Inflation and market pressure are making it difficult for many health systems to return to pre-pandemic levels of financial performance. To return to a stable financial environment means that executives must balance near-term demands with a broader strategic vision.
During an executive roundtable session at Becker's Hospital Review's 13th Annual Meeting sponsored by Optum, John Johnston, senior vice president, Optum Advisory Services, and Chris Pass, president, market performance partnerships, Optum, facilitated a discussion about health systems' current financial challenges. They also discuss how health systems are balancing the short-term needs of their communities against long-term financial viability and the role of creative partnerships and initiatives to lower the total cost of care.
Four key takeaways were:
1. Healthcare executives are facing unprecedented headwinds. These headwinds include market pressures that are suppressing margins and impeding financial recovery. According to Advisory Board Research, 69 percent of health systems report operating margins that are below pre-pandemic levels and, from 2021 to 2022, health systems projected a 2 to 9 percent decrease of operating cash. "The workforce shortages and high contract rates for nurses are killing bottom lines," Mr. Johnston said. "We've also had dramatic coverage swings, an increase in behavioral health issues, rising inflation and supply chain disruptions."
2. Balancing short-term needs and long-term strategy will be critical in successfully moving forward. As health systems struggle with near-term issues of inflation and care delivery, they also need to strategically consider what's best for the future. This comes in an environment where elevated spending creates a tough business climate.
A roundtable participant shared her health system's experience. "We had a pretty respectable first quarter, but that recovery hasn't helped us with inflated costs," she said. "We're doing less worse than we were. However, we are simultaneously doing some long-term service repositioning. One of the themes is that you can't be all things to all people at all sites. We are looking at routing some of our extremely resource-intensive services to one center and redefining what our system looks like."
3. There are tensions that are simultaneously increasing the costs of healthcare while other forces are at work to decrease costs. "In the Northern California market, many tech companies offer employee-friendly benefits nearly across the board," Mr. Pass said. "This might be a sweet spot for insurance companies to get away with a larger-than-normal increase to providers. Employers are going to be willing to accept it because they're competing for talent. At the same time, we are seeing a lot of willingness to co-share PPO quality metrics to lower the total cost of care and a greater openness to discuss value."
4. As mega-mergers continue to draw scrutiny, there will be a need to find creative ways to partner to strategically deliver care at lower costs. The Federal Trade Commission will continue to keep an eye on major mergers, yet smart partnerships will continue to be critical to reducing costs. "We need to take advantage of some of the retail, urgent care and other market disruptors," Mr. Pass said. "And many Bay Area employers are really excited about point solutions. They have this [app] for hospital care and that app for diabetics; employers are trying to give employees more opportunities to lower overall cost of care that's not directly partnered with the health insurance company. I think being able to partner with organizations that can do things that you can't is going to continue."
As health systems continue to navigate a difficult economic environment, simultaneously focusing on both short- and long-term priorities will be critical to future financial stability. Smart partnerships, creative initiatives to lower total cost of care and wise consolidations of services will all play a role in this ongoing effort.