Hospitals face unprecedented financial challenges this year thanks to a total realignment of the healthcare system caused by COVID-19, experts say.
Guidehouse, a consulting company, and the Healthcare Financial Management Association (HFMA) earlier this month released a survey of 182 hospital and health system CEOs, chief financial officers and chief operating officers in which the executives divulge what challenges they expect to face in 2023.
Not only are there many, but they’re daunting, as well, the survey found.
“The challenges that these health systems are facing now, on the backend of three pretty tiring years, are fundamental business model shifts and changes that, in 2022, resulted in the worst financial year that health systems have had in a long time, if not ever,” Richard Bajner, partner and payer and provider leader at Guidehouse, told Fierce Healthcare. “And the pace of those challenges, the degree of complexity of those challenges, is really putting a lot of pressure on our health systems.”
Ninety-five percent predicted outpatient volume to increase, with 40% of respondents saying the increase will be 10% or more. Meanwhile, 41% said inpatient volumes will drop, with 17% of respondents projecting a decrease of 10% or more.
Jeff Levin-Scherz, M.D., population health leader for health and benefits in North America at Willis Towers Watson, said the drop in inpatient volume doesn’t surprise him.
He pointed out that when he was a medical student, cataract surgery meant at least a three-day hospital stay. Now, it’s an outpatient procedure that takes about 20 minutes.
“There’s been a generic move away from inpatient care that’s been going on really for 40 years,” said Levin-Scherz. “If in any given year you asked: ‘In two years, will inpatient volume be as high as it was a year ago?’ we would generally say no, because more things that used to require hospitalization don’t anymore.”
He added that should be cause for celebration.
“That means people not staying away because they’re scared of hospitals," Levin-Scherz said. "It means them not having to spend time there and not having family members pay large parking fees. Not being endangered, potentially, by hospital infections.”
Bajner echoed that assessment but added that this year has its own wrinkles to contend with.
“If you look at the long-term trend of inpatient utilization, historically, it’s been a pretty consistent trend of a point to a point and a half reduction in utilization from year to year,” said Bajner. “It’s still the same downward trend in inpatient utilization, but in many geographic areas, it’s much beyond the point or two-point drop that we’d seen before the pandemic.”
The Guidehouse/HFMA survey found that hospital systems this year face at least a 10% decrease in inpatient volume.
“A business model predicated on relatively predictable utilization patterns needs to change when utilization drops off 5%, 10% or, in the case of some clients in some markets, even more than that,” said Bajner.
What he calls the “dramatic” shift in expectations about where hospital executives expect volume, and therefore revenue, to increase surprised Bajner the most about the survey.
“You start to talk about 10% increases in ambulatory visits or decreases in inpatient visits," he said. "Those are pretty significant assumptions that are underlying long-range financial plans, recruiting plans, network plans, physician alignment plans. And so, to us, it was just that degree of change in a short period of time that we found most surprising.”
Executives expect major emergency department volume increases, with one-third projecting by 10% or more, according to the Guidehouse/HFMA survey. In addition, a quarter of respondents said they expect a 10% or more increase in elective procedures.
Hospitals have been hit particularly hard by labor shortages, and 96% of respondents said that’s having a negative effect on reaching financial goals; 62% say it will be a significant negative impact. The survey touched on “traveling clinicians,” professionals who came to the fore during the pandemic to go where they’d make the most money, but who now represent a significant financial drain on hospitals.
“It became an ecosystem of clinicians and nurses who left their jobs at health systems and hospitals in their local community to go and travel and work in other communities for premium pay levels,” said Bajner. “Now, at the backend of the pandemic, health systems are looking to reduce substantially their premium pay contracting.”
Perhaps one of the biggest changes will be a major shift toward ambulatory care. The shift involves building more satellite care centers but also offering more digital options and home-based care.
“I don’t know of any major health system that is not thinking about organizing around and/or implementing broader network of care strategies that include a more heightened focus on the ambulatory environment,” said Bajner.
Levin-Scherz said that outpatient care delivered at a “hospital campus is generally paid at a much higher rate than outpatient care that’s delivered at a freestanding facility or the physician office. That price differential might not be sustainable. And many health plans are working hard to direct members to go to more cost-effective facilities.”
Respondents expect digital care to be their biggest budget item this year, with 43% saying that technological adoption and integration will have a positive impact on their growth strategies. They said they want to make it easier for individuals to access patient portals and electronic health records. In addition, many want to turn to artificial intelligence and automation to offset the labor shortage.
Hospital executives also plan to hire more behavioral health providers this year, but the term is an elastic one encompassing psychiatrists to social workers to volunteers who drive shut-ins to the hospital.
“More and more of our clients are really trying to find ways to either come up with strategies to influence and care for that population and/or to partner with others that do have the expertise to care for that population,” said Bajner. “If you look across the country over the last 15, 20 years, perhaps other than Medicare Advantage, the fastest growing population in the country has been Medicaid. There are a lot more companies that have focused on business models that care for Medicaid populations which have, generally speaking, a higher incidence of mental health and behavioral health challenges.”
This is where hospital executives might hope that federal, state, and local governments step in to help.
“It’s a complicated ecosystem where these individuals touch the healthcare environment in dozens of ways without there being an underlying coordination mechanism across their journey of care,” said Bajner.
“We have a number of state clients who are asking the right questions about how to create a system of care across these different agencies, some of which can be economic focus agencies, some can be health-focused agencies," he added. "But all impact an individual’s well-being.”