The annual Healthcare Finance Trends report (Trends) from CommerceHealthcare® affirms the bank’s commitment to monitoring high-impact industry issues. Each year, Trends synthesizes several themes from extensive analysis of current research data. The aim is to bring together a range of helpful market information for financial leaders, along with the bank’s interpretation and identification of strategic and tactical options.
For 2023, Trends kicks off with this First Look report, examining three dominant themes:
- Financial pressures are coming from multiple directions and limiting options for many.
- Providers are pursuing a variety of significant growth strategies despite financial constraints.
- The drive to improve and personalize the patient financial experience remains strong.
This advance read forms part of the forthcoming complete Trends e-book containing additional themes in focus for the year.
1. Multiple Financial Stress Points Will Constrain Options
Healthcare’s financial predicament for the next 12–18 months is being described in strong terms. Citing $450 billion of EBITDA that could be in jeopardy, more than half the industry’s projected profit pool by 2027, one analyst warns of “a gathering storm.”1 Another perceives “broad and serious threats” as “elevated expenses” erode margins and exact “a profound financial toll.”2 Fitch Ratings issued a “deteriorating” outlook for nonprofit health systems.3
The financial issues are complex and multi-faceted. Together they are upending healthcare’s traditional status as a “recession-proof” industry. It is helpful to gain a full perspective by examining the multiple forces in play, the prominent challenge posed by workforce management and the scope of solutions to ameliorate the financial pressures.
Multiple stress factors at work
Observing that margins will be down 37% in 2022 relative to pre-pandemic, a recent assessment starkly captured the magnitude of the problem, “U.S. hospitals are likely to face billions of dollars in losses in 2022 … which would result in the most difficult year for hospitals and health systems since the beginning of the pandemic.”4 Another analysis points to both lower volumes and a “dramatic rise in expenses, which … hospitals have thus far been unable to pass through to payers.”5
A confluence of factors is exacerbating the stress for 2023:
- Rising acuity levels. Over two-thirds of surveyed C-suite executives said patient health has worsened from pandemic-induced delayed care.6 The upshot, stated by 27% of CFOs, is rising expenses due to higher acuity.7 The problem is not just short term. Inpatient days are projected to increase at an 8% rate over the coming decade, prompted largely by chronic disease.8
- Reimbursement gaps and inflation. Commercial and government reimbursement rates are not keeping pace with rising costs. Surging inflation is widening this gap. At the same time, hospitals are reporting substantial insurer payment delays and denials. Fifty percent indicated having over $100 million in receivables for claims older than 6 months.9
- Investment declines. Stock and bond market declines have removed a cushion for operating weakness. Inflation will complicate 2023 portfolio management, and debt service will need to be closely monitored.
Persistent workforce concerns remain center stage
Burnout and shortages have disrupted the clinical workforce. Nearly 60% of physician, advanced practice provider and nurse survey respondents said their teams are not adequately staffed, and 40% lack resources to operate at full potential.10 Another poll found 85% of facilities experiencing extreme to moderate shortages of allied health professionals.11
The problem extends well beyond the clinical. Financial departments are grappling with acute shortages. A survey saw 48% of organizations reporting severe labor deficiencies in revenue cycle management (RCM) and billing. One in four finance leaders must fill over 20 positions to be fully staffed.12
The prognosis is guarded. An executive outlook on staffing showed 30% feeling the situation will get worse and another one-third believing they will see no improvement.13 The same survey highlighted demonstrable impact on financial performance and growth from these workforce problems, citing reductions in profitability, capacity and service (Figure 1).
