2021 Healthcare Financial Trends

The coronavirus cast a long shadow over 2020 and triggered fundamental shifts that will reverberate throughout 2021. CommerceHealthcare^® offers this 2021 Healthcare Finance Trends report to provide insights to healthcare leaders as they prepare future strategies and initiatives. Analysis of research and practice experience has produced eleven high-impact trends for 2021.

COVID-19 Disruption Looms Over the Landscape

Healthcare leaders will contend with many ramifications from the pandemic. Four primary challenges are described below, with additional implications explored in subsequent sections.

• Massive financial challenges. The abrupt cancellation of elective inpatient and many outpatient procedures in 2020, along with the influx COVID-19 cases, caused provider revenue and profitability to decline precipitously. Estimated aggregate 2020 losses were $323 billion.¹ Almost 50% of hospitals experienced negative margins, with first-half median margins plunging to -3% (-15% without federal government support).² Fitch Ratings forecasts lack of margin stabilization until a vaccine becomes available to the public, which is expected in early 2021.³ Full recovery remains elusive.
• Operational dislocations. Most organizations implemented staff furloughs and remote work for many departments. This movement disrupted workflows, especially in revenue cycle which remains reliant on manual processes and personal interactions.
• Planning complexity. The pandemic crisis has complicated strategy for 2021 and beyond, particularly regarding strategic planning. First, healthcare leaders see lost revenue as having the greatest impact for 2021, followed by the health effects of deferred care and increased telehealth usage.⁴ (Figure 1)
  
  
  
  Second, healthcare leaders rank their primary challenge as forging fundamental care delivery change rather than just returning to pre-pandemic norms.⁵ (Figure 2) Consensus is also growing that change must be accelerated to thrive in this new order.

• Health equity. The pandemic and national events have drawn sharp attention to racial/economic disparities in healthcare. Improving staff diversity, delivering “culturally competent care” and attacking the social determinants that contribute to health inequities have all been elevated on the 2021 agenda.

Telehealth Growth Gathering Momentum

Telehealth usage surged dramatically as caregivers turned to technology for socially distanced care. Adoption was facilitated by relaxed regulations for reimbursement and cross-state practice. In October, the Centers for Medicare & Medicaid Services (CMS) added another 11 services eligible for full telehealth reimbursement. Strategy should encompass:

• Acceptance of some pullback as distancing requirements relax. Electronic health record (EHR) tracking data showed virtual encounters falling to 21% of the total by mid-summer from 69% at the April peak.⁶ That fact does not invalidate the momentum but provides a more realistic context.
• Planning for logical growth. The pre-pandemic telehealth market had been projected to reach $53 billion by 2026.⁷ McKinsey calculates that upwards of $250 billion of current healthcare spend could be virtualized.⁸ (Figure 3) By a wide margin, leaders view care for chronic conditions as having the greatest telehealth staying power.⁹

Political and Regulatory Developments Will Be Important Factors

Telehealth support was part of a broader set of legislation and regulation enacted to counteract the effects of the nationwide shutdown. Most prominent was the CARES Act, offering direct financial assistance to individuals and businesses in the largest stimulus package in U.S. history. The Provider Relief Fund added $175 billion for loans to healthcare providers convertible to grants under certain conditions. As 2021 unfolds, a host of issues with great implications for the industry deserves monitoring.

On the legislative front, Affordable Care Act (ACA) arguments continue. Supreme Court hearings have been held on the validity of the Act’s individual mandate and whether its rejection should invalidate the entire Act. A decision is expected this year. Overturning ACA completely would alter industry economics. Federal insurance subsidies would likely be eliminated, leaving many Americans unable to afford coverage. In addition, possible removal of pre-existing conditions protections could lead to coverage loss or increased insurance rates.

