2024 Financial Trends in Healthcare

February 21, 2024

As 2024 gets underway, the healthcare industry continues to ride the wave of technological advances. The widespread adoption of new and exciting technologies such as generative artificial intelligence bodes well for healthcare organizations and their patients, making the delivery of healthcare better, smarter, and faster.

But even as healthcare organizations seek to optimize efficiencies and improve patient outcomes by becoming more technologically robust, the industry still faces financial challenges in the aftermath of the COVID-19 pandemic and the subsequent rise in inflation. From ever-increasing medical costs to business mergers and acquisitions to outsourcing staff and investing in cybersecurity, below are five financial trends that are set to shape the economic landscape of healthcare this year.

Rising Healthcare Costs

The rising cost of healthcare has long been a concern for the U.S., and 2024 promises more of the same. Healthcare costs are expected to climb by 7%, which is a bigger jump than in the previous two years.1 A recent Price Waterhouse Coopers report identified two factors contributing to higher costs—renegotiated payer and provider contracts and the soaring price of pharmaceutical drugs. In response to an inflationary economy, hospitals and doctors are expected to seek higher rate increases more frequently in their contract negotiations with healthcare payers.

Payers are also experiencing inflationary pressure due to the mounting median cost of specialty drugs and the increasing prices of existing drugs. With new cell and gene therapies being granted faster approvals by the FDA, pharmaceutical costs are expected to rise in 2024. For example, the first-ever gene therapy approved to treat adults with hemophilia B is priced at $3.5 million for a single dose.2 And while this extreme level of drug pricing is rare, the overall upward cost trajectory of medical care places a high financial burden on healthcare systems, payers, employers, and patients. To address these challenges in the new year, healthcare organizations must implement innovative cost containment strategies and leverage technology to operate more leanly.

More Mergers and Acquisitions

The COVID-19 pandemic temporarily brought the trend of mergers and acquisitions in the healthcare sector to a halt. However, 2024 will likely see a strong resurgence in merger and acquisition (M&A) activities. And while there have been several high-profile health system M&As, smaller systems are also getting in on the action. Healthcare organizations of all sizes are increasingly recognizing the benefits of consolidation, not only in terms of cost savings but also in the ability to provide more comprehensive and integrated care to patients. For example, venture capital firm General Catalyst (GC) recently announced its plans to acquire the Ohio-based nonprofit Summa Health, one of the state’s largest integrated healthcare delivery systems. GC aims to convert Summa Health to a for-profit system as part of a long-term journey to reshape and improve the future of care delivery—a journey characterized by a committed shift to value-based care and access to new revenue streams, resources, and innovation.3 It is noteworthy to see healthcare systems tap into venture capital to strengthen their organization and advance healthcare delivery.

Deloitte’s annual healthcare outlook survey revealed that 86% of C-suite executives believed M&A would play some role in their 2024 strategy.4 In terms of how significant a role it will play, 33% of executives said M&A would have a “great impact” and 53% stated it would have a “moderate impact” on business operations.

In an effort to expand their reach, some of the larger healthcare organizations have even acquired or partnered with businesses in the technology, telecom, and retail sectors. One such example of a “hybrid” M&A is Amazon’s acquisition of One Medical, a virtual and in-office health service that provides preventive care and chronic care management for common illnesses. The e-commerce giant acquired One Medical to “deliver exceptional health care to more people to achieve better health outcomes, better care experiences, and more value.” 5 These types of strategic mergers can give organizations a competitive edge as they attempt to meet the demands of a more knowledgeable and digitally empowered healthcare consumer.

Workforce Shortages and Burnout

Post-COVID, in the face of workforce shortages and clinician burnout, provider retirements, and increased competition for talent, attracting and retaining skilled healthcare professionals is a significant concern for healthcare organizations. In particular, providers’ revenue cycles suffer from a lack of qualified staff.  More than half (57%) of health system executives polled in the Deloitte survey expected talent shortages and workforce challenges to impact their organization’s strategy in 2024.4 These worker shortages wreak a heavy financial toll on healthcare organizations: according to data published by Syntellis and the American Hospital Association, contract labor expenses for hospitals shot up 258% from 2019 to 2022.6

To counteract shortages, many healthcare organizations are offering candidates attractive compensation packages, flexible work schedules, and talent development programs to enhance employee satisfaction and well-being. At the same time, a number of hospitals and health systems have been forced to reduce their workforces or eliminate jobs due to financial and operational difficulties. In fourth quarter 2023, at least 96 health systems reported job cuts. The healthcare and products industry, which includes hospitals and product manufacturers, announced 57,758 cuts through November 2023, an increase of 99%.7 As the year 2024 unfolds, healthcare leaders will continue to walk the fine line between the need to fill critical frontline positions and reduce the number of redundant workers.