Several studies detail further negative outcomes operating together to produce a compounding effect:
- Expenses. Hospital employee expense is expected to increase $57 billion from 2021 to 2022, with contract labor ballooning another $29 billion.14 Average weekly earnings are up 21.1% since early 2022, outpacing the 13.6% growth of overall private sector employees, according to Fitch.15 Medical practices are also feeling the pain. Half budgeted more than their normal staff cost-of-living increases in 2022.16 Shortages plague post-acute facilities as well. Their reduced capability to accept discharged patients is lengthening patient stays and adding cost at many hospitals.17
- Capacity constraint. A KPMG study saw 66% of healthcare leaders identify “ability to meet demand” as their top workforce concern, suggesting a “looming capacity gap between future demand and labor supply.”18
- Loss of experience. A spike in early retirements of seasoned executives during the COVID-19 pandemic is expected to continue over the next several years prompting an “experience brain drain.”19 The pipeline of replacements for many positions, from nursing to IT and more, is not strong.
Range of measures being deployed
As appropriate to their individual situations, health systems, hospitals and practices will vigorously pursue at least four direct actions to combat the financial and staffing troubles:
- Cost cutting. Expense control will be paramount and “hospitals will be forced to take aggressive cost-cutting measures.”20 Health plan leaders rank managing costs and gaining operational efficiencies as their top two needs.21 McKinsey sees considerable potential, estimating total industry administrative savings of $1 trillion through multiple aggressive changes.22
- Service line rationalization. Providers are rethinking how they deliver services to optimize efficiency. This effort is following several paths. An important focus is utilizing “lower level” healthcare professionals in ways that free RNs and LPAs for more complex work suited to their top skills. Integrating remote care into the mix is another core element of the strategy. An example of combining the two approaches is a Tele-ICU scenario in which a lower level provider cares for patients in the ICU while a single ICU RN monitors the patients remotely.
- Recruitment and retention programs. Attracting and retaining talent, particularly clinical, is an imperative. Compensation is one avenue. Over two-thirds of organizations are offering signing bonuses for allied health professionals.23 Along with flexible schedules and other inducements, some are instituting value-based payments for physicians, offering salary floors to protect from drops in patient volume.24 Nursing is a special focus. CFOs and CNOs are the “most important dyad” and must join forces to invest in retention strategies and find new ways to allocate nursing resources.25
- Staffing management. Multiple levers are being pulled to reduce labor cost and optimize staff resources. An increasingly popular one is outsourcing and external consulting. Figure 2 shows that RCM is leading the way.26 A survey of healthcare finance executives indicated that 28% prioritize finding a strategic RCM partner.27 Feedback from RCM outsource consultants indicates that 71% of hospitals are spending the same or more on their services in 2022.28
2. Growth Strategies Favor Outpatient, Virtual, Acute Home Care
Pursuing top line growth in tandem with reining in expenses is crucial. In fact, a just-published small survey saw senior leaders emphasizing growth over cost-cutting by a 59% to 41% margin.29 Volume growth has been tepid for several years. Hospital data analysis reveals essentially flat inpatient volume in the 2016–20 period (Figure 3).30
Leaders have been pivoting to outpatient and virtual care to diversify revenue streams. One survey documented ambulatory and technology-enabled care as the two top priorities, named by 55% and 49% of respondents respectively.31 Three specific high-potential growth tracks merit deeper assessment for their 2023 concentration and long-term potential.
Considerable evidence attests to strong commitment to telehealth and remote care. The global market is projected to grow at a compound rate of 18.9% through 2030.32 Sixty-three percent of physicians worldwide expect most consultations to be performed remotely within 10 years.33 Approximately 40% of health centers are using remote patient monitoring today.34 Consumers are also positive: 94% definitely or probably will use telehealth again, 57% prefer it for regular mental health visits and 61% use it for convenient care.35
Telehealth is still in early stages of maturity based on provider self-assessments. In one study, only 4% of top executives considered their organization proficient at implementing remote care.36 A major dependency for long-term growth is continuation of favorable policies, instituted during the COVID-19 crisis, that reimburse telehealth at similar levels to in-person care and that remove restrictions on cross-state medical practice.