Among many actual or proposed regulatory changes, three carry notable impact for 2021:

• Extension or permanent adoption of liberalized rules to promote telehealth. The Commonwealth Fund recommends rule makers avoid a single telemedicine policy for all uses, formulate policies through the lens of value, and simplify the complex web of federal, state and payer requirements.¹⁰
• Interoperability and patient data access. The federal rule on interoperability goes into effect in various stages beginning in mid-2021. It requires system developers to remove data sharing barriers and ease patient information access. This step can substantially reduce “data silos” that frustrate construction of unified health records.
• Price transparency. Despite industry pushback, rules requiring hospitals to disclose information like payer-negotiated rates rather than chargemaster costs appear destined to be implemented.

Challenges Persist Due to Economic Environment, Healthcare Spending and Medical Costs

COVID-19 has created substantial unemployment and business contraction. The speed of recovery for healthcare organizations will depend on economic rebound. The Congressional Budget Office forecasts 2021 GDP growth of 4% and a still-elevated year end unemployment rate of 7.6%.

Overall spending through August 2020 was flat year over year, up from the steep March-to-May declines. As Figure 4 shows, only drugs and home health experienced growth.¹¹ The CMS long run forecast remains at 5.5% annual spending growth through 2027.



Medical cost trend is another key industry metric (yearly percentage increase in patient treatment costs holding benefits constant). Calculating it is unusually complex for 2021, since 2020 data is so outside the norm and with new hard-to-estimate variables such as testing and vaccines costs. Consequently, analysts have produced a range of increases:

• PwC: From 4-10% based on various scenarios.¹²
• Credit Suisse employer survey: 60% expect 5%, while 40% see only 2.1¹³
• Aon: 4.8¹⁴

Progress toward “bending the cost curve” is still halting, and organizations will be pressured to contain costs and pursue value-based care. Expect increased direct-to-employer contracting momentum as well.

Patient Financial Pressures Are Substantial

The economic reverberations have also affected consumers, exacerbating ongoing personal financial struggles for many. An interplay of forces will demand attention:

• Rising insurance premiums. The average 2020 annual premium obligation for employees reached $5,588, and the average deductible climbed to $1,644, both continuing decade-long upward trends that have outstripped wage growth.¹⁵ According to a recent report by Commonwealth Fund, 46% of adults now carry deductibles greater than $1,000.¹⁶
• Insurance coverage concerns. Figure 5 displays the results of a “deep dive” analysis of consumer health insurance coverage.¹⁷ One calculation sees 31 million people uninsured in 2020 with contribution from the pandemic.¹⁸ Uninsured rates are noticeably higher for Blacks and Latinos, underscoring disparities in healthcare.

• Ability to pay. The range of affordability problems exhibited in Figure 6 attests to the risk profile facing patients and healthcare organizations.¹⁹ In addition, 45% of consumers fear bankruptcy from a major health event, and they borrowed $88 billion to cover healthcare in the past 12 months.²⁰ This data would indicate that patient financing should expect accelerated growth in 2021.

Financial Management Balancing Act

The massive disruption wrought by the coronavirus crisis ensures that extensive financial management will predominate in 2021. Executives will need to balance cost savings, investment returns and financing. Several strategies are anticipated to prevail:

• Search for revenue growth. Recapturing pre-crisis revenue levels is paramount. Increasing elective procedures and service line expansion will help. Additionally, convincing reluctant consumers that it is safe to return to hospitals and clinics, as well as preventing revenue leakage from patients seeking care outside of a provider’s network, will be key. A recent survey indicated that while 96% of respondents said combating leakage is a priority for the year, only 31% believe the strategy and tools in place at their organization will succeed.²¹
• Cost control. Expect the belt-tightening that rapidly accompanied the onset of the pandemic to continue throughout the year. An HFMA analysis sees increased use of two financial management approaches: dynamic budgeting with rolling forecasts and conversion of fixed costs to variable.²²
• Cash and asset management. Pandemic-induced revenue declines and cost spikes produced a corresponding decrease in cash flow. Governmental support helped cushion the blow, as did lines of credit. A bifurcated situation has emerged in which some face a significant liquidity crisis while others have excess cash. Outlays are needed for Personal Protective Equipment and other supplies. Some assert that the industry will convert from minimal just-in-time inventory to higher “just in case” levels.²³ Many will look to move low acuity services offsite to free inpatient spaces for Med-Surg and Critical Care. Greater investment dexterity will also be required. Hospitals, health systems and physician practices must learn to manage their investments in an ultra-low-yield environment. Many portfolios will adapt by replacing some traditional short-term investments with corporate bonds and other vehicles. Ongoing enterprise-level investment reviews will be important.
• Non-organic growth. Stronger institutions may find many opportunities to acquire ones that have been seriously weakened by the pandemic. The long-run growth in M&A and joint ventures appears to be continuing, with 69% of organizations anticipating deal activity in 2021.²⁴ (Figure 7) Physician practices still top the list of targets. In a recent study, 47% of this cohort termed consolidation “inevitable.”²⁵

