Financial Challenges for Health Systems Will Likely Persist in 2023

Hospitals and health systems will likely face another year of financial challenges in 2023 as they expect to continue grappling with inflation, staffing shortages, and low margins, according to data from Deloitte.

Deloitte’s 2023 Outlook for Health Care is based on several surveys in which the company polled health plan and health system leaders about their 2023 expectations and concerns.

Health systems have been struggling with workforce shortages since the beginning of the COVID-19 pandemic. Staffing shortages have impacted patient care and have also increased burnout among workers.

One survey found that 85 percent of health system leaders expect staffing challenges to significantly impact their 2023 strategies.

In response to the high rates of burnout and turnover among staff, leaders are prepared to focus more on their workers’ mental health and well-being. Deloitte’s Addressing health care’s talent emergency report found that 95 percent of health system executives said investing in their workforce in 2023 was important or very important.

At the same time, the unstable inflationary environment is expected to continue in 2023. Only 7 percent of health system leaders said that inflation and affordability issues were not likely to impact their 2023 strategies. Meanwhile, 76 percent expect it to have a significant impact.

Rising costs could lead people to delay routine and preventive care, leading to worse health outcomes and potentially increasing the cost of healthcare in the long run.

Health system leaders were less concerned about inflation. However, researchers noted that rising healthcare prices may impact health plans in the future after health systems bear the initial brunt of it.

Hospitals and health systems experienced consistent negative operating margins in 2022, resulting from low patient volumes, revenue decreases, and high expenses. In September 2022, median operating margins were down by 46 percent compared to the same time in 2021, Deloitte noted.

The most recent data from Kaufman Hall revealed that hospital margins were still negative in November at -0.2 percent.

Many hospitals, especially small and local facilities, may not be able to operate with such low margins, which could result in more acquisitions or closures.

Difficult financial situations may also make it harder for hospitals to invest in digital transformation in 2023. Only 29 percent of health system leaders said that accelerated digital transformation would majorly impact their strategies this year, while 63 percent expect it to have a moderate impact.

In contrast, 43 percent of health plan leaders believe digital transformation will significantly impact their 2023 strategies.

Hospitals’ financial challenges could hinder the transition to value-based care, Deloitte shared.

Shifting to new payment models was a top priority for health plan executives, but hospitals may be focused on minimizing their financial losses instead. This may present barriers for health plans when it comes to moving their network providers into new value-based payment models.

However, leveraging value-based care may help hospitals attract and maintain patients, which could help stabilize their finances, according to Deloitte.