What did we find?
In 2023, health systems will take actions to adapt to financial pressures, avoid workforce attrition, and reinforce organization-wide commitment to community health and disparities. Overall, strategists are keeping long-term vision in mind and minimizing overly risky actions that would impact near-term sustainability.
Nearly all respondents say they prefer to reprioritize capital expenditures and renegotiate supplier contracts to alleviate margin pressures. These actions are much more desirable compared to workforce cuts. Just 14% of respondents said they would reduce FTE count for clinical personnel in 2023. Even fewer (9%) said they would cut pay and/or benefits.
Our respondents are not naive to the outsized influence of labor costs on financial performance though. Any workforce cut is undesirable, but two-thirds of respondents indicate they are likely to reduce FTE count for administrative personnel in 2023.
Our respondents don’t have strong feelings about accelerating transition to risk-based payment models. Most say they will accelerate transition to both upside and downside models next year, but average strength of response indicates minimal momentum for change.
The starkest change from our 2021 survey was observed with likelihood to reduce inpatient capacity, which decreased in average response score by 326%. A similar, but less pronounced decline was seen with likelihood to close, divest, or downsize ambulatory buildings and offices (185% decrease). In light of most health systems’ desire to maximize capacity and revenue, we expect continued reluctance to cut services and capacity into 2023.
In contrast to wholesale reductions in facility capacity, our respondents will continue to reevaluate access and distribution of individual clinical programs. There were modest declines in likelihood to accelerate rationalization of services since 2021 (31% decline), but average likelihood to consider this action remains positive for 2023.
Our respondents indicated strong aversion to mergers with larger hospitals and health systems— only four respondents indicated they were likely to pursue this action in 2023. Notably, our survey indicated low likelihood to pursue mergers and acquisitions in our 2021 survey as well. These results coincided with uncharacteristically low deal activity across 2022. It is possible low deal activity will continue in 2023 as organizations preserve cash reserves, adapt to rising interest rates, and get their own house in order financially and strategically.
The same aversion was not observed when asked about likelihood to acquire physician practices. While this was only eighth in terms of overall strategic priority, 70% of respondents said they are more likely to acquire physician practices in 2023. Health systems recognize that creating relationships with physicians is extremely important in an environment where care is shifting outpatient. But with more acquirers than ever, health systems have their work cut out to demonstrate they are an ideal partner for those seeking acquisition.
Why does this matter?
Health systems are balancing long-term strategic priorities with present financial realities. Strategists are clearly optimistic in their ability to achieve stable financial and strategic footing in 2023.
Our 2022 survey results may throw cold water on those predicting mass closure or consolidation in the health system sector. Notwithstanding the survey results, health systems face significant business risks in 2023 that can’t be understated. Leaders will need to continue to navigate disruptive market forces, energize their workforce around mission-driven priorities, and capture volumes at risk of shifting to non-hospital settings to support health needs of the community into the future.
Questions to consider
1. Will targeted cost-cutting actions be enough to stabilize margins? To what extent will health systems turn to more drastic actions impacting access to care and the clinical workforce?
2. How will cuts to administrative personnel impact the ability of health systems to generate future growth and preserve cultural cohesion?
3. How will health systems position themselves to be the physician employer and practice acquirer of choice?
4. Will health systems be compelled to take action on price transparency and payment reform initiatives in the next year?
5. Can strategists stay nimble amid rapid change?