Economic pressure and material inflation
Cost pressures from COVID-19 continue
The fallout from COVID-19 produced devastating health challenges and had a profound impact across all industries of the global economy. The healthcare industry in the United States is no exception. Cost pressures have squeezed margins, degraded balance sheets, and forced a paradigm shift in how payers, providers, and consumer health companies deliver care.
Organizations face rising costs and labor shortages
Hospitals and large provider systems have been hit particularly hard by these economic challenges. Increases in medical supplies, equipment, and drug expenses are decimating bottom lines. Nursing and physician shortages and the resultant proliferation of expensive contract labor have squeezed profitability further. The ripple effects have been profound and will continue into 2024. Nearly half of all hospitals are experiencing negative profit margins, with operating margin increases exceeding 11% in 2022. Hospital defaults hit their highest run rate in nearly a decade in early 2023, and rural hospital closures will continue to persist after peaking at a record 19 closures in 2020 alone. Health coverage organizations, although historically better positioned given healthier balance sheets, more diversified services, and greater economies of scale, will also remain vulnerable to these pressures. Carriers will continue to cut back on spending as budgets are strained, inhibiting innovation and reducing service offerings while curbing reimbursement. Premium increases will continue to surge as insurers attempt to counter rising medical loss ratios by passing costs on to consumers.
Payer-provider tensions loom
Cost pressures will also accelerate the escalation of payer-provider tensions. Reconfigured reimbursement policies, overhauled prior authorization agreements, aggressive payment dispute strategies, and highly contentious contract negotiations will strain these historically fragile relationships. The result of which will see the continued degradation of the customer experience as claim reimbursements are delayed and greater portions of cost sharing are passed to patients.
Innovation on the horizon amidst economic pressures
Despite the consequences of the economic pressure highlighted above, positive and transformative developments are taking shape. New and innovative methods of care delivery are being developed. More efficient modes of collaboration and data sharing have been implemented, as enhanced delivery solutions are deployed leveraging cutting-edge technologies. New payment arrangements are being pioneered while traditional hiring and workforce retention models are reconsidered.
Slalom contributor: Patrick Aquilino
