By Dr. Seleem R. Choudhury

Futurists and analysts are forever predicting various new-year opportunities for healthcare, from expansion and innovation to workforce priorities and strategic deselection and reduction. The twin juggernauts of economic impediments and recessionary fears, even with their challenges, will not slow down the need for healthcare. Healthcare leaders often struggle to navigate through this myriad of possibilities.

In 2021, there were 1,996 health services mergers and acquisitions valued at $217 billion, a high for the healthcare sector (Landi, 2022). In the last 12 months through Nov. 15, 2022, the health services sector has seen 2,277 deals valued at $127 billion, a deal volume jump of 14% from the previous year (PwC, 2022). Despite the economic downturn, the healthcare industry “has proven to be nearly recession-proof” (Landi, 2022).

At the same time as all these investment dollars are changing hands, many hospitals have struggled to stay afloat in recent years, adding layers of difficulty for hospital CEOs seeking to set the right priorities for their organization. A September 2022 report from the American Hospital Association discusses the variety of causes that led to 136 rural hospital closures from 2010 to 2021 and a record 19 closures in 2020 alone. Many longstanding pressures make the list, including low reimbursement, staffing shortages, low patient volume, and regulatory barriers, in addition to widespread challenges from the COVID-19 pandemic (American Hospital Association, 2022).

If billions of dollars are pouring into the healthcare sector, then why are many healthcare systems struggling and hospitals closing? Are there concrete steps hospital CEOs can take in 2023 to, at the least, insulate themselves, or perhaps even succeed amidst such challenges?

Don’t be paralyzed by “uncertainty”

Today, it is often lamented that we live in an “uncertain world” or that “everything is so unpredictable in these unprecedented times.” It may be hard to believe, but the world has been much more uncertain than it is now. The World Uncertainty Index (WUI) counts the percent of word the “uncertain” (or its variant) in the Economist Intelligence Unit country reports (World Uncertainty Index, 2022). According to their calculations, global uncertainty has decreased significantly from 2012 levels. It is important to remember that though we cannot be certain about everything, we have been in a more uncertain time. Hospitals and healthcare systems navigated their way through them, and they will again. 

Mitigate the impact of inflation by focusing on employee retention

Whilst the world is uncertain about many things, we are certain that inflation will be a major challenge of 2023. A recent McKinsey and Company survey revealed that 46 percent of respondents said that “rising interest rates pose the biggest potential risk to organizational growth over the next 12 months” (Agrawal, Grube, & Podvoyskaya, 2022). In the past year, labor, supply, and capital cost increases have been rampant across healthcare, and there is no sign that this will ease in early 2023. In fact, some predict that these will most likely continue to the autumn of 2023 (McVey, 2022). Hospitals may want to adopt a short-term strategic plan to mitigate price increases, especially if navigating expansion and renovation plans, until costs come under control.

Instead, I recommend refocusing on supporting employee retention initiatives which will allow the hospital or system to be nimble when they decide to reengage in long-term plans or renovation programs (Mercer, 2022). According to a report by Mercer, “one out of every three employees report they’re considering leaving their employer, up from one in four last year” (Curry, 2022). Pay was cited as the top reason, as “employees who remain with their employers have noticed that colleagues who switch jobs often increase their pay more than those who remain in place” (Curry, 2022). If you want to retain quality staff, use this time waiting for inflation to cool to make moves to understand what your employees need in order to remain with your organization.

Calculate risks

Industry experts are observing hospital leaders making changes to longer-term spending plans, indicating that they are taking 2023 economic forecasting seriously and are uncertain about the short-term prospects (La Monica, 2022).  While making predictions is especially difficult during a recession, hospital and health system CEOs should remain adaptable, keeping an eye on short-term strategic factors that will help them rebound after the recession (Görner, Govindarajan, Panas, Greenberg, Kelkar, et al., 2022). Being ready to uncoil when conditions improve will give organizations an advantage.

Maintain growth and address margin pressure

Alleviating margin pressure and staying competitive begins with constructing a margin improvement plan (Finkel, 2022). For example, pausing planned projects may provide rapid initial improvement to financials. But real long-term gain will come to organizations who prioritize optimizing workflows with efficiency or lower operating expenses.