Healthcare is also recognizing that a full telehealth ecosystem must be constructed. A physician leader explained that the industry’s early telehealth incarnations failed to build “virtual-only environments or really drive e-consults as a way of doing things.”37 On the administrative side, a vital ecosystem demands alterations to current contracts, coding, collections, payments, patient financing and other business practices. RCM staff needs the requisite digital tools and training to support virtual transactions. Resource alignment is necessary to offer patients a coordinated hybrid virtual/on-site model, which many believe will become the norm.
Health systems see particularly promising growth in the provision of acute care in patients’ home settings, including post-surgical and cancer treatment. Centers for Medicare & Medicaid Services (CMS) has already allowed waivers to 114 systems and 256 hospitals across 37 states to obtain inpatient-level reimbursement for acute hospital care at home. However, these waivers were prompted by the pandemic and are slated to end in early 2023. The uncertainty has stymied some activity and represents an overhang on the opportunity. However, enthusiasm appears strong, and 33% of hospitals in a recent poll said they would be prone to continue HaH even without the CMS renewal.38
The forecasts are encouraging. Over half of polled hospitals believe it likely they will utilize HaH for at least half of their chronically ill patients over the next several years (Figure 4).
HaH exists within a broader matrix of home care, and solid growth is anticipated across the range of home procedures, led by home evaluation and management (Figure 5).39
Success harvesting the HaH potential will require implementation of current and emerging enabling technologies in remote monitoring, 5G and high-speed networks and artificial intelligence that generates algorithmic guidance for caregivers and patients alike. As mentioned with telehealth, RCM and administrative processes will need to adapt as well.
Mergers and Acquisitions (M&A)
CommerceHealthcare® tracks another durable growth path: M&A. Hospital/health system transaction volume in recent years has not matched levels prior to the pandemic, but there have been more deals involving larger-sized target organizations. The annual HealthLeaders poll of M&A indicated that 71% expect to increase activity over the next three years.40 Physician practices continue to be the leading acquisition target (Figure 6).
Providers will need to assess both their financial and operational capacity for M&A during 2023 and the “make or buy” calculations associated with acquiring growth non-organically, especially given higher financing costs due to inflation. They should also keep an eye on regulatory oversight stemming from concerns about the competitive effects of industry consolidation.
3. Strong Drive to Improve and Personalize the Patient Financial Experience
Today’s healthcare market dynamics place a premium on positive patient experiences. The goal is to deliver “an empathetic relationship between customers and brands built on what the customer wants and how they want to be treated.”41 It is a complex undertaking, touching numerous related processes and interactions as captured in HFMA’s Consumerism Maturity Model (Figure 7).
Surveys show individuals increasingly want their experiences to include convenient financial interactions with understandable explanations of cost. An array of studies underscores the rationale and value proposition for providers to focus intensely on patient financial experience:
- Sixty-one percent of consumers said that ease of making payments is very or somewhat important in decisions to continue seeing a doctor. Over half of patients also said text message reminders make them very or somewhat more likely to pay a bill faster than usual.42 Text messaging also yielded a 41% reduction in the risk for 30-day hospital readmission, a clinical outcome with significant financial implications.43
- Thirty-five percent of survey respondents “have changed or would change healthcare providers to get a better digital patient administrative experience.”44
- A quality financial experience for patients encompasses “simplified explanations, consolidated bills that match one’s health plan benefits, clear language displaying patient liability and payment options.”45
Significantly improving the financial experience requires a unified strategy, not just a collection of individual initiatives. Three threads to such a strategy will be prominent in 2023.
Using a Digital Front Door
Organizations have been moving swiftly to channel many patient financial transactions through an integrated Digital Front Door (DFD). This approach offers patients a singular online point of access and intelligent navigation to needed services. The DFD usually combines web and mobile applications and aims to gain participation from patients, caregivers and staff.
