Between telltale signs of a looming recession to major health systems facing steep losses coming out of the first quarter, it's clear the healthcare industry is likely to face continued economic challenges beyond COVID-19 in the near future.
Bloomberg surveyed 37 economists from May 6-11, who say the odds of a recession in the next 12 months is 30 percent, the highest estimate since 2020. Still, some, like Goldman Sachs Chair Lloyd Blankfein, told CBS on May 15 he believes there's a very high risk of recession this year, "but it's not baked in the cake."
Whether a recession occurs within six months or two years, the healthcare system isn't nearly in the same place as it was in 2007, when the country faced the steepest economic downturn since the Great Depression. Healthcare emerged from that recession mostly unscathed because patient care utilization was much more insulated by payers covering most costs.
But in the 2022 realm of skyrocketing inflation, rising labor costs and market volatility, payers are increasingly telling providers no when rate hikes are requested. Some payers cite the ability of health systems to absorb higher costs without raising their rates.
"We've got to figure out how to be much more cost efficient, given the fact that we can't really go to the payers anymore and say, 'Hey, we need 5 percent, 10 percent, even 15 percent more,'" Bruce Rogen, MD, told Becker's.
Dr. Rogen, a physician by trade-turned-administrative executive, is chief medical officer of the Cleveland Clinic employee health plan and chair and president of the Cleveland Clinic Quality Alliance.
It's certainly not a happy situation, Dr. Rogen said, along with the widespread proliferation of high-deductible health plans since the last recession. While HDHPs have been shown to reduce healthcare spending, they can also cause members to delay care because of costs — a big problem for providers when consumer spending drops during periods of economic turmoil. In 2009, only 8 percent of insured workers were enrolled in employer-sponsored high-deductible health plans. In 2020, the national average was 53 percent.
"People that had elective surgeries scheduled, cancel the surgeries. People stop coming in, even for screening tests," Dr. Rogen said. "Utilization drops, revenue drops and the money that we had on hand that was invested drops."
He added that providers also need to be scaling their telehealth offerings beyond the context of COVID-19 and begin viewing it as a way to cut costs. Consulting group McKinsey & Co. has estimated that $250 billion of U.S. healthcare spending likely could be moved online.
"There's a lot of things that we used to do brick and mortar at expense that we don't need to do in a building," Dr. Rogen said. "Over time, if we provide services in a more cost-efficient way, we may be able to charge less for our services, as opposed to constantly charging more."
Smarter investments in telehealth that cut costs elsewhere could look like allowing retired physicians to practice virtual care part-time, according to an adviser to healthcare executives at a leading global consulting firm.
As demand for all healthcare services fluctuates during a recession and supply chains become less secure, rural providers are particularly at risk of closure. The adviser told Becker's a more traditional way of addressing fluctuations in care demand and getting more control over the supply chain is by getting bigger.
Still, mergers and acquisitions are easier said than done.
"Market share is very difficult to increase, especially when you're already one of the larger ones in the market," Dr. Rogen said. "The Clinic is trying to expand in its geographic area, but more importantly in its local share of the market."
When expanding local market share, providers should also focus on staying connected and entrenched within their community. An August survey from Deloitte found 36 percent of Americans of color skipped care because they didn't like how a provider treated them, and 4 in 5 say once trust is lost, they won't return.
"Hospitals are often the biggest employers in any given community, and so there's a lot of money in the community that wants to support you, because you're creating jobs, you're delivering good health," the adviser said.
The adviser pointed out that many health systems may be able to weather a recession similarly to how they did a global pandemic: through collaboration with one another. For example, sharing the cost of building a new warehouse to store extra medical supplies or allowing all providers to access and use patient records from a health information exchange regardless of where the patient first received care.
He also highlighted the upcoming federal transparency rules in July, when most payers will begin publicly posting the cost of covered items and services. When providers and insurers enter contract negotiations after these new rules are in effect, the adviser speculates that more informed and meaningful conversations may be able to take place around reimbursement rates, especially in regard to linking them to value-based and equitable care outcomes.
"Transparency in general should benefit organizations that are cost effective health systems and that produce consistently high quality and that look for ways to do more with less. In a recessionary environment, it is still possible to be very successful; it does not hurt everyone equally," he said.
There may also be unexpected winners that come out on top during a recession period because they are able to position themselves as more valuable than competitors. The other good news is that so far, medical inflation (which typically outpaces general inflation) has not yet appeared to trickle down to affect medical prices.
"Yes, recession will happen and there will be downward pressure and it will be harder to spend money on healthcare, but at the same time, we will see consolidation, digitization and variabilization of costs," the adviser said. "We will see stronger efforts to be connected to employers, to regulators and communities to demonstrate the value that is being created, including the story of health equity."