2023 Outlook for Health Care

By Tina Wheeler, Health Care sector leader, Deloitte, LLP

Hospital and health system leaders are preparing to navigate what could be an exceptionally turbulent 2023, according to the results of a new survey conducted by the Deloitte Center for Health Solutions. The vast majority of health system leaders (85%) said staffing challenges would have a major impact on their strategy for 2023; 76% cited inflation as a significant factor. Affordability issues for patients, shrinking margins, and ongoing supply chain disruptions were among the other stiff headwinds that our respondents anticipate. (Click here to see our complete survey results.)

We also polled health plan executives to find out which trends they thought would have the biggest impact on their strategy in the year ahead. While health plans also face challenges related to rising inflation and a tight labor market, they are generally in a stronger financial position than hospitals and health systems. The survey results are based on responses from 131 C-suite executives from large health systems, health plans, pharmaceutical companies, and medical device manufacturers. (Click here to read Pete Lyons’ 2023 Outlook for Life Sciences.)

The talent emergency of burnout, staff shortages, and turnover is prompting many health system leaders to pay closer attention to the mental health and well-being of their employees (see our new report, Addressing health care's talent emergency). Nearly all of our survey respondents (95%) said investing in their workforce in 2023 was “important” or “very important.” A recent survey of 1,000 registered nurses found that most (90%) believe the quality of patient care can suffer from nursing shortages.¹ There are also growing concerns about the safety of employees. Doctors and nurses, whether in the ER or a medical office, are at risk for more than just exposure to COVID-19 and other pathogens. We saw multiple reports of violence in hospitals this year.² In my conversations with executives this year, I have been surprised that clinician and employee safety is now a key concern. Unfortunately, about 25% of nurses have reported being physically assaulted by a patient or patient family member, and more than half say they have encountered verbal abuse or bullying on the job.³ It’s not surprising to me that half of recently surveyed nurses have considered leaving the profession.⁴

There are about 3.1 million registered nurses in the US, and the Bureau of Labor Statistics estimates that about 1.2 million new nurses will be needed by 2030 as the aging baby boomer population requires more services and as current nurses retire.⁵ To take some of the burden off clinical staff, some health systems have outsourced administrative tasks to workers in countries such as India and the Philippines. But as labor costs in those countries rise, some of that work could move to lower-cost geographies, such as Nigeria and other African nations. Hospital and health system leaders might also look for ways digital technology could take over some administrative and menial tasks so that clinical staff can spend more time interacting directly with patients. This could help relieve stress and improve care delivery and staffing models. Many employees are demanding more flexibility in how they work (see Deloitte’s Future work trends).

Four forces likely to impact health systems, health plans in ’23

My daughter is in her 4th year of medical school and is in the process of interviewing for her residency in pediatrics. After living vicariously through her med school experiences, I have a newfound respect for anyone who wants to go into medicine. Medical students usually need to take on a tremendous amount of debt, are often required to work long hours during their residency (for little or no pay) and must meet exceptionally high expectations. It makes me wonder how long medical and nursing schools will be able to attract and retain the best and the brightest. The level of stress that medical professionals may experience can negatively impact their health and well-being. I was very happy to see that the health system leaders we surveyed intend to make their employees a priority in 2023.

Here are some of the factors that are likely to influence hospitals, health systems, and health plans in the year ahead:

Inflation and affordability: There was a time when health care was considered almost immune to inflation (people will always get sick and need health care services). However, just 7% of our health system respondents said inflation and affordability issues were not likely to impact their 2023 strategy—76% thought it would have a significant impact. Rising cost-of-living expenses could cause some people to delay routine and preventive care, such as cancer screenings. (This is similar to what we experienced after COVID-19 became a pandemic.) Delaying important care could exacerbate health issues and lead to more high-cost medical expenses in the future. It could also delay progress toward our Future of Health^TM vision where there is greater focus on preventing and treating disease in the earliest stages, rather than waiting to treat people once they become sick. Delays in cancer diagnosis and surgery, for example, has been linked to worse health outcomes, according to the American Cancer Society (ACS). Between July 2018 and 2019 (before the pandemic), breast-cancer screening rates improved by 18% within 32 community clinics, which largely serve people with low incomes. But during the pandemic, a 2021 ACS study showed that breast-cancer screening dropped by 8% in those clinics.⁶

While most health system leaders we surveyed said inflation would have a major impact on their 2023 strategy, it could be less of a factor for health plans. Less than half of health plan executives thought inflation would have a great impact on their near-term strategy. However, the trickle-down effect of health care pricing will likely mean that health plans could feel the effect after 2023 when health systems initially bear the brunt of this financial tsunami.

