Declining margins, decreasing patient volumes and strained payer relationships are among the core challenges facing hospitals and health systems as the labor crisis exacerbates operational issues and inflation drives up the cost of drugs, equipment and supplies.
These macroeconomic pressures are expected to remain in place for a while to come, pushing health systems to explore innovative ways to improve their financial footing, including mergers and acquisitions, joint ventures and non-traditional partnerships, according to KPMG's "2023 Healthcare and Life Sciences Investment Outlook," published Jan. 9:
In the report, KPMG outlined six headwinds and two tailwinds that will be top of mind for hospital and health system decision-makers this year:
Headwinds
- Margin pressures. Challenges will include inflation, high supply and labor costs, and limited availability of clinical and nonclinical staff.
- Reimbursement growth could continue to trail cost increases. The rising costs of supplies and labor may continue to squeeze hospital margins.
- Some safety-net systems will struggle. Unemployment may rise in some communities, with associated rises in poverty and the numbers of uninsured.
- Pricing pressures. Hospital price transparency went into full effect in 2022, yielding data that may ignite consumer pricing demands and change their behavior.
- Federal support weakens. The return of sequestration and the potential end of the public health emergency in April could eradicate revenue sources that helped many hospitals and health systems tackle financial hurdles during the pandemic.
- Balance sheet concerns. Interest income and investment portfolio gains will be subject to interest rates and market return volatility.
Tailwinds
- Demographics. Aging populations will need more care.
- Respect. More consumers and policymakers now recognize that hospitals are critical to protect against public health threats such as pandemics.
Click here to access the KPMG report.