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A Light at the End of the Tunnel? Healthcare Showing Signs of Recovery

by Ray Wong

If you’ve heard it once, you’ve heard it a million times: healthcare is an industry in constant flux. Healthcare is dynamic, and ever-changing, which can make for an incredibly exciting working environment. Having said that, in recent years, the industry has also been beleaguered with a great deal of uncertainty. This might explain why healthcare industry leaders continue to ask themselves, and each other, if the industry is in fact experiencing some modicum of financial recovery, after three years of incredible financial turbulence.

I’m optimistic about the industry’s rebound, and I believe the key to answering this question lies in understanding three crucial variables: the size of the healthcare system, the geographic market Location and the organization’s commitment to developing a cost cutting infrastructure.

Recovery based on System Size

Financial rebound varies considerably based on healthcare system size. Large healthcare systems (those systems with 10 or more hospitals) with their scale, purchasing power, and diversified services, are uniquely positioned for a much more significant recovery.

Medium-sized systems (systems in the range of 5-7 hospitals) benefit from adaptability and from some (but not all) of the efficiency advantages of large systems, and thus are expected to also benefit from some level of positive recovery, but not in the scale of their larger counterparts.

Small systems and rural hospitals, on the other hand, are expected to continue to face significant financial headwinds. Overall, hospital operating margins have trended positively going back to February 2023, according to the latest KauffmanHall Flash Report (December 2023). The industry’s financial future is still a bit murky, but the industry’s collective resilience and adaptability bodes well for a financial resurgence, especially for those larger systems that benefit from economies of scale.

Geographic Market Regions

System size is not the only significant factor influencing financial recovery. Financial recovery is also heavily influenced by regional markets, i.e. location. These regional markets are generally understood to be: the West, Midwest, South, the Northeast/Mid Atlantic and the Great Plains regions. (…the South vs. the rest of the United States, for the sake of this article.)

The South — including Florida, where I’m located — often a bellwether for healthcare industry trends, is experiencing a more profound rebound compared to the rest of the country. Net Operating Revenue, as well as Gross Operating Revenue, have significantly improved Year to Date (YTD 23’ v. 22’), especially as we look at figures closer to the end of 2023.

Hospital Volume numbers are also showing significant gains year over year, especially when considering Discharges, Operating Room Minutes and ED Visits. When considering these positive trends, our optimism must be balanced against hospital expenses that continue to rise unabated. Here, too, the future is a bit uncertain. What is clear is that healthcare system leadership will need to continue to double-down on efforts to align strategic initiatives with regional nuances to improve the odds for a more comprehensive and sustainable approach to financial resurgence.

Investing in a Cost-Controlling Infrastructure

Healthcare organizations that have made strategic investments in developing a cost-controlling infrastructure are reaping the benefits of improved operating margins. And, as one can imagine, these organizations tend to be ones that are larger in size, who also benefit from bigger and more profound resources. Consider, for example, how these organizations have made technology-driven solutions, streamlined processes, and data-driven decision-making, the backbone components of their cost-controlling infrastructure. Not surprisingly, these same organizations have also embraced a continuous improvement perspective, thus placing them in the enviable position of being able to better navigate challenges and seize opportunities in the ever-evolving healthcare landscape.

Impact on Planning and Capital Improvement Projects

The topic of a healthcare financial recovery is quite different depending on with whom I’m having the conversation. While my clients and I focus on whether or not we’re in fact experiencing the early signs of a financial recovery, my healthcare design counterparts and I focus on what exactly a recovery could mean to the architecture and construction industry.

As we look ahead to 2024, we can anticipate that a financial rebound will significantly influence the ability of health systems to fund facility planning efforts and capital improvement needs. Positive financial trends will certainly open up avenues for strategic expansions, modernizations, and technology integrations in healthcare systems, large and small. Investments in patient-centric facilities, digital health solutions, and sustainability initiatives will be at the forefront of health systems’ “to-do” list(s). At Lawrence Group, my teammates and I see this as a unique opportunity to partner with healthcare systems to deliver on their vision for state-of-the-art healthcare facilities that prioritize patient care, innovation, and community well-being. This, I believe, is what a healthcare industry recovery could mean for the healthcare design, architecture and construction industry.

Our take…

The healthcare industry’s financial rebound is a collective effort fueled by resilience, adaptability, and strategic investments. The data indicates that we are in fact on a path to some semblance of a “recovery,” with operating margins painting a positive outlook for the future. This optimistic outlook inspires us to partner with our clients to lead with innovation, embrace regional dynamics, and shape the future of healthcare delivery. We’re charting a course to help our clients navigate towards a financially robust and patient-centric healthcare landscape. Let us help you do the same.

Reach out to me (Ray.Wong@TheLawrenceGroup.com), or any of my Lawrence Group colleagues, for additional insight into how we can help align your organization’s capital improvement needs to the realities of today’s economic outlook.