Mitigating Financial Risks in the Healthcare Industry

The healthcare industry has experienced tough financial times since at least 2020. The situation has improved from the early days of the COVID-19 pandemic, but many financial risks remain as we enter 2024. Inflation and labor shortages are still serious problems while reimbursement rates are declining. Patients are finding new ways to access healthcare. This is leading to changes in what they expect from healthcare providers. Every industry participant should know their financial risks so they can plan how best to mitigate them.

 

Risk Factors for Healthcare Providers

Certain issues affect everyone in the healthcare industry to some extent. These may include:

• • Labor shortages;
  • Inflationary pressures affecting supply chains and labor;
  • Changes in consumer expectations;
  • Dilution of market share as both costs and the number of market participants increase; and
  • Insufficient liquidity due to factors like lower reimbursement rates.

These concerns can make it difficult for healthcare providers to pay debts, obtain new financing and provide efficient services. Different types of healthcare organizations are also likely to face distinct sets of challenges.

Hospitals

Hospitals face some of the most dire challenges, affecting both their financial well-being and their ability to provide care for their patients.

• • Reimbursement Rates: While CMS is reducing reimbursement rates for nearly all types of healthcare providers, hospitals are likely to be among the hardest hit by the changes. Additionally, Congress passed the No Surprises Act in 2021 to cut down on “surprise medical bills” from out-of-network providers. The law took effect in 2022 and is requiring significant changes in billing and reimbursement practices.
  • Declining Pipeline of New Doctors and Nurses: Both the Association of American Medical Colleges and the American Association of Colleges of Nursing report recent declines in enrollment in medical and nursing schools. Medical schools saw an 11.6% decline from 2021 to 2022, while nursing school enrollment dropped by 16.9% over the same period.
  • Obsolete Technology: Many hospitals do not have enough capital available to modernize their equipment and information systems. This can put them at a disadvantage in the market and expose them to cybersecurity risks.
  • Capacity: The COVID-19 pandemic demonstrated many hospitals lack of capacity for acute and post-acute care.
  • Increase in Outpatient Services: Many services that hospitals have traditionally provided are now available elsewhere, including ambulatory service centers and outpatient clinics.

Physician Groups

In addition to many of the problems described above, physician groups may also face the following risks:

• • Retirement Outpacing Replacement: As older physicians retire, not enough younger doctors are available to replace them. This leaves many medical practices short-staffed, which means they must either take fewer patients or provide a lesser standard of care.
  • No Succession Planning: Patients tend to be loyal to specific doctors rather than physician groups. If a doctor intends to retire or move to another practice, the physician group needs a plan that ensures the business can continue without them, and which addresses how best to retain patients during a transitional period.

Home Care

Home care is a relatively new segment of the healthcare industry. As a result, it faces challenges that come with being an untested market participant.

• • Lack of Specialization: Providing in-home care requires different skill sets than providing care in a clinical environment. Medical professionals need specialized training tailored toward caring for patients in their homes.
  • Limitations on Access to Care: Many of the potential consumers who could most benefit from home healthcare are not able to access it. This could be due to a lack of insurance coverage, insufficient family support or a variety of other reasons. This leaves an enormous gap in the market that home healthcare providers could fill if the resources were available.

Strategies for Mitigating Financial Risks

The process of mitigating financial risks has two critically important components. Healthcare organizations must look at the lessons of recent events to see what they can do differently. They must then take proactive steps to increase opportunities for both stability and growth.

Review Lessons Learned from Recent Events

The past few years have provided near-countless learning opportunities for healthcare providers. The COVID-19 pandemic laid bare the shortcomings of the American healthcare system, but it also gave providers the chance to show what they can do well. Organizations should look at both the successes and failures of the past few years when planning for the future.

Assessment of Patient Needs

Patients are asserting themselves to an ever-greater extent. Healthcare providers should listen to them.

Workforce Development

Investing in staff is more important than ever. Healthcare organizations need to make attracting and retaining talent a top priority.

Service Line Evaluations

Healthcare providers should evaluate all their service lines to determine what is essential and what might no longer be necessary.

Strategic Partnerships

Partnerships between medical providers can improve each organization’s performance and enhance the patient’s experience.

Outsourcing

Certain nonclinical functions could be outsourced to third-party providers. This can reduce costs, but take care that it does not produce labor problems.

Review of Third-Party Contracts

Periodically reviewing contracts with suppliers and others can help healthcare providers identify unnecessary expenses and other areas where change could be beneficial.

Learn More About Risk Mitigation in the Healthcare Sector

The healthcare industry faces a tough financial situation. With careful planning, however, providers can weather the difficult times that may lie ahead. A financial professional can help providers identify their greatest risks and plan for how to meet those challenges. If you have any questions or would like additional information, please contact us.