2024 Business Outlook Trends for Healthcare Industry

A decrease in contract labor costs projected for 2024 has analysts upgrading the outlook for healthcare from negative to stable. However, the industry faces headwinds on competitive salary and benefits packages to retain staff as well as delayed or denied reimbursements.

Hospitals, clinics and physician groups should require less reliance on travel nurses and contract labor in the coming year. Increases in reimbursement rates may support better margins. Patient volume increases since the pandemic should also support revenues.

Growth prospects include the multi-trillion-dollar wellness market, patient-centric care models and strategic partnership models.

Top Business Challenges for the Healthcare Industry

“The applicability of sales taxes has been recently underestimated by many buyers and sellers, particularly within the healthcare industry.

There is a common misconception that healthcare is immune to the complexities of sales tax, but this assumption is far from reality. Durable medical equipment, prescription drugs, medical appliances, and healthcare diagnostic equipment often catch healthcare providers and suppliers off guard, as qualifications for sales tax exemptions in these areas are based on specific criteria that varies by state.

Another common misconception in the healthcare industry is that if a product or service is reimbursed by Medicare or Medicaid, then it automatically qualifies for a sales tax exemption. However, this is not always the case.

It’s essential for businesses in the healthcare industry to research and understand the specific tax treatment of their offerings in each state where they operate. For healthcare industry players as well as others, addressing sales tax issues is not just about compliance; it’s also about protecting your financial health.

Multiple years of incorrect compliance or inattention can generate significant and unforeseen sales tax liabilities. These liabilities can directly impact EBITDA, which is a critical metric in assessing a company’s financial performance.” LISA NIX, SHAREHOLDER, PRACTICE LEADER, TRANSACTION ADVISORY SERVICES

Labor Shortages

Clinical and nonclinical staffing shortages will persist through 2024, with high growth markets better able to weather the shortage by offering higher salaries and bonuses. However, cost of living and housing will remain factors in attracting and keeping staff.

Employee Average Earnings Growth

Employee Average Earnings Growth

Reimbursements

Significant changes among payers and within federal government programs are weakening the ability for healthcare organizations to negotiate higher reimbursements for services. This climate requires a focus on the payer mix, a clear understanding of regulatory updates and timely revenue cycling and billing practices.

Rising Costs

Whether they are dealing with labor costs, facilities maintenance costs, supplies or technology upgrades to satisfy new regulations, healthcare organizations are hit regularly with increased expenses. Current inflation and economic uncertainty are limiting gains from improved patient volume and new pricing models.

“The most common struggle for healthcare CFOs is the challenge of consolidations for multi-entity, multilocation organizations. Many of these CFOs are contending with the expansion of facilities and service lines across regions and states, changing accounting rules, growth via acquisitions and new ventures, and increasing activities between entities and the parent company. Converting to a cloud-based financial system tool can help address these challenges.” STACY SCHUETTLER, CEO, LBMC TECHNOLOGY SOLUTIONS

Growth Opportunities & Optimism

With an aging population and focus on proactive health and wellness, the healthcare industry has new opportunities to drive growth. Leaders in our survey were cautiously optimistic about their revenue prospects for 2024, and analysts note a more stable financial landscape. Interest from private equity and venture capital is high in the healthcare space, no doubt from the success of specialty care, wearable tech and wellness niches.

Traditional healthcare organizations can build alliances with these revenue generators to streamline the patient experience. One-stop offerings through strategic partnerships and seamless referrals extend the continuum of care and revenue.

2024 Business Performance and Strategies for the Healthcare Industry

Sales & Profitability

Instead of big hospital mergers dominating the news in 2024, we expect to see more healthcare systems seek out M&A deals with other service lines and systems or even sell off under-performing segments of the business.

To increase profits, healthcare systems will look for end-to- end patient solutions to create value and profits, offering one-stop solutions from diagnosis and care to recovery and ongoing wellness.

Rather than capital investments going into existing facilities improvements, providers are exploring investments in regional and home-based facilities to scale services.

“Bipartisan investigations call for scrutinizing hospital consolidations via private equity.” DEC. 2023, U.S. SENATE BUDGET COMMITTEE

Capital Spending

A survey of C-suite executives from health systems and hospitals across the U.S. provided their take on capital spending priorities and strategies to compete and improve health outcomes. Specific initiatives include expanded clinical research centers, rehabilitation and recovery services, robotics solutions, alternative care locations, and “smart rooms” that allow more patient interaction with their own care.

“High growth healthcare companies are prioritizing cybersecurity because it is a prerequisite for doing business today. Most companies require a certain cybersecurity posture of their business partners, and as such, companies that plan to grow will be expected to implement, assess, and maintain an adequate cybersecurity program to appease their business partners and their board, as well as meet their regulatory obligations.” DREW HENDRICKSON, SHAREHOLDER, PRACTICE LEADER, CYBERSECURITY

M&A Activity

Larger healthcare organizations will experience limits to M&A activity due to increased scrutiny by federal and state governments; there are continued concerns about higher costs and care access following these megadeals. Distressed systems will also have less opportunity to seek relief through M&A.

However, improved patient volumes and margins may make healthcare deals more attractive, mainly by healthcare leaders themselves rather than only through private equity investment. M&A deals globally are down across industries, but in healthcare M&A is a source of growth and staff when access to capital remains difficult.

Key Business Topics for Healthcare Industry in 2024

Patient-Centric Models

With an industry focus on patient-centered and value- based models, billions in care services currently delivered in clinics and hospitals could shift to the home by 2025, according to a McKinsey & Company report. This is not necessarily a negative prospect for the healthcare industry, as these business models could make use of wearable tech, patient care managers, meal delivery and at-home rehabilitative and wellness services. Clinics and hospitals could then free up staff capacity and facilities for more acute care needs while continuing to monitor and improve all patient outcomes.

Focusing on labor productivity gains through new technologies rather than workforce expansion could also help to curb runaway costs.

Cost Reduction

As with other industries, healthcare organizations can turn to AI-powered solutions in patient intake, chart preparation, scripting administration, workflow and discharge processes to reduce costs and improve patient service. These solutions can free up staff time to focus on care and outcomes. Policies and processes will need to be in place to onboard staff and maintain patient care transparency as well as data privacy.

In the next 12 months, healthcare leaders can focus on contracts, reimbursements and collections to accelerate payments and improve cash flow. They can also explore cost reductions in vendor contracts and the supply chain.

With available, trained labor being one of the highest expenses in healthcare, cost reductions may be found in some government funding, such as a proposed $947 million in mandatory resources through the Department of Health and Human Services to expand workforce capacity in 2024.

2024 Outlook for the Healthcare Industry

The healthcare industry will not experience high growth in 2024, but it can be a year of exploring additional cost-saving measures, investing in AI and facilities improvements and employing patient-centered care initiatives that increase patient loyalty and improve care outcomes.

Offering health and wellness initiatives for staff and creating partnerships across the care continuum can also spread out cost burdens while stabilizing revenue long- term. When opportunities for targeted M&A arise, existing partnerships and stable talent pools will improve valuation and dealmaking flexibility.