2024 Outlook for Health Care | Deloitte US has been saved
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By Tina Wheeler, Health Care sector leader, Deloitte, LLP, and Wendy Gerhardt, senior manager, Deloitte Center for Health Solutions, Deloitte Services LP
Digital Transformation, Generative Artificial Intelligence (AI), ESG, Margin Pressures: These were a few of the health care headlines we saw in 2023, and they will likely continue to be used frequently in 2024. Many health care executives are trying to keep pace with a rapidly evolving and consolidating industry that is in the midst of a digital transformation. Determining which technologies to pursue and prioritize (and which to ignore) can be tricky as the sector transitions from fragmentation to convergence.
Adopting new technologies and business models—while under sustained financial pressure—might be the biggest challenge health care executives will face in 2024. While the year ahead will likely be fraught with challenges, we are likely to see some remarkable innovations as organizations adapt to the new environment. Health care organizations that can’t keep up could be left behind. 2024 is likely the year health care leaders will choose the path they intend to follow.
It's not surprising that this disruptive environment is causing some anxiety and pessimism about the future. According to Deloitte’s annual Health Care Outlook Survey, just 3% of health system executives, and 7% of health plan executives, have a “positive” outlook for 2024 (click here to see full results and methodology). This is down from 15% and 40%, respectively—a significant year-over-year decrease. However, there are some bright spots to consider as the industry undergoes convergence. We see convergence as the disruption of traditional health care stakeholders, entrance of new players like retailers and tech companies, and the reassembly of a new ecosystem that creates opportunities (see Some reassembly required: The more health care converges, the less it stays the same).
Under the lens of convergence, determining what your health organization will look like in the future should help in determining a strategy for 2024 that could help set your organization up for future success.
Five factors likely to shape health care in 2024
Many health care leaders understand that the status quo is not sustainable. Here are five factors that we expect will continue to reshape the health care sector in the year ahead:
1. M&A, consolidation, and convergence: Hospital and health system merger-and-acquisition (M&A) activity dropped sharply during the COVID-19 pandemic, but it has rebounded in a big way.1 We expect this trend will continue in 2024 (several large mergers are in the works).2 Eighty-six percent of health system executives surveyed said M&A would have a “great impact” (33%) or a “moderate impact” (53%) on their 2024 strategy. As health systems consolidate, the question is how to successfully execute on the transactions to ensure that strategic goals are achieved. Health plan executives are less concerned about M&A than they were a year ago, according to our survey results. Only one-third of health plan respondents expect M&A will impact their 2024 strategy. Given the Health Plan sector’s strong financial position, large plans may be well positioned to drive transformative acquisitions in 2024.
The big takeaway: Some large health care organizations have acquired or partnered with non-traditional industry disruptors and innovators (e.g., tech giants, telecom, retail) as they try to meet the needs of an increasingly savvy and more empowered health care consumer. We expect this trend to continue as the industry experiences more pressure toward convergence. Some new entrants—unencumbered by outdated business models—tend to be focused on meeting consumer needs. Following this mantra could help legacy health systems transcend from business-as-usual to groundbreaking business models and offerings that meet rapidly changing consumer expectations.
2. Generative AI and digital transformation: Health care organizations appear to be at the midway point in their adoption of digital technologies (e.g., cloud, data analytics, natural language processing, virtual health). See our report on Digital health integration. Not surprising, a majority of survey respondents expect the accelerated adoption of digital tools will impact their strategy in 2024. However, these digital components are often added piecemeal. For health systems and health plans to compete in the digital race, each component should be integrated throughout the organization. Surveyed health care executives agree that generative AI has the potential to address many of the sector’s most vexing issues (e.g., access, patient wait times, claims, staff burnout) and could revolutionize the way health care is delivered. Our colleague, Dr. Bill Fera, a principal at Deloitte Consulting LLP, recently urged health care leaders to incorporate generative AI in parallel with other digital technologies as they retire legacy hardware and transition to the digital realm (see From Fax machines to GenAI, are health systems ready?). The technology is already being used to predict in-hospital mortality, length of stay, and medical claims denials.3 At the same time, many consumers are already turning to generative AI to help make decisions about their health and well-being, to locate clinicians, learn about medical conditions, understand treatment options, and decipher technical language (see Can GenAI help make health care affordable? Consumers think so).
The big takeaway: Consolidation often leads to significant technical debt as organizations try to integrate disparate IT systems. This challenge is expected to become more complex with continued industry convergence. Moving to a single digital system and sunsetting the others can be disruptive, expensive, and time consuming. However, as generative AI matures, we could begin to see some measurable improvements—in everything from improved efficiencies to better customer experiences—across all facets of the health care sector.
