2023 Will Be a Year of Shrinking Margins and More Consolidation for Hospitals, Expert Says

2023 Will Be a Year of Shrinking Margins and More Consolidation for Hospitals, Expert Says

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Inflation and shrinking operational margins are among the key factors that will influence hospitals and health systems’ strategies in 2023, according to a new analysis from Deloitte.

Financial analysts have said that 2022 may have been the worst year for hospital finances in decades, as increases in hospitals’ labor and supply expenses has dramatically outpaced their revenue growth.

Hospitals are underperforming financially just about across the board. Take the country’s three largest nonprofit health systems — Ascension, CommonSpirit Health and Trinity Health — for example. The losses they reported for the third quarter of 2022 totaled $118.6 million, $227 million and $550.9 million, respectively.

Shrinking margins are not going to be sustainable for all hospitals, with small and rural hospitals being the most vulnerable. As a result, 2023 will see more hospitals merging or shutting down, said Tina Wheeler, Deloitte’s leader for its healthcare sector.

“These smaller and midsize hospitals are just getting hammered, and a lot of them are facing bankruptcy or even just shutting their doors,” she said. “There’s this perception that bigger is better. Deloitte used to say that if you were in a health system with a revenue that was $2 billion or bigger, you were going to be consolidated. Well now that number has grown dramatically — maybe it’s at the $6 billion to $8 billion size.”

Experts used to think that healthcare was pretty much immune to inflation because people will always get sick and require healthcare services. But that isn’t quite true anymore, Wheeler said. In fact, when Deloitte conducted a recent survey of health system executives, just 7% of respondents said inflation and affordability issues were not likely to affect their 2023 strategy.

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In our current economic environment — which is rife with hyperinflation and rising interest rates — Americans are struggling with the affordability of things like housing, gas and food. This means many people are deferring preventive healthcare due to cost, Wheeler pointed out.

It’s not like people are skipping out on preventive healthcare for no good reason. Many Americans are uninsured or are covered under high-deductible health plans, and it’s plain to see why they would defer care when money is tight and there’s nothing immediately wrong with them. But when people delay preventive care, they are more likely to have a health problem escalate to the point where it lands them in the emergency room, Wheeler explained.

She predicted that emergency department volumes are going to spike for hospitals, which they may not be able to handle because they are struggling with critical workforce shortages. Unfortunately, it’s a “perfect storm,” Wheeler said.

And implementing new technology to improve clinical and operational outcomes is “going to continue to be a challenge on the hospital side,” she declared. This is not true for payers, which have been enjoying financial success and are “much further along” when it comes to digitizing their processes and incorporating things like artificial intelligence and robotic process automation, Wheeler noted.

For hospitals, it’s going to be difficult to justify the costs of enterprise-wide technology deployments when margins are so slim. In Wheeler’s view, it will be difficult for hospitals to determine how to get the “biggest bang for their buck” when it comes to the technology needed to optimize their operations.

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Photo by Flickr user Investment Zen

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