FINANCIAL HURDLES

Health systems will likely face continued financial struggles, driven by ongoing staffing issues, lower patient volumes and inflation. The looming question is whether such factors will affect the healthcare industry’s ability to be recession-proof, as has been the case in previous economic downturns.

Unsustainable wage growth is not going away, even as systems try to control labor costs, said Tina Wheeler, U.S. healthcare leader at consulting firm Deloitte.

Patient numbers in many areas have yet to return to pre-pandemic levels. Expenses, including for supplies and pharmaceuticals, are expected to remain elevated. Health systems can no longer depend on federal COVID-19 relief funding to offset some of their costs, and Medicare reimbursement rate cuts threaten to pinch revenue.

“You’re going to have all these forces that are counterproductive that you’re going to have to navigate,” Wheeler said.

The continued shift toward outpatient care will strain hospitals’ profit margins, said Erik Swanson, senior vice president of data and analytics at consulting firm Kaufman Hall. He expects health systems to keep investing in areas such as ambulatory surgery, urgent care and retail pharmacy.

“The reality is … those sites of care in many cases tend to be lower-cost ways of delivering care, so ultimately it could be beneficial to health systems as a whole, but only for those systems that are able to offer those services and have that footprint,” he said.

Tom Hawk, a partner in King & Spalding’s healthcare practice, said non-operating results have been showing financial strain as well. Investment losses have dogged nonprofits and for-profits, with slowed refinancing activity for outstanding bonds and other debt.

Once interest rate hikes slow, healthcare executives are hoping to see the market stabilize,

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Hawk said.

Job openings across healthcare reached an all-time peak in September 2022 at 9.2%, according to data from Fitch Ratings. That was more than double the 4.2% average job opening rate from 2010 to 2019. Although payrolls at nonprofit hospitals and ambulatory healthcare services increased slightly toward the end of 2022, the number of employees quitting remained high.

With such trends likely to continue, finding effective ways to recruit and retain clinicians will be crucial, said Dr. Iman Abuzeid, co-founder and CEO of Incredible Health, a nurse hiring platform.

Some organizations are upgrading their processes and technology to hire more rapidly, she said. They are establishing service-level agreements between recruiting and hiring teams, such as ensuring an interview is scheduled within 48 hours or a decision is made within 24 hours.

Eric Burch, executive principal of operations and workforce services at healthcare performance improvement company Vizient, predicted an ongoing need for contract labor. In response, health systems should continue to build travel nurses into their staffing plan, he said.

“It’s really important to approach contract labor vendors as a strategic partner,” Burch said. “So when you need the staff, it’s a partnership and they’re able to help you get to your goals, versus suddenly reaching out to them and they don’t know your needs when you’re in crisis.”

Health systems will need to ensure physicians are compensated adequately for the care they deliver, while also hiring additional staff to augment the workforce and alleviate burnout, said Dr. Tochi Iroku-Malize, president of the American Academy of Family Physicians. The group supports legislation and policies that would streamline prior authorization processes in the Medicare Advantage program and avert further cuts to Medicare payments so physicians can focus on providing care with less stress.

Hospitals should also consider partnering with local medical schools to educate students on work opportunities, said April Taylor, vice president of quality at Johns Hopkins Hospital and National Association for Healthcare Quality board member.

“Every time you think you’ve gotten to that place of sustainability, something new happens,” Taylor said. “So the ability to be nimble

... [has] been highlighted even more throughout this process. But fast-forward six months from now: Once we get through this, I think healthcare organizations will be even more prepared for what’s to come in the future.” ■