Hospitals could do more outsourcing in 2024

Many health systems continue to deal with modest or weak operating margins, and hospitals could engage in more outsourcing in the coming year, Deloitte projects.

Tina Wheeler, healthcare sector leader for Deloitte, says health systems may look to outsource some areas in 2024. (Image: Deloitte)

Facing growing cost pressures, more hospitals are likely to look at outsourcing some functions, such as revenue cycle management, billing, finance and other areas, according to Deloitte. Some hospitals could look to “offshore” some of those functions to companies outside of the United States.

Tina Wheeler, healthcare sector leader for Deloitte, says that outsourcing is one of the leading trends to watch in the coming year. In an interview with Chief Healthcare Executive®, Wheeler says that health systems and insurers may look to outsourcing.

“I think it's a delicate dance there,” Wheeler says.

“Hospitals need to figure out, health systems in particular, and maybe even payers, … what are they good at? And what areas would they want to consider outsourcing?”

While most health systems are faring better financially than they did a year ago, many hospitals continue to wrestle with operating margins just above the break-even point. Financial analysts expect some modest improvement in 2024, but both Fitch Ratings and S&P Global Ratings expect nonprofit hospitals could see continued constraints in the coming year.

“You’ve got rising labor costs, higher interest rates, and all these financial pressures and determining what back office functions could be outsourced and other ways to do things … That's a huge trend that we see as far as where you can save money,” Wheeler says.

More health systems are expected to weigh the areas where they do some functions well, and the return on investment in outsourcing some other areas to save money.

“Everything from rev cycle, billing, claims, finance, HR, clinical administration, supply chain, all of those things can be entirely or partially outsourced,” Wheeler says.

Health systems haven’t engaged in outsourcing business processes as much as other industries, but that could change in the future. Deloitte has seen more interest in large health systems moving some back-office functions offshore. Large health systems could spend $50 million on finance and accounting functions, and offshoring those functions could cut those costs in half, Deloitte projects.

Of course, outsourcing and off-shoring some functions carries some risks for health systems, including the loss of control and reduced quality of those services. As Wheeler notes, if systems outsource a function such as billing and it leads to more friction with patients, some of those patients could go elsewhere.

Health systems also need to weigh the impact on their local communities if they outsource some of those positions, Wheeler says. Hospitals are often the top employer in their communities, and shedding some positions could generate blowback from the public.

“If you outsource and offshore, I think you have to think about …. how would that be viewed? I think there's a balance there,” Wheeler says.

When Kaiser Permanente union workers were negotiating its contract with the California-based healthcare system, labor leaders insisted on provisions protecting against outsourcing, and they said such protections were included in their new, four-year contract.

Hospitals and health systems are increasingly focused on recruiting and retaining doctors, nurses and other healthcare workers that work directly with patients. Some health systems may look at outsourcing some administrative functions to free up some money so they can invest more in their clinicians, Wheeler says.

Health system executives continue to expect more workforce challenges in 2024, Deloitte projects.

More than half (57%) of healthcare executives say staffing shortages and workforce challenges will affect their strategy in 2024. That’s down from 68% a year ago, but still clearly a concern for many hospital executives. Health plan executives seem less concerned about workforce issues, with 37% saying it’s a concern.

Deloitte also identified a few other healthcare trends to watch in the year ahead.

More use of AI: Health systems will do more with generative AI, but the key is adopting solutions that are integrated through the system, Deloitte says. Most leaders expect to adopt more digital tools over the coming year. A majority of executives say generative AI can help with processing claims and addressing staff burnout. Some hospital systems are using AI to predict mortality rates and the length of stay for patients.

Wheeler says Deloitte’s clients are weighing questions such as, “How are they going to use AI and then how are they going to govern it?”

Affordability concerns: Patients will pay more out of pocket over the next year. Half of health plan executives said “affordability issues” would affect their plans in 2024. Consumers are increasingly willing to make healthcare decisions based on price and convenience. Healthcare leaders have an opportunity to engage more people by utilizing digital tools that can help patients get what they need more easily, Deloitte says.

More M&A activity: Mergers and acquisitions are likely to increase in 2024, Deloitte projects. Most health system executives (86%) said consolidations would have at least some impact on their plans for the coming year. One in three (33%) said mergers would have a “great impact” on their 2024 strategy, while 53% said it would have a “moderate impact” on their planning for next year.