Finance specialists: In 2024, hospitals and health systems ‘will not be able to cut their way to profitability’
Along with the obvious hits to patient traffic and population health, the COVID-19 pandemic delivered a financial upending to U.S. healthcare. It began in March 2020 and lasted until January 2021. That month a period of stabilization started to settle in.
Three years later, many if not most healthcare leaders are expecting 2024 to launch the healthcare system toward a full return to normalcy. Are these expectations realistic?
It depends on how certain variables shake out in credit and capital markets over the remaining 11 months, suggest advisors at KaufmanHall.
These include which ways the political winds blow leading up to the 2024 elections, HHS’s early warnings about how it will recoup losses incurred by “budget neutrality” requirements, what KaufmanHall calls the “hollowing of the commercial health insurance market,” and the ongoing economic impact of the Baby Boom generation.
If normalization begins to take hold this year, the Chicago-based healthcare consultancy advises, look for its hallmarks to include
- a recalibrated or stabilized healthcare workforce,
- a settling of the erratic interest rate environment,
- a return of confidently forward-looking capital investments and
- a revival of strategic initiatives driving core business lines at hospitals and other provider organizations.
“Although heightened debt issuance early in 2024 signals a return for many systems to a climate of investment, there is still limited energy around strategy and debt conversations in many boardrooms, especially in those organizations where financial improvement continues to lag,” write three KaufmanHall experts.
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“The last two years have illustrated that hospitals and health systems will not be able to cut their way to profitability. Lackluster performance cannot and will not improve without some level of strategic change, whether it is through market share gains, payer mix shift or operational improvements. This strategic change requires investment, and investment requires capital.”
The authors of the report—KaufmanHall senior VP Lisa Goldstein, managing director Jeffrey Sahrbeck and practice leader Robert Turner—point out that capital can be had in several forms. Whichever forms of capital healthcare leaders pursue, they state, reengaging finance partners in discussions on strategy and growth “should be an imperative in 2024 and will require reexamining how that growth is funded.”
The authors recommend including four points in the agenda of such conversations: changing focus from debt capacity to capital capacity, conducting a capitalization analysis, evaluating surplus return and focusing on “metrics that matter.”
“Although it has been a difficult few years, hospitals and health systems seem to have moved onto a more stable footing over the last 12 months,” the KaufmanHall advisors write. “In order to build upon the upward trajectory, now is the time to harness strategy, planning and investment to move organizations from stability to sustainability.”
Dave P. has worked in journalism, marketing and public relations for more than 30 years, frequently concentrating on hospitals, healthcare technology and Catholic communications. He has also specialized in fundraising communications, ghostwriting for CEOs of local, national and global charities, nonprofits and foundations.