Digital transformation: The cost of capital could also make it difficult for health care organizations to modernize antiquated systems and embrace digital transformation (e.g., cloud storage and analytics, enterprise resource planning systems, artificial intelligence, and automation). Just 29% of health system respondents said accelerated digital transformation would likely have a major impact on their organization’s strategy in 2023, while 63% thought it would have a moderate effect. Among health plan executives, however, accelerated digital transformation is expected to have a “great impact” (43%) or a “moderate impact” (50%) in 2023. Why were these responses so different? My thought is that many health system leaders want to digitally transform but do not know how to pay for it. Maybe they had to delay investments during the pandemic but don’t want to stall much longer. Health plans, by contrast, are often several steps ahead of health systems and might have a better understanding of the importance of digital transformation.

Shrinking margins: Many health systems are still recovering from low patient volume and revenue shortfalls tied to the pandemic. At the same time, costs for supplies and labor are rising. 2022 might wind up being one of the worst financial years hospitals have experienced in decades.⁷ Even three years after COVID-19 emerged, many patients continue to put off non-emergency procedures, which continues to squeeze revenue.⁸ In addition, an increasing number of patients are shifting to ambulatory centers over hospitals for surgical procedures. Median operating margins among hospitals and health systems were down 46% in September compared to the same month a year earlier.⁹ This margin compression might not be sustainable for many hospitals—particularly small and locally controlled organizations. As a result, we could see some hospitals get acquired while others might be forced to close their doors.¹⁰

New payment models and alternative sites of care: Transitioning to new payment models, such as value-based care (VBC), was seen as the top priority among health plan executives surveyed for 2023. Many health plans are likely to enter the new year in a strong financial position due to fewer health care claims in 2022. Hospitals and health systems, on the other hand, will be more focused on slowing the flow of red ink in 2023. That could make it difficult for health plans to move their network providers into new payment models. The VBC model rewards providers who keep health plan members healthy and out of the hospital. This could be important to consumers who are taking on a more proactive role in their health and well-being. Empowered consumers are also looking for more convenience, which could give rise to alternative care sites that can offer a better customer experience. Alternative sites of care (defined as care outside the traditional doctor’s office) aren’t new, but they’re rising in prominence as the retail and digital worlds converge and the public sector recognizes the need to advance health equity and improve the consumer experience. At the same time, consumers are changing the way they want to access care and pushing the traditional health care visit and experience to be more in line with other encounters they have in daily life. (See Leveraging alternative care sites.)

I expect that most health plans will enjoy another profitable year in 2023, but leaders should think about how or what they can do to support their network health systems.

I believe 2023 is going to be another challenging year for hospitals and health systems as they work to balance financial pressures with the need to invest in the future while ensuring high-quality care. These organizations will likely need to do all they can to attract and maintain patients. Deloitte’s recent research shows that consumers are less likely to return for care after having a negative experience with a health care provider or staff. Ensuring that patients have a positive experience could help improve trust in hospitals and health systems.

Endnotes:

¹ Half of nurses consider leaving the profession, HealthCareDrive, November 8, 2022

² Many who allegedly shot and killed two Dallas hospital employees was in the building to watch his child’s birth, CNN, October 24, 2022

³ Fact Sheet: Health care workplace violence and intimidation, The American Hospital Association, June 2022

⁴ Half of nurses consider leaving the profession, HealthCareDrive, November 8, 2022

⁵ Occupational Outlook Handbook: Registered Nurses, Bureau of Labor Statistics, September 8, 2022

⁶ COVID-19 Pandemic Affects the Cancer Continuum, American Cancer Society, February 11, 2022

⁷ Inflation is squeezing hospital margins, Health Affairs, October 25, 2022

⁸ National hospital flash report, KaufmanHall, September 2022

⁹ Ibid

¹⁰ Community hospitals are facing an impossible dilemma, VOX, November 28, 2022

Watch our 2023 Life Sciences and Health Care Outlook Dbriefs webcast on-demand.

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