The healthcare industry is recovering from several years of financial disruption. But, experts predict 2024 will bring little relief for many hospitals and health systems.
Some providers continue to operate in the red following the impacts of the Covid-19 pandemic. Here are five factors that will impact healthcare providers’ financials in 2024.
1. Persistent Inflation
Experts believe inflated expenses will continue to pressure operations. Labor costs are a top concern. Hospitals are adjusting salaries and wages upwards, such as Kaiser Permanente agreeing to a 21% pay increase.
Prices for medical supplies and other necessary equipment will likely remain high, especially as providers renegotiate vendor contracts.
“For some items that hospitals purchase in large quantities over time, where they’ve contracted for pricing over time, there could be a ripple effect,” Chip Kahn, CEO of the Federation of American Hospitals, told Modern Healthcare.
Additionally, rising construction costs will continue to create financial pressure next year. JLL, a global real estate services company, predicts total construction costs will see modest growth in 2024—between 2 percent and 4 percent.
Indiana University Health is working to build an expansive downtown Indianapolis medical campus. IU Health initially budgeted $1.6 billion when the project plan was announced in 2021. However, the budget has ballooned to $4.3 billion, in part due to rising construction costs.
2. Patient Volumes
Driven by pent-up demand, hospitals and health systems are seeing higher patient volumes. But a key driver of revenue varies.
The Cleveland Clinic in Ohio reported an 8.1% increase in surgeries through the third quarter of 2023. However, in a recent quarterly financial report, Michigan-based Trinity Health said inpatient volumes might never return to pre-pandemic levels. More procedures continue to move to the outpatient setting.
3. Regulatory Crackdown
As hospitals and healthcare systems look to boost revenue and create efficiencies through mergers and acquisitions, experts expect more challenges in 2024.
Proposed healthcare mergers are seeing more regulatory challenges from government agencies like the Federal Trade Commission (FTC). For instance, the FTC sued to block an acquisition of San Ramon Regional Medical Center in California in November.
4. Operating Margins are Still Recovering
Hospital operating margins are improving slowly, but some providers remain in the red. According to consulting firm Kaufman Hall, year-to-date median operating margins were a steady 1.2% from August through October.
“We’re not back to a pre-pandemic level of operating margins,” Mark Pascaris, director at Fitch Ratings, told Modern Healthcare. “Part of the question, not just for 2024 but really long-term beyond that is, will we ever get back?”
5. Rising Insurance Costs
The third quarter of 2023 marked the 24th consecutive quarter of premium increases, according to The Council of Insurance Agents & Brokers (CIAB). Premiums average of 8.1% increase.
Some of the most significant increases came from commercial property premiums, which increased by an average of 17.1% in Q3. Average premium increases for this line have topped 15% for a year.
The ongoing hard insurance market is taking a toll on buyers, as concerns about future premium increases were the top concern, according to the CIAB survey. “Many clients, especially those with no losses, expressed frustration with the system,” the CIAB reported.
In today’s challenging insurance marketplace, working with a trusted, experienced insurance advisor is becoming critical.
Chivaroli and Associates Insurance Services is a full-service brokerage firm specializing in the custom-design and placement of insurance and alternative risk funding solutions for your healthcare organization.