Rising labor costs, supply chain fluctuations, changes in payer mix, and regulatory changes, among other issues, are pressuring many hospitals and health systems to reduce costs and increase revenue. Indeed, the 2017 Deloitte Survey of US Health System CEOs found that declining margins is one of the top issues keeping chief executives up at night.1
Current and projected margin challenges are considerable: Commercial health insurance payments as a percentage of hospital and health systems’ total payments are projected to drop from 37 percent to 33 percent by 2024.2 The percentage of revenue from historically lower-margin Medicare payments is projected to increase from 35 percent to 40 percent of total payments.3 Labor costs are anticipated to continue rising due, in part, to patient volume growth from an aging and more chronically ill US population.4 Some future-state scenarios show that the combination of these trends could significantly reduce margins. A recent study from the Congressional Budget Office (CBO), for instance, suggests that absent productivity growth, between 51 percent and 60 percent of hospitals could have negative margins by 2025.5
To stay afloat—even thrive—in the face of margin pressures, health systems should consider identifying strategies to enhance revenue, reduce costs, and generally improve efficiency. New approaches such as using predictive analytics and Artificial Intelligence (AI) to improve the supply chain or robots and cognitive automation to enhance finance and revenue cycle processes have the potential to bend the cost curve and boost revenue in coming years.
To read the full report on how innovative technologies can improve hospital financial performance, download: The uncertain road ahead: Could technology offer hospitals relief from increasing margin pressures?