Employee Outsourcing

In response to shrinking budgets and flat profit margins, some healthcare organizations are turning to outsourcing as a means to lower costs. The global healthcare business process outsourcing market wasestimated to be worth $296.4 billion in 2021 and is poised to reach $468.5 billion by 2026, growing at a CAGR of 9.6% from 2021 to 2026.8 The main incentive for the booming healthcare outsourcing industry is cost efficiency. Healthcare systems can save as much as 30-60% on costs by outsourcing.

The most common outsourced healthcare functions include medical coding and billing, medical transcription, claims processing, virtual healthcare assistants, and healthcare customer support. A 2022 study found that healthcare providers have a significant interest in outsourcing their RCM processes, with 61% of providers expecting to make greater use of external parties for offering patient financing options in the wake of lingering disruptions following the pandemic.9

One survey of more than 500 hospitals and inpatient organizations conducted by Black Book Market Research revealed that 90% of healthcare executives, in response to financial pressure triggered by value-based care reforms, were exploring cost savings through relationships with third-party vendors.10 In the current economic environment, a growing number of decision makers view outsourced workforce solutions as a viable means of stabilizing their organization’s balance sheets.

Investments in Cybersecurity

Because of the widespread deployment of electronic health records, safeguarding patient data is a top-of-mind issue for healthcare IT decision-makers. In 2022, the global healthcare cybersecurity market size was estimated at more than $17 billion and is expected to surpass $81 billion by 2032.11 Financial investment in cybersecurity technology is a business requirement necessary for healthcare organizations to survive and thrive.

The implementation of robust cybersecurity measures is also a fundamental necessity for protecting patient data and privacy, complying with regulatory mandates, maintaining public trust, and ensuring the integrity of healthcare systems. The 2024 Health System Digital & IT Investment Trends report indicates that more than 85% of healthcare organizations are proactively increasing their 2024 digital and IT budgets with a top investment priority being cybersecurity.12 As organizations invest more resources in becoming cyber resilient, they will strengthen their defenses against ongoing and future threats.

Conclusion

Now, more than ever, healthcare organizations must use a multifaceted financial strategy that mitigates rising healthcare costs, explores the potential of mergers and acquisitions, manages staff shortages, leverages the outsourcing of administrative and clinical duties, and prioritizes investments in cybersecurity. The sum total of these efforts will not only provide the linchpin for the financial viability of healthcare organizations, but will contribute to a healthcare ecosystem that is resilient, innovative, and responsive to the dynamic needs of patients and stakeholders. The strategic alignment of financial initiatives with a commitment to patient-centric care will be instrumental in shaping a sustainable and thriving healthcare industry in 2024 and the years to follow.

About Elevate Patient Financial Solutions®

Elevate Patient Financial Solutions® is a trusted partner that delivers superior RCM solutions to hospitals, health systems, and healthcare providers nationwide. For more than 40 years, we’ve been developing and continually refining our best-in-class services and innovative, specialized technology to address the most complex challenges of the revenue cycle.

We’ve carefully built teams with unmatched industry experience and service-specific expertise, and our commitment is to deliver on our promises, seek continuous improvement and the pursuit of excellence to deliver elevated results for our clients. Our services include Eligibility & Disability Enrollment, Self-Pay, Third Party Liability, Workers’ Compensation, Veterans Administration, COB Denials, Out-of-State Eligibility, and A/R Services, including High and Low Balance A/R projects, Zero Balance Payment Recovery, Legacy Receivables and Extended Business Office engagements.

With in-depth, state-specific knowledge and a coast-to-coast presence, ElevatePFS delivers exceptional performance and an unmatched client experience.

References

  1. https://www.healthcarefinancenews.com/news/payers-could-see-7-spike-healthcare-costs-2024
  2. https://lifesciencesintelligence.com/features/the-top-5-most-expensive-fda-approved-gene-therapies
  3. https://www.aha.org/aha-center-health-innovation-market-scan/2024-01-23-4-takeaways-general-catalysts-plan-acquire-summa-health
  4. https://www2.deloitte.com/us/en/blog/health-care-blog/2023/outlook-for-health-care.html
  5. https://www.onemedical.com/mediacenter/one-medical-joins-amazon/
  6. https://www.aha.org/news/headline/2023-03-08-hospitals-contract-labor-costs-surge-amid-workforce-shortages
  7. https://www.challengergray.com/blog/job-cuts-jump-in-november-2023-from-october-second-time-this-year-cuts-lower-than-same-month-year-ago/
  8. https://www.marketsandmarkets.com/Market-Reports/healthcare-outsourcing-bpo-market-472.html
  9. https://www.synchrony.com/contenthub/newsroom/study-finds-healthcare-providers-looking-to-outsource-revenue.html
  10. https://blackbookmarketresearch.newswire.com/news/pressures-of-value-based-care-reforms-trigger-sharp-increase-in-21000011
  11. https://www.precedenceresearch.com/healthcare-cybersecurity-market
  12. https://www.healthcareitnews.com/news/providers-report-significant-it-budget-increases-2024

 

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