Technology Investment Imperative for Care Delivery Transformation and Cost Control

While contending with limited budgets, healthcare providers will need to invest in technology that supports the twin goals of scaling remote work and care as well as accelerating care delivery transformation. Technology priorities for 2021:

• IT & Telecom infrastructure. Network upgrades, collaboration software and others.
• Patient-facing digital health tools. Encompasses a wide array of mobile apps and portals designed as a “Digital Front Door” to convenient appointment setting, check-in, payments and much more. COVID-19 tracking and response management apps are proliferating. Half of respondents in one survey said patient digital tools are a critical/high priority, though only 40% feel they deliver a strong overall experience.²⁶
• Remote monitoring/wearables. Foundational to much telehealth and wellness tracking, the global medical wearable device market is projected to reach nearly $46.6 billion by 2025.²⁷
• AI/Machine Learning. Total spending is projected to increase at a 43% compound annual rate from 2020 to 2027.²⁸ Priority uses are leveraging EHR data to reliably predict risk, clinical decision making at the bedside and more effectively managing population health.²⁹
  
  

Increasing Migration to Electronic Payments

Technology is also altering the finance landscape, notably the payments sector. The consumer trend to automated and digital payments has been powerful across every industry. The current breakdown for all payments is shown in Figure 8.³⁰



Though checks still play a large role in healthcare payments, the growth trajectory throughout 2021 will be strong across these digital modes:

• Electronic Funds Transfers (EFT). ACH network EFTs totaled 343 million healthcare transactions in 2019, up 11.9% over 2018 — which was in turn up 11.5% over the previous year.³¹ Electronic insurance claims payments accounted for 70% of the 2019 total, a 7% increase from prior year.³² The dental claims statistic was an anemic 13%, suggesting considerable upside potential in that market. It has been estimated that a further annual savings of $135 million could be realized if all claims transactions were electronic.³³
• Commercial credit cards. Across industries, online B2B card transactions increased 60% since the start of the pandemic.³⁴ Healthcare certainly participated in that jump.
• Real-time payments (RTP). RTP deploys new rails to speed processing. Real-time healthcare bill payments and disbursements are projected to reach over 70 million in 2022, representing a 100% compound annual growth rate (CAGR) since 2018.³⁵ Growth drivers include the emerging ISO 20022 standard transmission and processing protocol to enable broad interoperability, and the desire among healthcare CFOs for enhanced liquidity management via RTP’s immediacy, omnichannel capability and 24/7 availability.³⁶
  
  

More Workflow Automation on the Horizon

The need to streamline the industry’s persistent and costly complexity has been brought into sharp relief by the pandemic. The opportunity is substantial. As much as one-third of administrative spending could be reduced through more robust process automation. As one example, fully electronic remittance advices still represent only half of total volume.³⁷ (Figure 9)



New levels of standardization are essential to improve the patient financial experience, ensure business continuity amidst the pandemic and remove cost. Look for 2021 increased usage of:

• Robotic Process Automation (RPA). RPA creates software “robots” that can perform repetitive tasks and function as a digital assistant. Gartner predicts that half of all U.S. healthcare providers will utilize the technology within the next three years.³⁸
• Automation platforms. These systems offer paperless processing and exception-based workflows that let offsite, short-staffed workforces safely handle transaction growth as well as concentrate less on routine work and more on higher priorities. Such platforms may require healthcare providers to get all suppliers on a virtual card program or achieve near 100% EFT remittances.
• Frictionless financial programs. Examples include patient lending based on pre-service estimates and issuing higher-dollar lines of credit without credit checks and with subsequent charges able to be added automatically to the line.
  