3. Workforce talent challenges: More than half of health system executives (57%) expect talent shortages and workforce challenges will impact their organization’s strategy in 2024—down from 68% a year ago. Many health system executives are trying to attract and retain clinical staff while continuing to focus on reducing clinician burnout. At the same time, scores of health systems, from coast to coast, have laid off executives, administrative staff, management, and other non-clinical staff this year.4 Surveyed health plan executives were less concerned about workforce issues; just 37% said it will likely impact their strategy in 2024—down from 43% a year ago. Overall, most surveyed executives said they intend to focus on the mental health and well-being of their employees in 2024. Some organizations have tried to make employee benefit packages more appealing and are conducting employee surveys to get feedback on these challenges.
The big takeaway: As the health care sector evolves, health care leaders should ensure that they are able to retain employees who have the skills needed to keep up with the changing health care landscape. They should also try to attract and retain new talent employees to help support their digital transformation.
4. Outsourcing and offshoring: Challenging margins—combined with rising labor costs and high interest rates—are putting financial pressure on health care organizations. Health care organizations should determine what they do well and consider ways to outsource functions that can be done more efficiently and at a lower cost. Some organizations are considering moving some back-office functions overseas where labor costs can be significantly lower (see Can offshoring help health systems bulk up thin margins?). Revenue cycle, billing, claims, finance, human resources, clinical administration, and supply chain are areas that could be entirely or partially outsourced. Assessing the cost, quality, and efficiency of outsourcing could make it easier for health systems and health plans to streamline operations, reduce costs, and improve efficiencies.
The big takeaway: There appears to be a growing interest in outsourcing and offshoring certain administrative tasks, particularly among large, multi-state health systems. Our recent survey of health care CFOs found that 40% of health care leaders are interested in optimizing their service models. To evaluate an outsourcing strategy in 2024, health care leaders should consider performing a cost-benefit analysis to identify which functions could be outsourced with the most financial and transformative impact.
5. Affordability and empowered consumers: Medical inflation, combined with rising coverage costs, could leave consumers with higher out-of-pocket costs in 2024.5,6 Half of the health plan executives we surveyed cited “affordability issues” as most likely to impact their strategy in the year ahead. Moreover, a majority of finance leaders expect consumer health care expenses (e.g., premiums, out-of-pocket costs) will increase in 2024, according to our mid-year health care CFO survey. Consumers are at the heart of the transition from consolidation and fragmentation to convergence, and they tend to make many purchase decisions based on price and convenience. When consumers can receive an online order in a day or less, many are frustrated when they must wait weeks or months for a medical appointment. According to Deloitte’s research on trust, about half of focus group participants said they’d be willing to trade in-person visits and the convenience of a closer location for a provider who relates to them and understands their needs.
The big takeaway: Health care leaders have an opportunity to influence consumer health decisions—and potentially drive loyalty and market share—by providing digital tools that can help consumers navigate their health care journey. Health care organizations might consider offering more affordable treatment options (e.g., virtual health, digital tools) to help ensure patients continue to get necessary care. Cracking that code could increase stickiness and help ensure loyalty.
The U.S. health care system is transitioning from fragmentation to convergence, and it will likely be a bumpy ride for the sector over the next few years. Last year, we predicted health systems and health plans would need to navigate a turbulent 2023 (see my 2023 Outlook for Health Care). Not to sound like a Debbie Downer, but the sailing likely won’t be any smoother in 2024. The status quo is likely not sustainable and industry reassembly is inevitable. As the industry reassembles, health care leaders should decide which path they want to follow into the future. Strategies in 2024 could be a critical springboard into the Future of HealthTM.
Acknowledgments
Thank you to our Life Sciences and Health Care National Industry Leader, Dr. Asif Dhar, and Deloitte Health Equity Institute and the Deloitte Center for Health Solutions Managing Director, Dr. Jay Bhatt. We would also like to acknowledge the team from the Deloitte Center for Health Solutions, including Maulesh Shukla, Hemnabh Varia, and Gargi Khandelwal for their work in research management, design, analysis, and interpretation of our survey results. We would also like to thank Steve Davis for his writing and editorial support.
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Endnotes:
120 mergers and acquisitions that made headlines in October, Becker’s Hospital Review, October 31, 2023
2Healthcare mergers: Expecting more in 2024, Chief Healthcare Executive, August 18, 2023
3AI algorithm can predict mortality based on body measurements, Health IT Analytics, August 1, 2023
479 hospital and health system layoffs from 2023, Fierce Healthcare, September 28, 2023
5Employer Health Benefits Survey, KFF, October 18, 2023
6How Does Medical Inflation Compare to Inflation in the Rest of the Economy? | KFF
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