Will hospitals see expense relief in 2024?

Inflation and workforce shortages have rocketed expenses for hospitals in the last two years, and executive teams are pivoting to stabilize finances as much as possible. Will 2024 economic trends bring relief or more of the same pressures?

It depends on the hospital's strategy and ability to execute, according to Moody's.

"The healthcare sector will continue to grapple with high expenses principally because of a shortage of skilled labor, particularly nurses. However, the growth in expenses will slow as hospitals make greater efforts to recruit and retain full-time nurses (partly through providing expanded benefit packages) to reduce reliance on expensive contract labor," states the November report from Moody's titled "Not-for-Profit and Public Healthcare - US: 2024 Outlook - Revised to stable as financial recovery gains momentum."

The stabilization of hospital expenses has already started. KafumanHall's November "National Hospital Flash Report" shows revenue growth outpaced expense growth in October, and in some regions expenses per calendar day were relatively flat. Supply expenses were still high, growing 11% year over year, but labor expenses were up just 3% for the month.

Hospitals have also increased discharges by 5% and reduced the total average length of stay by 7% in the month of October. That bodes well for patient throughput at hospitals' financial recovery.

"The [average length of stay] will continue to decrease as hospitals aim to secure more post-acute-care beds through long-term contracts and improve discharge processes. However, ALOS is likely to remain at higher than historical levels," Moody's noted in its report.

A lack of staffed post-acute care beds could bump up the average length of stay, which keeps labor costs high and strains hospital capacity, "potentially curbing revenue," according to Moody's.

Moody's also expects continued inflation will likely mean high interest rates again next year. Borrowing money and refinancing will likely be challenging again next year, according to the report. Moody's also cited possible revenue killers including:

  • COVID-19 patient surges leading to postponed elective procedures
  • Cybersecurity risks and spending on preventative measures
  • Increased drug and medical supply costs

"In response to these challenges, management teams will likely expedite initiatives that redesign workflow, better leverage IT and increase use of telemedicine and other technologies to streamline operations," Moody's stated in the report. "Generative AI also stands to reduce some of health systems' record-keeping difficulties, long a pain point. Hospitals will also seek to reduce costs through partnerships with physician management groups and organizations specializing in revenue cycle management, IT, care management, the patient experience and other areas."

Erik Swanson, senior vice president of data and analytics at KaufmanHall, cited the importance of hospitals incorporating patient-focused measures including cost of care to patients and how much patients spend at a hospital in comparison with other healthcare-related spending to improve relationships and capture more patient volume.

"Hospitals who have adopted patient-focused measures have used them to improve patient satisfaction, increase patient access and enhance marketing strategies," he wrote in the report. "In addition to incorporating patient-focused measures, hospitals and health systems must also measure and track the corresponding return on investment."

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