Hospitals are facing what they dread: Uncertainty

Hospital leaders crave at least some degree of predictability.

Hospital leaders are grappling with uncertainty about federal funding for healthcare programs, tariffs, and the strength of the overall economy.

Yes, hospitals deal with emergencies and unexpected events every day, and that’s the nature of their business. But when it comes to long-term planning and making decisions about where to put resources, hospital leaders want to have some idea of what to expect in terms of the economy and federal policy.

Now, almost three months after President Trump has taken office, hospital and healthcare leaders are facing uncertainty on a number of levels, and that’s what they dread, analysts say.

The level of uncertainty is especially troubling for hospital chief financial officers, says Steve Wasson, chief data and intelligence officer for Strata Decision Technology.

“It is just a little bit hard to predict, which is hard for some of these CFOs,” Wasson tells Chief Healthcare Executive®.

“No one wants the unknown,” Wasson says. “They're risk averse.”

The uncertainty comes as a stark contrast to just a few months ago, when many healthcare leaders were more optimistic about the economy. While there were concerns about federal spending with the Trump administration and the new Congress, some were optimistic about favorable tax rates and reduced regulations, Wasson says.

Now, it’s difficult for healthcare leaders to know what to expect.

Trump imposed tariffs on most trading partners, before placing a 90-day pause on most countries, except China. Hospitals rely on manufacturers in China for many medical supplies that are used every day, and they also import supplies from other countries as well. The prospect of tariffs on more countries weighs on hospital leaders.

So far, the tariffs cover healthcare supplies and medical devices, but pharmaceuticals have been exempt, although Trump has suggested tariffs could be applied to pharmaceuticals.

Hospitals have also been worried about possible cuts in spending on Medicaid and reduced support for research from the National Institutes of Health.

‘Some sleepless nights’

Kevin Holloran, senior director and leader of the nonprofit healthcare sector at Fitch Ratings, tells Chief Healthcare Executive® that most hospital leaders want to know what they’re facing, good or bad.

“CEOs, the C-suite, CFOs … this level of uncertainty is causing some sleepless nights,” he says.

For Holloran, the lack of predictability is reminiscent of another harrowing time.

“I would say the uncertainty right now reminds me a lot of the uncertainty that we felt in the early days of the pandemic,” Holloran says. “You remember in March 2020, we shut down, we stopped doing electives and procedures like that, and we didn't know when they were coming back. It made it very hard to plan and budget and so on and so forth. And it feels like that again.”

Mark Pascaris, senior director and analytic lead for nonprofit healthcare at Fitch Ratings, says that it’s possible some health systems could put the brakes on capital projects and building renovations or expansions. Trump imposed tariffs on steel and aluminum last month, and those remain in effect.

“I expect we're going to hear a lot of folks tell us we're putting projects on hold,” Pascaris says. Hospitals could also downsize some projects that they had planned.

Some hospitals and health systems paused construction projects during the COVID-19 pandemic, and there’s deferred maintenance for some organizations, Pascaris says.

Wasson says there’s a much different mood among healthcare leaders compared to January. Hospitals had seen better margins and labor costs, while higher than a few years ago, were becoming more manageable. Wasson recalls attending the J.P. Morgan Healthcare Conference, with more than a dozen large health systems talking about their future plans.

“They were thinking about their investments the way that I haven't heard in a little while. And they were talking about programs they wanted to expand,” Wasson says.

Now, Wasson just completed a recent road trip and received a different sentiment from healthcare leaders. While cautioning that these are anecdotal accounts and aren’t necessarily reflecting hard data, Wasson says there’s “uncertainty trickling back into their thought process.”

Questions about federal aid

Some uncertainty comes as Congress works on a federal spending plan beyond stopgap spending measures. Congress approved a short-term spending plan to fund federal programs through September, but hospitals are waiting to see what they’ll expect for Medicaid and Medicare payments.

Hospitals are also anxious to see long-term policies for telehealth and hospital-at-home programs. Congress approved extensions of virtual care programs through September, but hospitals and telehealth advocates have been pressing for more lasting reforms, or at least multi-year extensions.

The uncertainty makes it difficult for hospital and healthcare leaders to embark on long-term plans, or even some short-term plans.

“That's the worst for a leader, because they can't communicate what that means into the future,” Wasson says.

Hospital operating margins have plateaued over the last couple of months. The median hospital system operating margin in February remained 1.0%, unchanged from January. In December, the median operating margin was 2.1%.

Even with some uncertainty, Wasson still sees some stability.

“There's a sense I'm getting from some of our customers that they're a little uneasy about reimbursement, particularly government reimbursement, and what that might look for the future,” he says. “But when you look at their operating performance, you don't really see it yet.”

Wasson says hospitals are investing more in automation to improve their efficiency, particularly around administrative functions, such as revenue cycle management.

In a time of uncertainty, Holloran says hospital leaders should focus on what they can control, and that’s what more executives are talking about.

Even with open questions about federal funding, R. Lawrence Moss, president and CEO of Nemours Children’s Health, says he doesn’t focus on hypotheticals.

“The way that we can best help kids today is to get out of bed and do what they need today,” Moss tells Chief Healthcare Executive®. “There's all kinds of conjecture of what might happen and could happen, but those are just thoughts. None of those things have actually happened yet, and we're prepared if things happen, to react to the things that happen. But we're not going to get distracted by that. We know what needs to be done today and tomorrow for kids.”

Hospitals are looking to "future-proof" their organizations, and it's a good time to stockpile cash, including finding ways to trim expenses and grow profitable lines of business, Holloran suggests. Health system leaders should make sure they have strong relationships with their doctors and other staff, and their bond holders.

“Prepare for the worst while hoping for the best, quite frankly,” Holloran says. “But it is very difficult to plan and to budget out now more than more than six months to a year.”