By Michael N. Brown
In today’s complex healthcare environment, hospitals face an ongoing challenge—maintaining financial sustainability while providing exceptional patient care. Rising costs, declining reimbursement rates, and increased regulatory demands have left many hospitals walking a financial tightrope. According to the American Hospital Association (AHA), 33% of U.S. hospitals are currently operating on negative margins, with expenses increasing by nearly 17% since 2019. (AHA Report)
For many healthcare leaders, the question isn’t “Should we focus on sustainability or patient care?”—it’s “How can we do both?” Fortunately, with the right strategies, financial stability and high-quality patient care can coexist, creating a stronger foundation for both hospitals and the communities they serve.
The Growing Financial Pressure on Hospitals
The financial strain on hospitals is more intense than ever. Labor shortages, inflation, and supply chain disruptions have driven operating costs higher, while reimbursements from Medicare, Medicaid, and private payers often fail to keep pace.
Key Financial Challenges Include:
- Reimbursement Shortfalls: Medicare and Medicaid payments frequently fall short of covering the actual cost of care. A 2023 study by the Kaufman Hall Consulting Firm found that hospitals lose an average of 9 cents per dollar on Medicare reimbursements.
- Rising Labor Costs: Hospitals are experiencing double-digit increases in labor costs, particularly for nurses and allied health professionals, as they work to meet increased patient demand and ensure safe staffing levels.
- Shift to Outpatient Care: As more patients opt for ambulatory and telehealth services, traditional revenue streams from inpatient care continue to decline.
Facilities are also pivoting utilization for financial reasons. Some hospitals have made strategic changes to how and where services are delivered—the shifting of elective procedures to outpatient settings by insurers has made hospitals expand Outpatient facilities, leaving only the most complex cases and the sickest patients at the inpatient setting. Hospitals who may have relied on these elective procedures previously, are now not only expanding to still capture revenue but they are consolidate units previously used, or realigning service lines—to preserve revenue and reduce fixed costs without compromising patient care.
In parallel, hospitals are increasingly relying on non-physician providers (NPPs) such as Physician Assistants (PAs), Nurse Practitioners (NPs), Registered Nurses (RNs), and Certified Registered Nurse Anesthetists (CRNAs) to streamline their workforce and improve care access. This demand is part of a broader trend toward team-based care models that enhance efficiency and reduce provider burnout while still delivering high-quality outcomes.
Why Financial Sustainability is Essential for Patient Care
It’s easy to see why financial stability is critical for hospitals—but what does that mean for patient care? When hospitals are financially strained, their ability to invest in technology, staffing, and innovative care models is compromised.
Without financial sustainability, hospitals risk:
- Delaying Facility Upgrades: Outdated equipment and aging infrastructure can impact both safety and efficiency.
- Reducing Workforce Investment: Budget constraints can lead to understaffed units, longer wait times, and higher burnout rates among healthcare professionals.
- Limited Access to Innovative Treatments: Tight budgets may prevent hospitals from adopting advanced treatment technologies and expanding specialized care programs.
On the other hand, financially stable hospitals can:
- Invest in Advanced Technologies: From AI-powered diagnostics to robotic-assisted surgeries, modern technology enhances patient outcomes and operational efficiency.
- Attract and Retain Top Talent: Competitive compensation and ongoing training help build a highly skilled workforce, which directly impacts the quality of patient care.
- Expand Preventive and Community-Based Care: Financially secure hospitals can invest in programs that address the social determinants of health (SDOH), reducing long-term healthcare costs and improving population health.
How Can Hospitals Balance Sustainability and Patient Care?
- Leveraging Data and Technology for Smarter Decision-Making Hospitals that integrate advanced analytics and artificial intelligence (AI) into their operations can identify inefficiencies, predict patient volumes, and optimize resource allocation. Predictive analytics can also help prevent readmissions and reduce costs by identifying high-risk patients early.
Case Study: A large health system implemented an AI-powered discharge planning system that reduced readmissions by 15%, resulting in millions of dollars in annual savings while improving patient outcomes. (American Journal of Managed Care)
- Transitioning to Value-Based Care Models Moving away from fee-for-service (FFS) models and adopting value-based care (VBC) approaches aligns financial incentives with patient outcomes. VBC models reward hospitals for providing high-quality care and preventing avoidable hospitalizations, ultimately reducing costs and improving long-term health outcomes. Although we must acknowledge the pitfalls of this system as the complexities of implementation are many and can possibly result in lower standard of care for some.
- Enhancing Revenue Cycle Management (RCM) with automation: Hospitals that optimize their Revenue Cycle Management (RCM) processes with automation and AI can significantly improve billing accuracy, reduce denials, capture higher percentage of charges and accelerate collections. By eliminating manual errors and improving claim submission and denial resolution processes, hospitals enhance their financial performance, freeing up time and $’s to focus on patient care.
Key Benefits:
- Faster claim processing and increased collections.
- Better compliance with payer regulations, reducing the risk of denials.
- Strengthening Community Partnerships and Addressing Social Determinants of Health (SDOH) Financially sustainable hospitals understand that improving population health goes beyond treating illness—it requires addressing the root causes of poor health, such as food insecurity, housing instability, and limited access to preventive care. By investing in community partnerships and outreach programs, hospitals can reduce long-term healthcare costs while improving overall patient well-being.
Example: A hospital system that partnered with local food banks and community organizations saw a 10% decrease in preventable hospitalizations by addressing food insecurity and chronic disease management. (Health Affairs)
The Future: A Balanced Approach to Financial Sustainability and Patient Care
The path forward for hospitals lies in embracing innovation, leveraging technology, and adopting value-based models that align financial goals with better patient outcomes. Sustainability and patient care don’t have to be at odds—when hospitals invest in the right strategies, they create a virtuous cycle where financial stability fuels better care, and better care reinforces financial health.
As healthcare continues to evolve, hospitals that prioritize both financial sustainability and patient-centered care will not only thrive but also set the standard for the future of healthcare. In the end, hospitals that achieve this balance will not only survive—they will lead the way in creating healthier, more resilient communities.
Sources:
- American Hospital Association. “Hospitals and Health Systems Face Escalating Operational Costs.” May 2024.
- American Hospital Association. “Financial Challenges Mount for Hospitals, Putting Access to Care at Risk.” April 2023.
- “New AHA Report Paints Dire Financial Picture for Hospitals.” January 2024.
- “Strategy is Back in the Driver’s Seat: A New Focus on Value-Based Care.” February 2024.
- Kaufman Hall. “2023 State of Healthcare Performance Improvement Report.”
- American Hospital Association. “Addressing Social Determinants of Health to Improve Care and Reduce Costs.” May 2024.
