The U.S. healthcare industry finds itself in a difficult spot financially. The American Hospital Association (AHA) estimated that hospitals and health systems nationwide reported losses totaling $323 billion through the end of 2020.
Unfortunately, the bad news continued even after COVID-19 eased. More than 50% of U.S. hospitals ended 2022 operating at a financial loss and the trend continued in 2023 with many hospitals reporting negative median operating margins.
The financial pressures now facing the healthcare industry are being driven by a variety of factors. They are also having a wide range of impacts on patients and healthcare workers alike. This blog will explore the top causes of the healthcare industry’s financial crisis as well as the biggest impacts on those who rely on the industry for either care or career.
The Top 5 Drivers of Financial Pressure in Healthcare
1: Inflation
The goods and services that drive the healthcare industry have been especially hard hit by inflation in recent years. For example, the AHA reports that the median average price for a new drug increased 35% from 2022 to 2023.
Likewise, labor costs in the healthcare industry rose by more than $42 billion between 2021 and 2023, due partly to the need for more expensive contract workers. Considering that labor typically accounts for more than 50% of a hospital’s operating budget, the impact to the bottom line has been substantial.
2: Reimbursement Shortfalls
Consistent with the first financial pressure noted above, the AHA reports that inflation rose by 12.4% across the entire U.S. economy between 2021 and 2023. However, Medicare reimbursements for hospital inpatient care only rose 5.2% during that same time period.
There is also the issue of Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) scores. Hospitals recording low HCAHPS scores receive less funding from Medicare’s payment system and may even be docked with financial penalties if scores are especially low.
3: Regulatory Oversight
The need to comply with increasing regulatory oversight creates financial stress for the healthcare industry in a multitude of ways. For example:
- Regulations related to patient care and billing processes necessitate specialized administrative staff and costly technology investments.
- The FDA’s stringent approval process slows the availability of less expensive generic drugs.
- Expanding governance of overtime rules and nurse-to-patient ratios is driving up labor costs.
4: Litigation
Litigation continues to have a substantial impact on the financial performance of healthcare organizations.
- Both hospitals and healthcare providers must carry medical malpractice insurance to protect against lawsuits. Meanwhile, the American Medical Association (AMA) reported that medical liability insurance premiums increased for four consecutive years between 2019 and 2022 — a year-over-year rate hike not observed in decades.
- Nationwide, the average medical malpractice claim payout was just shy of $500,000 in 2023 and was as high as $2.1 million in Vermont.
- So-called “defensive medicine” is also a drag on the bottom line as physicians order billions of dollars of additional tests and procedures each year to protect against potential lawsuits.
5: Ransomware Attacks
Ransomware attacks remain a growing threat to the financial performance of the healthcare industry.
- A total of 258 ransomware attacks were reported across the U.S. healthcare industry in 2023, an increase of 128% from the prior year.
- The total cost to the industry of these attacks was estimated at $2.6 billion.
- For the hospitals victimized, the average cost to recover was estimated at $10.1 million and included charges related to system recovery, lost revenue and operational disruption.
The Top 3 Indicators of Declining Quality of Care
1: Staffing Shortages
As financial pressures rise, healthcare organizations are struggling to balance staffing levels — already noted as the single largest cost component for the average hospital. The timing could not be worse for the industry.
A wave of retirements related to Baby Boomer demographics, plus accelerated turnover driven by employee burnout and the prolonged stress of COVID-19, leaves hospitals with a shrinking talent pool. Unfortunately, the financial pressures noted above make it difficult to fight these headwinds with higher pay. The result is a shortage of trained, experienced talent for healthcare systems nationwide.
Staffing ratios are one way to measure the problem. The average nurse-to-patient ratio has increased from 1:5 in 2019 to 1:7 in 2023. This, in turn, naturally results in a lower quality of care for patients.
2: Poorer Outcomes and Patient Satisfaction
Several other metrics are available that suggest the overall quality of patient care is slipping as financial pressures intensify.
- The 30-day hospital readmission rate for Medicare patients increased from 15.3% in 2020 to 16.1% in 2023. Readmissions are often an indicator of errors in care and discharge planning.
- Mortality rates for conditions dependent upon receiving timely care, such as heart attacks and strokes, rose 5% from 2020 to 2023.
- Patient satisfaction levels are falling. Roughly 76% of patients rated their hospital care as “excellent” or “very good” in 2018 but only 68% felt that way in 2023.
3: Hospital Closures
Similar to the decades-old brands that are now exiting the retail industry, the U.S. healthcare industry is witnessing a surge of hospital closures. Unfortunately, convenient access to quality healthcare and emergency services declines as these hospitals close.
- Between 2020 and 2023, a total of 117 acute care hospitals closed in the U.S. while only 69 new hospitals opened, resulting in a net closure of 48 hospitals.
- More than 700 rural hospitals — roughly 30% of the total number — are believed to be at risk of closing in the years ahead.
- The entire healthcare sector saw 79 bankruptcy filings in 2023, the highest number since 2019.
iMedHealth From Taylor Healthcare
iMedHealth, from Taylor Healthcare, is a suite of patient engagement digital healthcare solutions that’s designed to increase patient engagement and minimize risk for healthcare organizations. Each of the iMedHealth technologies can help ease the financial pressures facing hospitals while also enhancing the quality of patient care.
- Hospitals can capture patient signatures on mobile devices, including the patient’s own cell phone, by using iMedEngage.
- The benefit: Digital signature capture advances the goal of medical forms automation, delivering increased administrative efficiency and an improved patient experience.
- Patients are empowered to review and sign standardized consent forms for procedures on their personal mobile devices, thanks to iMedConsent™.
- The benefit: Taylor Healthcare’s proprietary patient consent software reduces risk of loss due to malpractice litigation by digitizing patient informed consent forms.
- Hospital staff are able to print color-coded lab and pharmacy labels on demand via Taylor Healthcare’s iMedColorRx color digital printing technology.
- The benefit: Print management solutions like iMedColorRx help to reduce risk of medication errors.
- Hospital staff can continue to access, create and print the critical documents needed to deliver care during unplanned system outages — such as ransomware attacks — simply by logging in to iMedDowntime.
- The benefit: EHR downtime contingency planning mitigates operational risk in the event of a ransomware attack, when electronic medical record downtime is likely to occur.
- Digitizing and automating clinical forms with iMedAutomate can reduce the time clinicians spend locating and updating important documentation tools.
- The benefit: Healthcare forms automation services like iMedAutomate enhance operational efficiency, which helps to offset staffing shortages.
Contact your Taylor Healthcare representative to learn more about the range of patient engagement solutions and digital communications technologies available to you through iMedHealth.
