Pete Reilly

Interest Rates, Labor and Cybercrime Keep Pressure on Healthcare

By Pete Reilly
Pete Reilly

The healthcare sector can expect some improvement in lower inflation rates and attendant pressures for the remainder of 2024. But it’s not yet out of the pandemic woods, as interest rates remain high, the shortage of professionals persists and there’s no shortage of risks. Here’s a perspective on what the year holds.

The various pressures that have been a drag on the healthcare sector—many in place before the disruptions stemming from the COVID-19 pandemic—may relent to some extent this year. But it’s still no time for organizations to let down their guard against the risks.

The good news, of course, is the sharp reduction in the rate of inflation, which gives many prognosticators an optimistic outlook for 2024. Morningstar, for example, predicts an average inflation rate of 1.8% through 2027, achieving normalcy without a recession. That, in turn, may alleviate pressures on costs for supplies, equipment and routine maintenance, especially as supply chains smooth out.

But there’s been a tradeoff as the cost of borrowing remains high, affecting not just capital projects, including new facilities, but purchases of advanced medical technologies, too. Another concern is the impact of the cost of long-term debt coming due as well as revolving credit lines.

Greater competition is also eroding revenues and profits. The number of nonprofit and for-profit urgent care clinics has exploded to nearly 14,500 since 2019 and patient volume has surged. With Medicare’s extended coverage of telehealth consultations through 2024, the service’s continuing popularity will divert revenues from providers who would otherwise see patients in person. And then there are the pressures of the chronic shortages of professionals at all levels.

All told though, the vise on margins is relenting. The median year-to-date hospital operating margin at the end of November rose to 2%, marking nine months of positive progress after a dismal 2022 performance.

Organizations with a solid understanding of the risks and ways to mitigate them will be best positioned to reap the rewards in an improved environment. Some of the top concerns—and potential cures—include:

1. Deeper cultural changes needed for employment challenges. Healthcare’s vitality continues to be sapped by its shortage of professionals. It’s projected to be short 200,000 nurses by 2030, and 48,000 primary care physicians by 2034.

There are myriad causes. Start with perceived lack of respect. Over 30% of healthcare workers leave the field because they don’t feel valued. Safety is another factor in an environment where the risk of injury from workplace violence is five times greater than in any other industry.

While artificial intelligence has been held out as a long-term cure for labor shortages, with potential for healthcare, the technology remains in its infancy. More important than any other factor, according to 87% of healthcare respondents to HUB International’s 2024 Outlook Executive Survey, is the impact of training and new skills on employee vitality.

Healthcare’s healing might also be advanced with a more humanistic approach to benefits and work policies. More than eight out of 10 employees want to be seen as individuals, not merely workers, and for their employers to support both their work and personal lives. Delivering personalized benefits that help create a quality employee experience can be a major factor in boosting recruiting and retention efforts in 2024

2. Guarding against manageable risks. Some of the most important advances in healthcare have proven to be a double-edged sword. Technology, for example, has been a boon for medicine, offering improved efficiency and enhanced patient care. But there’s been a substantial cost as cyber attacks have skyrocketed, affecting one in three Americans and shutting down life-critical systems in the process. Putting stringent safeguards in place against the risk has never been more important. On a positive note, cyber insurance premiums, after years of double-digit increases, are likely to level off or increase nominally in 2024.

Another concern, but increasingly hard to anticipate and guard against, is the impact of climate change. Hurricanes, floods, extreme heat and other catastrophic weather events are occurring with more frequency. It makes business contingency plans key, along with sufficient insurance. Property coverage and insurance for catastrophic perils will rise as much as 30% this year, and possibly more for properties with high catastrophe (CAT) exposures.

Because many carriers are limiting capacity, restricting their appetite in selected markets and/or increasing premiums to the point of unaffordability, healthcare providers will want to consider alternate risk vehicles such as captives or self-insurance for certain insurance needs, such as property coverage, when appropriate.

Organizations should not expect a single carrier to cover all their insurance needs in any given coverage line, as healthcare providers often need to access multiple carriers for full coverage.

Preparing for Coming Challenges

Success will rest on strategic planning for improved profitability that hinges on maintaining—or restoring—vitality and resiliency.

Best in class organizations will thoughtfully lean into risk. Alternative risk transfer vehicles, for example, will lower costs. Making personalization and a quality experience the basis of employee benefits will help attract and retain good people. Leaders will renew their emphasis on safe environments, for patients and employees alike. Further, digging deep to understand the root causes of large losses and having a plan to prevent them in the future is important for creating the best position with insurers.

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