6 Health Care Headwinds in 2023 and What to Do About Them

While some of the health care industry has recovered from the effects of the pandemic, as a whole it still faces a variety of headwinds. As 2023 begins to unfold, review six challenges along with steps you can take to help navigate the coming year.

Lingering economic issues

Health care continues to see impacts from lingering economic issues. Inflation has driven up the costs of supplies, pharmaceuticals, and labor, and is eroding already slim operating margins. Compounding inflationary pressures are unstable investment markets that have evaporated significant gains seen during 2021 and are now returning investment losses.

Less income from investments can impact an organization’s ability to finance capital purchases. Higher interest rates mean organizations are faced with higher borrowing costs. Inflation also leads to higher costs of goods and labor.

What can you do?

• Reassess your supply chain. Have you reviewed all your contracts? Do they vary by department or by entity within your organization? Can you diversify suppliers?
• Analyze your spending data. Carefully scrutinize capital expenditures, especially those requiring financing — are they necessary now, or can they be deferred?
• Rebalance investment portfolios to help reduce investment losses.

Revenue pressures

Many health care providers or organizations will face ongoing revenue pressures. For some providers, pre-pandemic volumes or occupancy levels have not returned. Medicare reimbursement pressures will be felt by physicians, nursing homes, and home health — particularly due to finalized payment cuts and behavioral offsets under their respective fee schedules. Medicaid reimbursements vary by state but often fail to cover the cost of taking care of vulnerable patients.

With the public health emergency likely ending later this spring and eligibility redeterminations beginning in April, Medicaid rolls will see churn. This may result in more uncompensated or charity care for providers. Medicare Advantage plans now cover roughly half of all Medicare eligible beneficiaries and do not have to follow Medicare Fee-For-Service rates.

What can you do?

• Pay keen attention to reimbursements, denials, and all things revenue cycle. Undertake financial modeling based on key indicators, service line profitability assessments, and growth opportunities.
• Consider investigating new partnerships, alignments, or value-based models.
• To the extent payments are determined by state or federal bodies (e.g., Medicare and Medicaid reimbursements), advocacy can help lawmakers and regulators understand how reimbursement inadequacy impacts you and the care you provide.

Labor shortages and demand for higher wages

Whether due to burnout, low morale, insufficient wages, the need for life balance, or even early retirement, health care organizations across the industry are still facing labor headwinds. In turn, there has been an ongoing labor crunch. Along with the need for more health care employees, there is continued labor churn, increased union activities, and demand for higher wages to keep pace with higher cost of living (or contract professionals).

What can you do?

• Pay very close attention to employee morale, engagement, and loyalty. Consider an employee engagement survey to understand how your staff feel about your organization.
• Reassess your pay structures compared to your market, and consider your benefit package.
• Review your organizational culture.
• Increase remote work and/other scheduling flexibilities where feasible.
• Think innovatively about how to deliver care.
• Develop new or reinforce existing talent pipelines, and know your metrics for recruiting and hiring (time, costs).

Ongoing regulatory scrutiny

Hundreds and hundreds of billions in COVID relief — whether provider relief funds, paycheck protection program, or employee retention credits — means everyone should anticipate scrutiny over these dollars. Nursing homes can expect ongoing scrutiny on past issues raised (role of private equity involvement, staffing levels). Hospitals will continue to face scrutiny on price transparency, billing and debt collection practices, and not-for-profit tax exemption. Mergers and acquisitions in general may face scrutiny if perceived to create consolidated or monopolistic markets. Medicare Advantage plans are under increased scrutiny for coding practices, prior authorization requirements, and marketing.

What can you do?

• Understand the regulatory requirements — coding, billing, documentation, reporting, quality — that apply to you and your organization. Verify you are operating under appropriate policies.
• Educate and re-educate your employees and providers about these requirements. Have regular compliance reviews.
• With respect to all things pandemic-related (waiver usage, funding use), review what you did, why you did it, how you documented it, and correct any errors you find.

Insurers, large companies continue making moves

A variety of vertical integration or expansion plays happened throughout 2022, such as United Health Group’s Optum acquiring Change Healthcare, CVS acquiring Signify, and Walgreens acquiring CareCentrix. Tech-enabled companies helped compound this headwind and create additional competitors in traditional health care spaces like primary care, home care, and preventive care. Expect some of these moves to engender scrutiny by the Department of Justice. The downstream impacts are potential for more competitors, lower volumes, or reduced payments.

What can you do?

• Reassess your market, your service lines, your patients, your volumes, your financial data, and everything in between. Determine your strengths and capitalize on them.
• Look for vulnerabilities and shore them up (or consider an exit strategy).
• Consider investigating new partnerships or affiliations — or a move into adjacent health care or wellness services.
• Reassess your strategic plan. Remain agile.
• Develop and adjust your digital strategy (data, tech).

Cybersecurity vulnerability

Health care is one of the top industries facing cyberattacks and rising risk, and it feels like a new breach or ransomware attack is announced every day. Health care information is attractive to cyber criminals, so take steps to protect your data, devices, and organization. Expect cyberattacks to continue well into the future and keep cybersecurity a key focus area.

What can you do?

• The human factor is responsible for most breaches and ransomware attacks (i.e., phishing, smishing, vishing). Understand how these attacks work and train employees on recognizing them.
• Create a culture attuned to security.
• Develop good cybersecurity hygiene. This includes passwords, multi-factor authentication, use of firewalls, security of “smart” devices (i.e., the Internet of Things), updating software patches immediately, and having an offline backup of data.

How we can help

If you don’t know where to start or how to address these headwinds, reach out to a CLA advisor. From a Phase 1 digital assessment (data, tech, cybersecurity) and targeted financial modeling to employee retention, benefit plans, strategic planning, and more — CLA has the broad and deep industry experience to help you get to where you want to go.