2023 will be a year of shrinking margins and more consolidation for hospitals, says expert - MedCity News

Inflation and shrinking operating margins are among the key factors that will affect hospitals and health systems’ strategies in 2023, according to a new analysis from Deloitte.

Financial analysts said 2022 could have been the worst year for hospital finances over decades, as increases in hospitals’ labor and supply costs dramatically outpaced their revenue growth.

Hospitals are not performing financially almost everywhere. Take the three largest nonprofit health systems in the country— Ascension, Cheers to CommonSpirit and Trinity health – for example. Their reported losses for the third quarter of 2022 are total $118.6 million, 227 million dollars and $550.9 millionrespectively.

Shrinking margins will not be sustainable for all hospitals, with small and rural hospitals most vulnerable. As a result, more hospitals will merge or close in 2023, said Tina Wheeler, Deloitte’s healthcare sector leader.

“These smaller and medium-sized hospitals are just struggling and many of them are facing bankruptcy or even just closing their doors,” she said. “There is a perception that bigger is better. Deloitte used to say that if you were in a health system with $2 billion or more in revenue, you would be consolidated. Well, now that number has grown dramatically—perhaps to the tune of $6 billion to $8 billion.

Experts believed that healthcare was almost immune to inflation because people would always get sick and need healthcare services. But that’s not quite true anymore, Wheeler said. In fact, when Deloitte conducted a recent survey of health system executives, only 7% of respondents said inflation and affordability issues would not affect their 2023 strategy.

In our current economic environment—which is rife with hyperinflation and rising interest rates—Americans struggle with the affordability of things like housing, gas, and food. That means many people put off preventive health care because of cost, Wheeler pointed out.

It’s not like people skip preventive health care for no good reason. Many Americans are uninsured or covered by high-deductible health plans, and it’s clear why they would delay care when money is tight and there’s nothing wrong with it. But when people delay preventive care, their health problem is more likely to escalate to the point where it lands them in the emergency room, Wheeler explained.

She predicts that emergency room volumes will jump for hospitals, which they may not be able to cope with as they struggle with critical workforce shortages. Unfortunately, it’s a “perfect storm,” Wheeler said.

And implementing new technology to improve clinical and operational outcomes “will continue to be a hospital challenge,” she said. That’s not true for payers, which are enjoying financial success and are “way ahead” when it comes to digitizing their processes and incorporating things like artificial intelligence and robotic process automation, Wheeler noted.

It will be difficult for hospitals to justify the cost of implementing technology across the enterprise when margins are so thin. In Wheeler’s view, it will be difficult for hospitals to determine how to get “the biggest bang for their buck” when it comes to the technology needed to optimize their operations.

Photo by Flickr user Investment Zen

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