Even without the host of implications of the new administration in Washington, another year of uncertainty is faced by the nation’s healthcare system.
It makes for a volatile environment that will keep the pressure on providers’ economic viability and vitality. To protect and strengthen their resiliency over time will take creative, collaborative solutions where they can be found combined with a disciplined approach to enterprise risk management.
Here’s what’s shaping the outlook for the healthcare sector for 2025.
The ongoing cost/revenue gap The disparity between costs and revenues has pressured the industry since the pandemic and there are no signs of the gap closing in the new year.
After rising steeply since 2021, wage growth should moderate in 2025 but still pressure margins. Among other concerns: drug prices have risen an average of 15.2% annually since 2017. Meanwhile, revenues can’t keep pace. There’s a $100 billion gap alone between Medicare and Medicaid reimbursements and the cost of patient care.
It’s created a “new normal” for hospital and health systems – operating margins of 1% to 2%, as their financial health weakens. Half the long-troubled rural hospital network is in red; 20% face closure. While bankruptcy filings overall are down, so are many credit ratings.
Among the new revenue streams to offset the pressures, health system/life sciences and clinical research partnerships are trending. There’s a cautionary note, though, given the downside risks. A third-party financial loss tied to a mismanaged drug trial protocol, for example, would be excluded from insurance coverage.
The threat to vitality of the labor shortage The long-standing shortage of healthcare workers is not improving, and it affects every aspect of the business, from services to finances to the work environment itself.
Better pay isn’t the sole solution, or a sustainable one. Salaries account for 60% of the average organization’s expenses, a financial drain aggravated by the $50-plus billion spent on contract labor to close the worker gap.
The issue is deeply rooted and expansive, requiring thoughtful long-term solutions. Throwing money at the problem in salaries doesn’t work. Better is a strategy that supports an optimal employee experience, built around individualized benefits that respond to a work environment that causes burnout and emotional stress. Public/private partnerships between nursing schools and health systems can enhance educational opportunities and a pipeline for jobs.
