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The same statement resurfaces whenever we face an economic downturn: healthcare is recession proof. 
 
Unfortunately, that’s more fiction than fact. 
 
Just like other large organizations with workforce, supply chain and other fiscal concerns healthcare organizations are impacted by economic conditions. However, it is true that the industry responds to economic downturns in unique ways.  The downturn we are experiencing in 2022 is different in many ways than those that came before, especially because it’s happening concurrently with an ongoing global pandemic that continues to destabilize the healthcare industry. 
 
Healthcare leaders need to understand how the downturn could exacerbate issues brought forth by the pandemic and introduce new challenges. 
 
In this piece, we’ll discuss both the challenges and opportunities that could lie ahead, categorized by healthcare providers’ top fiscal priorities. 
  

Patient Access & Experience 

CHALLENGES 

• Patients may start to defer care or continue to defer care if they are already doing so. This may be due to high insurance deductibles, loss of health insurance due to unemployment or less disposable income to pay for care. Deferred care could cause demand to drop, especially for elective services, and lead to worse long-term outcomes for patients with chronic conditions. Additionally, these worse long-term outcomes may lead to negative performance for a provider’s risk-based contracts, resulting in lower reimbursement and/or penalties for the care of those patients. 
• Quality of care may drop as providers are pushed to do more with less and staffing issues persist at all levels, including nursing, allied health professionals, technologists and more. 
• Older patients may have fewer care options. Many of these patients are dependent on pensions or fixed incomes and will struggle to afford assisted living and memory care. Over time, inability to fill these facilities could lead to cutbacks in services and ultimately permanent closures. 

 
OPPORTUNITIES 

Financial Health 

CHALLENGES 

• Demand decreases could lead to reduced revenue. This is especially true for discretionary services. Providers may have to cut certain services, due to both concerns with financial sustainability and staffing shortages. 
• Insurance coverage gaps could lead to lower reimbursement rates for providers, particularly as more patients find insurance through the marketplace or Medicaid. 

• Bad debt will likely increase, making it more difficult to collect payment for services rendered. 
• Days of cash on hand will likely decrease, leaving less liquidity for healthcare providers to work with and potentially triggering debt covenants. 
• Bond ratings may go down as debt covenant violations increase, resulting in higher interest rates. 
• Costs are likely to increase, especially labor and supply costs. In addition, due to pandemic pressures, there will likely be fewer options to reduce expenses compared to previous recessions. 
• Providers may struggle to make contractual payments such as lease payments. This is especially true for providers in the elder care space, such as skilled nursing facilities. 

• Private funding is likely to decrease. In particular, we could see reductions in private grant awards in the coming months. 

OPPORTUNITIES 

Operations and Supply Chain 

CHALLENGES 

• Operating costs will likely increase and options to reduce them will be limited. 
• Operating margins are likely to decline, especially if we continue to see high compound annual growth rates (CAGR) for drugs and labor costs and vendor contracts tied to the Consumer Price Index (CPI), forcing providers to adopt more aggressive procurement policies. 

• Supply shortages are likely to continue and become more severe, which could impact clinical outcomes. Operational technology shortages are expected to continue, making it difficult for providers — especially small- and mid-sized community hospitals — to access practical tech solutions. 
• Certain vendors may go out of business, particularly niche vendors, further exacerbating supply difficulties across the industry. 

OPPORTUNITIES 

Technology & Innovation 

CHALLENGES 

• New competitors may enter the healthcare space. Privately funded, tech-enabled competitors may be able to offer lower costs to consumers. 
• Innovation priorities will likely change. Certain innovation projects may be delayed or abandoned entirely. 

• Telehealth use could stall depending on payers’ willingness to reimburse for telehealth visits. 

OPPORTUNITIES 

Workforce & Talent 

CHALLENGES 

• Staffing struggles are likely to continue, especially in nursing. Providers will likely need to continue working with travel nurses and the associated fees may cause increased financial strain. 
• Burnout may increase among both clinicians and support staff, which could lead to an exodus of healthcare workers from the industry. 

• The clinician pipeline may run dry as fewer students choose to study medicine, prolonging and aggravating talent shortages in the industry. 
• Competition for talent could become increasingly heated and smaller or independent providers may find themselves priced out of the talent pool. 

 
OPPORTUNITIES 

Regulation & Reporting 

CHALLENGES 

• Pricing scrutiny is likely to increase. The public awareness and skepticism of both pricing policies and executive compensation levels will probably increase. Congress is also likely to continue focusing attention on enforcement of federal pricing mandates. 
• Government funding may dry up. It’s possible that the government will cease to provide funding, which some providers have come to rely on in the past several years. 

• Providers may face new reporting requirements. Some requirements could be industry-wide, such as ESG reporting requirements. Additional requirements could also be created for specific institutions. Skilled nursing facilities, for example, are likely to face new reporting requirements in the coming years. 
• Medicare will be able to negotiate lower drug prices. As part of the Inflation Reduction Act, Medicare will be able to negotiate drug prices for 10 high-cost (yet to be determined) drugs starting in 2026. Other provisions of the act include free vaccines for Medicare recipients and three-year extensions for subsidies from the Affordable Care Act (ACA). 

OPPORTUNITIES 

 
 Your window of opportunity to prepare for these challenges is shrinking. 
 
As a healthcare provider, you’re likely to face substantial additional strain in the coming months. The impact of these challenges can reverberate for years if you’re not properly prepared. 
 
Fortunately, providers can protect themselves by capitalizing on the opportunities we’ve identified over the coming months. 

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