Faced with continued economic headwinds for 2024, independent and rural hospital CEOs are staying financially conservative while investing in technology and the workforce for the next year.
"The national and geopolitical climate we are in today influences the financial anxiety health systems have been facing the past few years, in my opinion," Dan Woods, CEO of El Camino Health in Mountain View, Calif., told Becker's. "El Camino Health is emphasizing financial stewardship across the board with specific focus on tightly managing indirect patient costs. We remain bullish on investing in innovation, but we are selective in prioritizing the contemporary science of medicine that brings the highest value to our patients and communities we serve."
Fitch projects weak hospital margins will persist in 2024, with labor expenses continuing to burden hospitals and lingering inflationary pressures. Hospitals have also seen their days cash on hand shrink in the last year, and operating EBITDA margins are on the decline. Hospital CEOs are challenging their teams to think differently about the next year during budget season, with truly tighter purse strings.
"In the upcoming budget cycle, the operative words are 'fiscal prudence on steroids.' The level of uncertainty in today's economy demands this," Jandel Allen-Davis, MD, president and CEO of Craig Hospital in Englewood, Colo., told Becker's. "Whether riding the waves of inflation, retaining the best workforce through the right investments in talent development while keeping our wages and benefits competitive, or working with insurers in contract negotiations that are increasingly challenging, this is a time of uncertainty and opportunity. Those things that can wait, in order to reserve some resources for the unexpected, is the name of the game."
While large health systems are still investing in capital projects and growing their footprint, smaller systems, rural organizations and independent hospitals have been forced to make tough decisions for financial stability. Some are cutting services, reducing the workforce and implementing operational cost savings measures to stay afloat.
"While strategic growth is critical, our big focus is on reducing revenue deductions: contractuals, denials, write-offs, etc.," Tom Siemers, CEO of Wilbarger General Hospital in Vernon, Texas, told Becker's. "Growth without strong internal controls is meaningless. We've set up four cash flow teams to monitor key areas weekly, identify opportunities and adopt best practices."
Mr. Siemers' mantra is "trust but verify" to hold his team accountable in these areas.
Michael Canady, MD, CEO of Holzer Health System in Gallipolis, Ohio, told Becker's the budget plan for 2023 was to break even, and that was "broken very quickly." He sees the need for real change in the system's workforce strategy, drug costs and payer contracts to make ends meet.
"All of the cost side is over budget due to ongoing contract labor and drug costs," Dr. Canady said. "Revenue is good, but payers continue to squeeze with aggressive denials and bundling strategies. All this with payers posting record profits. Unless there is quick attention, this will not end well."
Paula Ellis, DNP, interim CEO of F.W. Huston Medical Center in Winchester, Kan., also said reducing contract labor will be a big focus for 2024 after spending time and resources on a strategy to grow internal team members for difficult-to-fill positions. She said the hospital will look at the cost-benefit of those initiatives and decide which to continue in 2024.
"Strategy discussions will center on the rural emergency hospital designation to determine if this is a model to pursue in the future," said Dr. Ellis. "In the meantime, we continue as a critical access hospital and, as such, focus on population needs and services we can safely provide. The emphasis will be on opportunities involving partnerships and ventures in the ambulatory space."