost identical all across the country.
It is well to be noted that consolidation may also go on to put pressure on existing health unions, as per August.