The management consulting company McKinsey & Co. is predicting that provider profits could rise to $326 billion in 2025, up from $250 billion in 2021.
McKinsey identified three trends that will affect provider profits:
1. The firm estimates that there will be an increase in overall patient volume due to an aging population. The number of people 65 and older is expected to grow 3 percent from 2021 to 2025. The general population is expected to grow 0.5 percent.
2. Providers are likely to see a shift in payers as many aging workers move from commercial plans to Medicare. McKinsey estimates this will result in a reduction in overall reimbursement. That change will likely be balanced by the movement of people from Medicaid into commercial plans, however. McKinsey estimates that the percentage of Americans on Medicaid will fall from 25 percent in 2021 to 22 percent in 2025 because of redetermination of beneficiary eligibility.
3. McKinsey anticipates a shift away from acute sites of care. Non-acute sites have lower costs and have higher earnings before interest, taxes, depreciation and amortization than acute settings. The pandemic has driven the shift to non-acute settings, according to the firm. The accelerated adoption of value-based care could also deliver lower costs and better outcomes as well as realize margins of more than 15 percent in primary care and specialty models.
McKinsey notes that its report does not factor in persistent consumer inflation, which could have significant negative effects on healthcare industry profits if it continues unchecked.
Read the full report here.