  

Workforce Management Among Top Priorities

Human capital and workforce management will be top of mind for the entire year. Three strategies are expected to garner heavy attention this year:

• Managing onsite/remote work decisions. A May study found that 48% of organizations expect RCM/financial departments to continue work from home, and a mere 12% anticipate a return to pre-pandemic work arrangements.³⁹
• Combating burnout and deterring staffing shortages. COVID-19 has intensified feelings of stress and burnout among clinicians and staff. Across all industries, as many as one in four women are considering leaving or downsizing their roles, a “red flag” for a female-dominated industry like healthcare.⁴⁰ According to Kaufman Hall, 75% of hospital leaders have increased resources and monitoring to address staff mental health.⁴¹
• Building the future workforce. Digital workforce transformation is happening rapidly in all business sectors, and some experts predict that 60% of enterprises will invest heavily in this area in 2021 to fundamentally alter the employer-employee relationship.⁴² Healthcare organizations must compete with new “digital first” market entrants.
  
  

Information Security Risks High

Healthcare is highly susceptible to cybersecurity threats. A recent report found 93% of providers experienced a data breach in the past three years, with 57% facing more than five breaches during that timeframe.⁴³ Healthcare far outpaces banking, insurance and finance in breaches.⁴⁴ Some estimate that personal health information is 25 times more valuable on the black market than credit card data. For 2019, breaches involving over 500 records reported to HHS vaulted to 510.⁴⁵ (Figure 10). Since organizations went remote, 32% have experienced ransomware incidents, 37% phishing attacks and 26% data theft by employees.⁴⁶ Recommended defenses include limiting some access granted in the remote work environment, elevating cybersecurity oversight to board level and widening threat information-sharing channels.⁴⁷

Conclusion

The eleven trends highlighted here range across regulatory, financial and technological considerations. The pandemic will continue to influence all trends in 2021. Despite significant challenges, opportunities abound. The strategies noted in this report offer promise to go beyond survival and emerge stronger in a rapidly changing healthcare landscape. CommerceHealthcare® will remain vigilant in monitoring developments throughout the year.

Resources:

