Hospitals are bracing for another challenging year in 2024 as they grapple with persistent financial headwinds, increased competition, and workforce shortages. Financially, operating margins are expected to remain below the desired 3% threshold, signaling continued economic strain across the sector. Operationally, limited wage growth and inflation have caused workforce shortages of between 200-450,000 nurses which strains existing staff and puts patients at risk. Regulatory issues and increased competition add to the continued pressure from payers on health systems to reduce inpatient utilization and reimbursement. Despite concerted efforts to rein in costs and bolster revenue, the industry is unlikely to see a significant financial turnaround soon.

In response to these challenges, hospitals are expected to intensify their efforts to increase market share in outpatient services in 2024. This shift is set to create a competitive environment for independent physicians, who must stay vigilant and flexible to adapt to the evolving healthcare landscape shaped by hospital strategies.

Read More

Outpatient Care Expansion

Health systems are set to bolster investments in ambulatory care centers (ASCs) in 2024, building on a trend from the previous year aimed at expanding geographic reach and catering to patient preferences at a lower cost. Technological advancements are expected to further incentivize these investments by enabling a wider array of outpatient procedures. According to Danny Schmidt, a healthcare senior analyst at RSM US, the industry is shifting towards meeting patients in more convenient locations through free-standing sites that leverage new technologies and require less capital than traditional hospitals. McKinsey & Co forecast that outpatient care settings such as physician offices and ambulatory surgery centers will experience the fastest growth among healthcare providers, driven by site-of-care shifts. Major players such as HCA are making significant moves, with a multi-billion dollar investment in emergency services and the acquisition of free-standing care sites. Ascension is also re-focusing its efforts towards outpatient services after a $2.7B net loss in the 2023 fiscal year. The hospital operator will capitalize on market trends by creating new ambulatory surgery centers, imaging, and outpatient physical therapy sites. Some healthcare providers are acquiring existing facilities, while others, like Kaiser Permanente, are acquiring land for the construction of new outpatient facilities.

This trend has implications for physician autonomy. Physicians employed by hospitals may find that their compensation does not fully reflect the services they provide. Furthermore, the financial constraints and bureaucratic structures of large hospital systems can sometimes hinder physicians' capacity to deliver the highest standard of care.

Strategic Insourcing and Outsourcing in Hospitals

Hospital executives, acknowledging the reality of high labor costs in the post-pandemic landscape, are actively seeking ways to manage labor expenses while still attracting essential medical staff such as nurses and physicians. This balance is reflected in the strategic shift towards 'grow-your-own' nursing programs, where healthcare providers (HCA, Tenet, CHS) partner with or acquire nursing colleges to ensure a consistent influx of new nurses. 

Concurrently, there is a move to reduce expenditures in other areas, with IT and administrative departments facing significant layoffs, automation, and outsourcing, as seen with Kaiser Permanente and Mass General Brigham. This trend is expected to continue as multi-state systems consolidate operations to improve efficiency, leading to increased outsourcing of 'highly repeatable' tasks such as medical billing, coding, transcription, and telehealth support. 

Adam McMullin, CEO of AvaCore recognizes the growing necessity for virtual nursing in hospitals grappling with the dual challenges of rising labor costs and a shortage of seasoned healthcare professionals. Virtual nursing is a solution to operational hurdles but also an untapped opportunity for cost savings and enhanced patient care, with current applications in rounding, admissions, discharge, and support set to expand as the technology's full potential is realized.

Virtual Care and Technology

Industry leaders highlight the critical role of virtual care and technology in achieving the quintuple aim of enhancing patient experience, improving population health, supporting care-team well-being, reducing costs, and addressing equity issues. Lyle Berkowitz, CEO of KeyCare, predicts a surge in hospitals partnering with virtual care providers to improve access and convenience for patients, while also allowing hospitals to optimize their in-office resources. 

Holly Miller, CMO of MedAllies, stresses the importance of investing in technology that not only improves interoperability but also focuses on the usability of patient data to empower clinicians with actionable information at the point of care. 

BJ Boyle of PointClickCare highlights the benefits of technology in streamlining care transitions, reducing administrative burdens, and supporting the shift toward value-based care. In 2024, the adoption of advanced technologies like AI and customized language models is expected to drive personalized insights and risk models, leading to more precise care and greater efficiency for providers.

Consolidation Challenges and Dynamics

The healthcare industry is witnessing a continued trend towards consolidation, with an uptick in 'roll-ups' aimed at increasing market share and potential alliances with non-traditional partners like tech and retail companies. These expansive mergers, however, may be slowed by antitrust scrutiny. 

Post-pandemic expectations point to a rise in larger mergers, as indicated by Kaufman Hall, but growing resistance from physicians—concerned about the impact of non-physician ownership on care quality, as reported in a Physicians Advocacy Institute survey—suggests a potential shift in industry dynamics. 

John August from Cornell University has noted an increase in physician organization efforts, which could signal a tipping point. Moreover, consolidation is poised to challenge health unions, potentially introducing new complexities into established labor relations and overshadowing efforts toward resolution in future healthcare negotiations.

Conclusion

In 2024, hospitals and healthcare providers are facing ongoing financial challenges with operating margins expected to remain below the desired threshold. Credit agencies paint a somber outlook for the sector, and achieving financial stability will depend on strategic management of revenue enhancement and cost reduction measures. The shift towards outpatient care, driven by technological advancements, is anticipated to offer operational efficiencies that could alleviate rising labor costs. This trend towards outpatient services is likely to improve patient access and engagement, offering a more streamlined and accessible care experience.