As we prepare to enter the new year, we asked our practice group leaders to reflect on the trends they have seen in their industry in 2023 and what may lie ahead in 2024. Peter Blau, Managing Partner, Global Healthcare Services & Solutions shares his insights on the impact that increased mergers and acquisitions and workforce and reimbursement challenges had in 2023 and what healthcare leaders should be thinking about to stay ahead in 2024.
Trends in 2023
Mergers and Acquisitions: The healthcare industry continues to consolidate. Health systems across the U.S. have been seeking acquisition or mergers for strategic partnerships and some are looking out of financial necessity. In many cases, the health systems that are merging are crossing state and regional boundaries. It was reported that in the first half of 2023, there were 35 transactions, compared to the 53 mergers that happened in 2022. Health plans (payers) mergers and acquisitions continue at a steady pace, and health plans are acquiring complementary services to add to their offerings or to reduce costs.
Workforce Challenges: Retirement and resignations in leadership and clinical roles have continued consistently. Factors of the workforce exiting include burnout, an aging workforce, and increased options particularly for clinicians (physicians and nurses) to perform roles outside of traditional healthcare delivery. In addition, healthcare providers have seen their margins challenged due to increased labor costs. Healthcare organizations are focusing on workforce training and retention strategies. According to a 2023 study, hospitals expect to grow their hospital workforce, with an anticipated 37% increase to the recruitment budget and 20% of hospitals are planning to increase their recruitment staff.
Reimbursement Challenges: Providers and payers have been challenged by government reimbursement rates not keeping up with inflation. Payers have been very aggressive in negotiation and prior authorization procedures, increasing conflict between payers and providers. American Health & Drug Benefits found that some aspects of the Inflation Reduction Act’s Medicare Part D provisions may serve to lower drug costs to payers, while others will likely increase payer costs. A good example of the latter is the elimination of the 5% catastrophic coinsurance in 2024 and the reduction of the catastrophic coverage threshold from $7050 to $2000 in 2025.
Predictions for 2024
- Stabilization of Finances: The focus will continue to be on the improvement and stabilization of finances across the healthcare industry. Moody’s predicts that higher reimbursement rates that are negotiated with insurers and patient volume will increase, driving the average operating revenue growth in the 4%-6% range in 2024. This financial challenge will likely result in healthcare organizations becoming less hesitant to replace unfilled positions.
- C-suite Turnover: C-suite turnover will continue due to retirements, M&A activity, and financial challenges. There has been a tendency to delay some hiring due to financial constraints or pending merger activity. With stronger financial results and the finalization of some of these mergers, we can expect healthcare organizations to accelerate leadership hiring in 2024.
- Mergers & Acquisitions Activity: This will continue for provider and payer organizations, as well as continued cross-industry mergers, acquisitions, and partnerships. As mergers are taking place organizations are seeking out executives who have led through substantial change through large-scale integration efforts, including mergers and acquisitions.
- Non-Traditional Partnerships: Healthcare leaders who have worked in for-profit and non-profit organizations will be key to successfully navigating this changing environment as hospitals will continue to partner with brick-and-mortar retail companies like Walmart and Walgreens to expand access to care. It has been projected that non-traditional organizations will own 30% of the primary care market by 2030. Health systems will also continue to partner with non-traditional partners such as Amazon. Leaders who have the ability and experience working with regulators and community stakeholders will be effective in taking a prominent role in addressing community needs around equity, access, and the elimination of barriers to healthcare.
Healthcare is an ever-evolving industry, and these factors will affect the way health systems build their workforces and leadership teams. By staying up to date on the latest trends and developments healthcare leaders will be prepared to address these challenges and opportunities for continued success in 2024 and beyond.