Growth is accelerating. A DFD is their patients’ first contact point for 55% of responding organizations, according to one technology survey.46 A leading forecaster sees 65% of patients engaging services via digital front doors by 2023.47
Expanding price transparency
Mandates for full price transparency and “no surprises” billing are in effect but estimates of compliance are mixed. An August analysis of 2,000 hospitals determined that only 16% met the requirement to post an online “machine readable” file containing clear charges and display of actual or estimated charges for 300 “shoppable services.”48 Another assessment showed a more substantial 76% of hospitals had posted machine-readable files, and 55% were deemed “complete,” meaning the file contained cash, list and negotiated prices for a significant range of items.49
Many believe healthcare’s complex pricing defies easy transparency. Nonetheless, 2023 brings full enforcement of the various requirements for “no surprises” balance billing for out-of-network charges. One provision of interest to physicians and groups is the “good faith estimate” of expected charges required to be given to uninsured and self-pay individuals when they schedule visits.
Patient visibility into out-of-pocket costs is the key objective. Several programs can augment such visibility to enhance the patient financial experience. For example, CommerceHealthcare® has worked with clients to complement their website pricing data with clear information on patient financing options and enrollment access. Bill pay information can also be added for one-stop guidance.
Personalizing the experience
Improving experience extends beyond choice and convenience. The deeper objective is to offer truly personalized experiences throughout the care journey. The words of leading analysts best define the drive to personalize:
- “Tomorrow’s healthcare experience will be built by patients tailoring their own experience…”50
- Patients expect “an experience that’s suited to their unique history, behaviors and preferences.”51
- “By 2024, 30% of chronic care patients will truly own and openly leverage their personal health information to advocate for, secure, and realize better personalized care.”52
Opportunities abound to personalize the patient financial experience. Replacing rigid legacy systems and manual processes establishes a foundation. Patient financing with no- or low-interest credit lines and flexible terms can produce monthly payment schedules tailored to each patient’s needs. Refunds can be made through multiple payment modes to meet varying patient preferences. Looking further out, progress in data analytics will refine personalized financial offerings through better patient profiles and predictive algorithms.
The themes presented depict the uphill financial and operational battles that will be waged in 2023 and that will necessitate rigorous financial control. But the data and analysis also reveal significant upside by taking advantage of sizable growth opportunities in remote and technology-based care and by delivering positive and personalized patient financial experiences. Leadership will need balanced and nuanced approaches, for which this report offers guidance. All will want to access the upcoming full e-book for added understanding of today’s fast-changing healthcare landscape.
CommerceHealthcare® solutions are provided by Commerce Bank.
- A. Fleron and S. Singhal, “The Gathering Storm: The Uncertain Future of U.S. Healthcare,” McKinsey & Company Insights, September 16, 2022.
- Kaufman Hall, The Current State of Hospital Finances: Fall 2022 Update, September 15, 2022.
- Fitch Ratings, “2022 Mid-Year Outlook: U.S. Not-For-Profit Hospitals and Health Systems,” Outlook Report, August 16, 2022.
- Kaufman Hall, Current State of Hospital Finances: Fall 2022 Update.
- A. Sudimack and D. Polsky, “Inflation is Squeezing Hospital Margins – What Happens Next?” Health Affairs Forefront, October 25, 2022.
- Sage Growth Partners, 2022 C-Suite Report: America’s Healthcare Crisis – Health Systems are Being Tested Like Never Before, November 15, 2022.
- M. Hagland, “Survey: CFOs, RCM VPs Facing Severe Cost, Staffing-Shortage Challenges,” Healthcare Innovation, June 30, 2022.
- Sg2, 2022 Impact of Change Forecast Highlights, 2022.
- American Hospital Association, “Infographic: Commercial Health Insurance Practices that Delay Care, Increase Costs,” November 2022.
- E. Ney, M. Brookshire, and J. Weisbrod, “A Treatment for America’s Healthcare Worker Burnout,” Bain & Company Research, October 11, 2022.
- AMN Healthcare, Survey of Allied healthcare Professional and New Graduate Hiring Patterns, October 2022.
- J. Asser, “Revenue Cycle Departments Need Significant Staffing,” HealthLeaders, June 3, 2022.
- The Chartis Group, Reviving Workforce Resilience: 2022 Healthcare Workforce Survey, May 16, 2022.