1. American Hospital Association, “Hospitals and Health Systems Continue to Face Unprecedented Financial Challenges Due to COVID-19,” May 2020.
2. Kaufman Hall, “Effect of COVID-19 on Hospital Financial Health,” July 2020.
3. A. Ellison, “Fitch: Nonprofit Hospital Margins Unlikely to Recover Until COVID-19 Vaccine,” Becker’s Hospital CFO Report, July 17, 2020.
4. Definitive Healthcare, “2020 Trend Report Predicting COVID-19’s Long-Term Effects,” blog post, Summer 2020.
5. Huron Consulting, “Huron 2020 Healthcare Executive Research: Accelerating Stability and Growth,” 2020.
6. C. Ross, “Telehealth Grew Wildly Popular Amid Covid-19. Now Visits are Plunging, Forcing Providers to Recalibrate,” STAT News blog, September 1, 2020.
7. Acumen Research and Consulting, “Telehealth Market Size, Share, Growth Opportunities, Trends, Sales and Forecast, 2019 – 2026,” February 14, 2020.
8. McKinsey & Company, “Telehealth: A Quarter-Trillion-Dollar Post-COVID-19 Reality?,” May 2020.
9. Definitive Healthcare, “2020 Trend Report Predicting COVID-19’s Long-Term Effects,” blog post, Summer 2020.
10. Commonwealth Fund, “Telemedicine: What Should the Post-Pandemic Regulatory and Payment Landscape Look Like?,” August 2020.
11. Altarum Center for Value in Health Care, “Insights from Monthly National Health Spending Data,” Spending Brief, October 21, 2020.
12. PwC, “Medical Cost Trend: Behind the Numbers 2021,” June 2020.
13. R. Pifer, “Employers Struggling to Calculate 2021 Medical Cost Trends Due to COVID-19: Credit Suisse,” Healthcare Dive, September 11, 2020.
14. Aon, “2021 Global Medical Trend Rates Report,” 2020.
15. Kaiser Family Foundation, “2020 Employer Health Benefits Survey: Summary of Findings,” October 8,2020.
16. Commonwealth Fund, “U.S. Health Insurance Coverage in 2020: A Looming Crisis in Affordability,” Survey Brief, August 2020.
17. Ibid.
18. Robert Wood Johnson Foundation and Urban Institute, “Changes in Health Insurance Coverage Due to the COVID-19 Recession: Preliminary Estimates Using Microsimulation,” July 2020.
19. Commonwealth Fund, “U.S. Health Insurance Coverage in 2020: A Looming Crisis in Affordability,” Survey Brief, August 2020.
20. West Health and Gallup, “The U.S. Healthcare Cost Crisis,” April 2019.
21. Central Logic, “96% of Healthcare Executives See Patient Leakage as a Priority,” Blog post, October 8, 2020.
22. American Hospital Association, “Will You be Ready for the Post-COVID-19 Financial World?,” AHA Center for Health Innovation Market Scan, October 6, 2020.
23. N. Christakis, “Long Shadow of Pandemic,” The Wall Street Journal, Oct 17, 2020.
24. HealthLeaders, “Healthcare M&A: Moving Forward in A Post-Covid-19 Landscape,” Intelligence Report, July-August 2020.
25. McKinsey & Company, “Preparing for the Next Normal Now: How Health Systems Can Adopt a Growth Transformation in the COVID-19 World,” August 2020.
26. Center for Connected Medicine, “The Future of the Digital Patient Experience,” 2020.
27. MarketsandMarkets, “Wearable Healthcare Devices Market Worth $46.6 Billion by 2025,” May 8, 2020.
28. Allied Market Research, “Global AI in Healthcare Market,” June 2020.
29. M. Tierney, “AI in Healthcare 2020 Leadership Survey Report: 7 Key Findings,” AI in Healthcare, 2019.
30. Mercator Advisory Group, “North American Payments Insights, 2020 Technology Survey,” 2020.
31. Nacha, “2019 ACH Network Volume & Value Infographic,” 2020.
32. CAQH, “2019 CAQH Index,” 2020.
33. Ibid.
34. PYMNTS.com, “How The Pandemic Is Fueling Commercial Card Adoption,” blog post, August 26, 2020.
35. PYMNTS.com, “Deep Dive: Giving Healthcare Payments a Real-Time Upgrade,” blog post, November 20, 2019.
36. L. Jones, “A Sleeping Giant Wakes? 4 Key Trends Accelerating Payments Transformation in the U.S.,” PaymentsJournal, September 24, 2020.
37. CAQH, “2019 CAQH Index,” 2020.
38. Gartner, “Gartner Says 50% of U.S. Healthcare Providers Will Invest in RPA in the Next Three Years,” press release, May 21, 2020.
39. J. LaPointe, “Hospital Revenue Cycle IT Budgets to Take a Hit After COVID-19,” RevCycle Intelligence, October 1, 2020.
40. McKinsey & Company, “Women in the Workplace,” 2020.
41. Kaufman Hall, “State of Healthcare Performance Improvement Report: The Impact of COVID-19,” 2020.
42. IDC, “Futurescape: Worldwide Digital Transformation (DX) 2021 Predictions,” November 2020.
43. J. Davis, ”Data Breaches Will Cost Healthcare $4B in 2019, Threats Outpace Tech,” Health IT Security, November 5, 2019.
44. Global Banking & Finance Review, “ForgeRock Consumer Identity Breach Report: U.S. Breaches Cost Over $1.8 Trillion; More Than 7.8 Billion Records Exposed Over Last Two Years,” June 3, 2020.
45. HIPAA Journal, “2019 Healthcare Data Breach Report,” blog post, February 13, 2020.
46. Netwrix, “2020 Cyber Threats Report,” 2020.
47. AHA Center for Health Innovation, “Ransomware Attacks on Hospitals have Changed,” 2020.