Build supply chain resilience

Yossi Sheffi, professor of Engineering Systems at Massachusetts Institute of Technology (MIT), where he heads the MIT Center for Transportation and Logistics, says that organizations can “develop resilience in three main ways: increasing redundancy, building flexibility, and changing the work culture. The first has limited utility; the others are essential” (Sheffi, 2005). This involves evaluating practices, identifying low resilience areas of the supply chain, and building redundancy to ensure they don’t weaken or collapse when you are required to uncoil. The goal is to reach a level of supply chain flexibility that allows leaders “to easily adjust production levels by accommodating the day-to-day changes that naturally occur” (Champion, 2021). Hospitals can accomplish this by diversifying suppliers, investing in technology, and building relationships with suppliers (Wolters Kluwer, 2021).

Attract and invest in your people

Though everyone is feeling the economic squeeze, admittedly some are feeling it more than others. The pandemic and the economic fallout are stress-testing organizational cultures and employees’ faith in their organization (Colvin, 2022).  They hear tales of workers fleeing their jobs for higher paying jobs or working alongside temporary workers who are earning more than them. Those that remain feel that they are due retention bonus, pay increases, and other benefits (Curry, 2022).

Employee retention will require even more than just pay increases, however. Leaders must consider the overall “Human Experience,” or the “complete experience a person has with a brand or service both digitally and physically” (HX Academy, 2022). The human experience within the hospital work environment should focus on heightening the experience for everyone: the patient, the employer, the family member, the provider, etc.

Additionally, it is important to ensure managers and leaders at all levels within the organization are the right people for the job. After all, the old adage rings true: “people follow people.” Employees will follow an excellent manager (Veer, 2022). Continued investment in leadership development is essential for retaining employees.

Foster a “business hatchery” environment

As previously discussed, there is a lot of money and investment within the health sector. An opportunity exists to partner with investors to innovate, expand, or redirect the hospital or healthcare system. Hospitals that want to be part of this movement should examine ways to exploit the market and its unique opportunities, either in the short-term during the recession as an accelerator, or after the recession has lifted as an incubator.

 

Hospital CEOs in 2023 have many tough decisions to make. It takes an incredible amount of leadership wisdom to know when to stay the course despite challenges, and when conditions require replotting a new course with adjusted priorities. Though times are uncertain, there are still short- and long-term prospects that are becoming clearer, allowing healthcare leaders to take concrete steps to keep their organizations moving forward and preparing them to seize opportunities for growth when they present themselves.

 

 

Resources

Agrawal, A., Grube, C., & Podvoyskaya, N. (2022). Into the storm: CFOs pivot to managing financial headwinds. McKinsey and Company.

American Hospital Association (2022). AHA report: Rural hospital closures threaten patient access to care. American Hospital Association.

American Hospital Association (2022). RuraRural Hospital Closures Threaten Access Solutions to Preserve Care in Local Communities Hospital Closures Threaten Access Solutions to Preserve Care in Local Communities. American Hospital Association.

Champion, A. (2021). The Importance of Creating a Flexible Supply Chain Strategy. Flowspace.

Colvin, C. (2022). Salary freezes, pay cuts top worker concerns amid a recession. HRDive.

Curry, L. Inflation is affecting employees, and employers should pay attention. Anchorage Daily News.

Finkel, D. (2022). 5 Simple Ways to Improve Your Profit Margins. Inc.

Görner, S., Govindarajan, A., Panas, A., Greenberg, E., Kelkar, A., et al. (2022). Something’s coming: How US companies can build resilience, survive a downturn, and thrive in the next cycle. McKinsey and Company.

HX Academy (2022). What is Human Experience (HX)? Adoreboard.

La Monica, P. (2022). CEOs are preparing for a recession, and they don’t think it will be short. CNN Business.

Landi, H. (2022). Healthcare dealmaking will heat up in 2023 with plenty of corporate cash, PE 'dry powder'. Fierce Healthcare.

McVey, H. (2022). Walk, Don’t Run: Mid-Year Update 2022. KKR.

Mercer (2022). Rethinking what we need from work. Mercer.

PwC (2022). Health services deals outlook. PwC.

Sheffi, Y. (2005). Building a Resilient Supply Chain. Supply Chain Strategy.

Veer, P. (2022). Tips For Attracting And Retaining Talent. Forbes.

Wolters Kluwer (2021). The value in Supply Chain flexibility. Wolters Kluwer.

World Uncertainty Index (2022). World Uncertainty Index. World Uncertainty Index.