- Kaufman Hall, The Current State of Hospital Finances.
- A. Condon, “Fitch: Nonprofit Hospitals Face Prolonged Labor Challenges Despite Recent Respite,” Becker’s Hospital CFO Report, October 25, 2022.
- Medical Group Management Association, Competing for Talent and Building Culture Amid the Great Reshuffle, June 22, 2022.
- G. Christ, “Battling Bottlenecks: Post-Acute Staffing Shortages Cause Months of Hospital Discharge Delays,” Modern Healthcare, October 3, 2022.
- KPMG, 2021 Healthcare CEO Pulse, July 2021.
- Kaufman Hall, 2022 State of Healthcare Performance Improvement, October 2022.
- Sudimack and Polsky, “Inflation is Squeezing Hospital Margins – What Happens Next?”
- HealthEdge, Annual Market Survey, November 1, 2022.
- Fleron and Singhal, “The Gathering Storm: The Uncertain Future of U.S. Healthcare.”
- AMN Healthcare, Survey of Allied.
- G. Christ, “Physician Compensation Trends Could Face Years of Uncertainty,” Modern Healthcare, September 5, 2022.
- R. Begley, P. Cipriano, and T. Nelson, The Business of Caring: Promoting Optimal Allocation of Nursing Resources, 2020.
- Kaufman Hall, 2022 State of Healthcare Performance Improvement.
- M. Hagland, “Survey: CFOs, RCM VPs Facing Severe Cost, Staffing-Shortage Challenges.”
- Modern Healthcare, “Data Dive,” September 5, 2022.
- A. Kayser, “ 85 Healthcare Leaders’ Workplace Predictions for 2023,” Becker’s Hospital Review, November 17, 2022.
- Trilliant Health, 2022 Trends Shaping the Health Economy, October 19, 2022.
- Huron Consulting, Embracing Healthcare’s Digital Transformation, 2021.
- Growth Plus Reports, The Global Telemedicine Market, July 18, 2022.
- Elsevier Health, Clinician of the Future: Report 2022, March 2022.
- Pivot Point Consulting, Q2 2022 Healthcare IT Trends Report, May 4, 2022.
- J.D. Power, 2022 U.S. Telehealth Satisfaction Study, September 2022.
- Sage Growth Partners, America’s Healthcare Crisis: 2022 C-Suite Report, November 15, 2022.
- J. LaPointe, “4 Key Areas of Value-Based Care Transformation,” RevCycle Intelligence, September 28, 2022.
- N. Diaz, “The Future of Hospital-at-Home Amid Medicaid Uncertainty, Becker’s Hospital Review, November 21, 2022.
- Sg2, 2022 Impact of Change Forecast Highlights, June 7, 2022.
- HealthLeaders, Intelligence Report: M&A Incentives Remain Constant in a Shifting Healthcare Landscape, July/August 2022.
- IDC, “How Thoughtful Friction Creates Business and Customer Value Parity,” Future of Customer Experience, March 2022.
- ModMed, 2022 Patient Experience Report: What Patients Really Want, July 28, 2022.
- S. Heath, “Text Message Patient Outreach Cuts 30-Day Hospital Readmission Risk 41%,” Patient EngagementHIT, October 28, 2022.
- Cedar, Healthcare Consumer Experience Study, December 2021.
- Center for Connected Health, Top of Mind for Top Health Systems 2022, December 2021.
- IDC, Futurescape: Worldwide Health Industry Predictions, 2021.
- Patient Rights Advocate.org, Third Semi-Annual Hospital Price Transparency Report, August 2022.
- Turquoise Health, Price Transparency Impact Report, October 18, 2022.
- Accenture, The Health Experience Reimagined, 2021.
- O. Adigozel and K. Wilson, “Delivering on the Promise of Personalization in Health Care,” Boston Consulting Group blog, April 1, 2022.
- IDC, FutureScape: Worldwide Healthcare Industry 2022, November 2021.