Unrelenting Margin Pressures: Overcoming Healthcare’s Softening Revenues and Rising Expenses

posted by David W. Johnson on January 9, 2020 - 12:00am

Co-authored with Jeff Jones, Chief Commercial and Strategy Officer for Conifer Health Solutions.

Key Takeaways:

  • Despite favorable rating agency outlooks, the 2020s promise to be healthcare’s most turbulent decade since the 1990s.
  • It’s been a great 20-year run for the healthcare industry, but business as usual for hospitals and health systems is no longer a viable option.
  • 5 key pressure points are driving down margins.
  • Health systems must take 4 steps to relieve margin pressure.
  • The time for change is now. More than innovation, execution will differentiate winners from losers.

In mid-December, Moody’s Investor Services and Fitch Ratings upgraded their outlooks for U.S. nonprofit health systems from negative to stable for 2020.[1] Standard & Poor’s, the third major rating agency, will issue its 2020 sector outlook later this month. In all likelihood, S&P will affirm its stable 2019 outlook.

The rating agencies cited more favorable payment rates, higher volumes, greater market concentration and stronger balance sheet ratios in revising their 2020 outlooks. These positive near-term developments should not fool health system leaders.

A host of market-driven and regulatory forces are fundamentally challenging traditional acute care operating models. These include a higher governmental payer mix, more discerning commercial buyers, more risk-based contracting, new competitors, changing consumer behaviors, and a dramatically shifting regulatory environment.

Together, these forces will make the coming decade the most challenging for hospitals and health systems since the 1990s. Unlike the 1990s, the solutions needed to meet current market challenges will require dramatic improvements in operating efficiency and fundamental changes to health system business models.

Enlightened health system leaders will use this “calm before the storm” period to reposition their companies so they can compete more effectively by delivering higher value care services.

To read the full report, please click here.