Sit down with Deloitte leaders, Asif Dhar, Tina Wheeler, and Mike DeLone at the “Technology, talent, and transformation: Life Sciences and Health Care outlook for 2022” webinar, on February 2 from 11:00-12:00 PM/ET. Register today!
By Tina Wheeler, Health Care sector leader, Deloitte, LLP
My step-father underwent hip-replacement surgery in early December. It was an outpatient procedure, and he was home by the end of the day. He loved not having to spend the night at the hospital, and his care team was able to manage his post-op care remotely. The hospital was near capacity due to a surge in COVID-19 patients and actually might not have had a room for him. Allowing people to recover from surgeries at home—through the use of virtual health and connected medical devices—could help hospitals keep beds open for patients who need more complex care. It also could help keep revenue flowing as profitable non-emergency procedures continue to be deferred in some parts of the country.
As we head into 2022, I expect COVID-19 will continue to have a significant impact on hospitals, their revenue, their employees, and their patients. Here are five trends I’m watching closely:
- Deferred procedures: Some hospitals have recently closed units or ended services due to overcapacity or financial and/or staffing issues.1,2 Some facilities have been permanently shuttered.3 A surge in COVID-19 cases in several states has prompted health systems to defer thousands of non-urgent procedures because they have either reached capacity, or they don’t have enough staff to care for more patients. Many of those elective procedures are the ones that help drive strong financial performance. As I noted in my blog last summer, hospitals and health systems lost an estimated $323 billion in 2020 as patients deferred non-emergency procedures. On the flip side, some publicly traded health plans have been posting favorable earnings due to low utilization rates.4 While there is likely to be some pent-up demand for services once COVID rates decline, some health plans have been investing their profits into modernization and are working to improve their connection to members. However, actuarial planning during a pandemic has been challenging for many health plans.
- Continued mergers and acquisitions: M&A activity jumped more than 50% between November 2020 and November 2021. During the first half of 2021, 872 transactions closed.5 That trend is expected to continue as some hospitals struggle with financial pressure brought on by the pandemic.6 In the year ahead, I expect rural hospitals might be particularly vulnerable acquisition targets due to financial pressure. Many rural hospitals in Michigan, where I live, are at or near capacity due to a rise in infections and low vaccination rates in the communities they serve. Rural hospitals also don’t generally have access to a deep pool of talent. Attracting experienced clinicians to a small town can be challenging. Patients who are able to travel to larger health systems for procedures likely will. But we could also see increased scrutiny over M&A as the White House focuses on health care costs. Last summer, the Biden administration signed an executive order calling on the Department of Justice and the Federal Trade Commission to review merger guidelines for hospitals.7
- Increased focus on Environmental, Social, and Governance (ESG): Investors, consumers, workers, and regulators are likely to put more pressure on companies to reduce their carbon footprint, promote diversity among employees and leaders, and ensure health equity. As outlined in a recent Deloitte report on ESG, regulators are finalizing new rules that will require companies to disclose ESG details in annual reports and mainstream regulatory filings. Health equity is a big part of ESG, but not all hospital executives and board members have the same definition. Some publicly traded health systems are including an ESG statement in their quarterly financial statements. Some have placed ESG statements front and center on their websites. While ESG efforts are typically focused primarily on the environment, there is broader thinking about the impact ESG has on health equity and the drivers of health. Non-profit hospitals and health systems are likely to follow their lead, although it could take a couple of years before real improvements are realized—particularly among hospitals and health systems that are struggling with increasing pressure on margins.
- More progress into the digital world: We have been talking about digital strategies for several years. The pandemic likely accelerated the transition to digital health as many in-person visits were replaced with virtual health. The pandemic, combined with growing financial pressure, highlighted the need for improved interoperability between systems. It has also helped to demonstrate the importance of using digital tools to stay connected to patients. Organizations that don’t yet have an enterprise resource planning (ERP) solution in place are likely discussing it for 2022. An ERP can improve efficiencies by integrating multiple business functions (e.g., human resources, payroll, materials management, accounts payable, supply chain management). Some health systems have not fully integrated the hospitals they’ve acquired.
- Workforce challenges: The great resignation is definitely a headline as we begin a new year—in health care and just about every other industry. (My colleague Mike DeLone cited this in his recent blog, 7 important trends to watch in life sciences for 2022. It might be even more challenging for hospitals and health systems where clinicians and staff are burned out, or close to it. Hospital leaders are trying to retain talent while also navigating a virtual workforce model for some of their staff. While employees in other sectors often have the option of working at home, clinicians and hospital staff typically need to be on site. However, some hospitals are finding that they might need to move to some sort of a hybrid model when possible. Moreover, some non-clinical employees (e.g., cafeteria, parking, maintenance, housekeeping) are leaving for higher-paying jobs in retail and other sectors. Hospitals often don’t have the budget to compete.
The pandemic has had an impact on nearly every industry. However, few sectors have been hit as hard as health care. I think I’ve received more shots this year than I did during my entire childhood. Like most people, I am more than a little COVID-fatigued, but I am also hopeful that we have more weapons against the virus today than we had a year ago…and we have a better understanding of the road ahead in 2022.
1. 13 hospitals closing departments, ending services, Becker’s Hospital Review, December 3, 2021
2. COVID surge shuts down baby delivery unit at Fort Lauderdale hospital, South Florida Sun Sentinel, January 3, 2022
3. Brandywine and Jennersville Hospitals will close, leaving thousands in Chester County without nearby emergency care, The Philadelphia Inquirer, December 9, 2021
4. UnitedHealth Group to eclipse $300 billion in revenue next year, Forbes, November 29, 2021
5. Health services M&A deals surged in 2021, Fierce Healthcare, December 10, 2021
6. The top 10 healthcare M&A targets in 2022, Fierce Healthcare, November 30, 2021
7. Executive Order call for DOJ, FTC to review hospital merger guidelines, Fierce Healthcare, July 9, 2021