Healthcare Finance Trends for 2024: An Updated Look

At the year’s outset, CommerceHealthcare^® issued Healthcare Finance Trends for 2024: Progress, but Major Challenges Ahead (The Trends Report hereafter), examining leading issues for providers in 2024 and beyond in four overarching categories:

• Financial
• Patient financial experience
• Technology and automation
• Collaboration and trust

This new report mines Commerce Bank’s ongoing industry research to update the analysis and inform current planning.

Overall Observations

A few top-level observations can be made about healthcare finance and strategy:

• Provider finances are healthier, but there is considerable variability among organizations and the gulf between stronger and weaker performers may be widening.
• Many trends and forces intersect and often conflict, rendering decision-making more complex, with high-stakes.
• Affordability, patient financing and competitive factors are a key triad influencing the patient financial experience in 2024.
• Technology investment is still a priority, especially in revenue cycle automation, artificial intelligence and cybersecurity, but many providers are constrained by their financial challenges.

Financial Update

The financial picture for many health systems, hospitals and practices has brightened somewhat in 2024. An emerging consensus views the industry as increasingly bifurcated into financially healthy and unhealthy organizations. A poll of CFOs earlier in the year indicated that only 54% were achieving positive margins while 39% were negative.^[1] Struggling hospitals have seen margins in the negative 4% to negative 19% range, a level deemed “unsustainable.”^[2] Distinguishing the higher performers are:

• Accelerating outpatient revenue
• More rapid reduction in contract labor
• Heavy focus on patient throughput and lower lengths of stay.^[3]

The forward view also appears mixed. Just over half of surveyed CFOs said they’re optimistic about their organization’s financial future.^[4] Rating agency updates have been cautious. Fitch’s mid-year assessment of not-for-profit hospitals reaffirmed a “deteriorating” outlook and unfavorable cost trends.^[5] S&P Ratings questions the “sustainability of positive cash flows” and holds a negative outlook on 25% of hospitals.^[6] For health insurers, Moody’s expects lower profitability from reduced Medicare Advantage reimbursement rates throughout 2025 and 2026.^[7]

A mid-year snapshot of key financial metrics reveals the variability in results.

• Profitability. Hospital and health system monthly median operating margins have been solid in 2024, reaching 5% and 2.3% respectively in May (Figure 1).^[8] However, total health system expenses have risen more than 16% through mid-2024.^[9] Physician practices are also contending with increased total direct expense per physician FTE of 12.8% over 2023.^[10]

View PDF of Figure 1^[PDF]

Revenue/Volume. Through May, net operating revenue per calendar day for hospitals advanced 7% over 2023.^[11] Volumes have increased 6%.^[12] Providers are wrestling with reduced reimbursement from payers. Longer term, in 2030, the percentage of commercial insurance enrollees is expected to be 55%, down from 59% pre-pandemic, driving lower reimbursement for an aging demographic.^[13]

Three financial management strategies have been particularly emphasized in 2024.

Generating growth and expansion

This year, 57% of C-suite executives consider revenue growth their top strategic initiative.^[14] The most active expansion paths include:

• Outpatient Services. This growth engine continues to shine, logging year-over-year increased revenue through May of 8% on a 3.3% rise in volume.^[15] Over the next decade, volume is projected to climb 17%, compared to just 3% for inpatient, driven by a portfolio of ambulatory care segments (Figure 2).^[16]

View PDF of Figure 2^[PDF]

• Telehealth. A recent survey of 350 physicians showed that about 13% of patient visits were conducted virtually in 2024’s second quarter, and clinicians do not expect that to change much.^[17] Growth may be leveling, but telehealth is still an opportunity. One analysis sees 23% of E&M visits being conducted virtually by 2034.^[18] “Virtualists” are emerging who specialize in remote care, typically managing low-complexity cases.^[19]
• M&A. Heightened regulatory scrutiny of hospital mergers and of the effects of private equity on ownership could dampen this growth path. Moody’s asserts that diminution of activity may cause difficulties for “distressed systems seeking exit strategies” as well as for larger systems that have relied on M&A.^[20]

Managing prior authorization (PA) and payment denials

The American Medical Association (AMA) surveyed 1,000 primary and specialty physicians at the end of 2023 and came away with a clear message: “The PA process continues to have a devastating effect on patient outcomes, physician burnout and employee productivity.”^[21] The supporting statistics include:

• 43 PAs are completed per physician per week.
• 35% of physicians have staff dedicated to PA work.
• 27% report that PAs are often or always denied.

Respondents observed a substantial occurrence of treatment abandonment (Figure 3).^[22]

View PDF of Figure 3^[PDF]

Denials are also on the rise and increase as treatment costs go up. The thresholds that tend to trigger more denials range from $11,000 to $22,000 across insurance types (Figure 4).^[23]

View PDF of Figure 4^[PDF]

Finding solutions to workforce shortages

Labor challenges have abated somewhat in 2024, but shortages appear to be “structural” and are a “long-term challenge.”^[24] The latest report on physicians, for example, forecasts a shortfall of 13,500 to 86,000 by 2036, assuming increased investment in graduate medical education.^[25] 

Turnover among skilled administrative and clinical professionals is a critical concern for 83% of surveyed financial managers who now maintain a “primary focus” on attracting and retaining talent.^[26] One study suggests “Many health care organizations find themselves chronically under-resourced during a time when specialized staffing is crucial for the success of value‑based care and new digital strategies.”^[27]

The fallout from these workforce disruptions goes beyond higher costs to include negative consequences for care delivery, patient access and health equity (Figure 5).^[28] Labor issues continue to undermine major healthcare goals.

View PDF of Figure 5^[PDF]

Patient Financial Experience Update

Despite improvements, the patient financial experience is a source of frustration for many individuals. Figure 6 depicts a surgical encounter that illustrates common obstacles.^[29]

View PDF of Figure 6^[PDF]

Interesting recent research used “blind shoppers” to solicit financial information from hospitals. “The administrative friction was substantial,” observed the authors, with 18.1% of hospitals unreachable in three attempted calls and multiple siloed payments and financial assistance offices involved.^[30]

A confluence of three forces is exerting pressure on the patient financial experience today: affordability, patient financing demand, and competition.

Affordability

Affordability is a root cause of many patient frustrations:

• Healthcare costs are a problem for many, regardless of insurance coverage (Figure 7).^[31]

View PDF of Figure 7^[PDF]

• 46% of adults have little to no confidence that their resources will sufficiently cover their care as they age, and an estimated 72.2 million have avoided necessary treatment in the past three months due to cost.^[32]
• The average cost of healthcare for a typical individual covered by an employer health plan is $7,151 in 2024, up 6.7% from the previous year.^[33]
• 56% of adults aged 50 and over are “very concerned” about the cost of medical care.^[34]

Providers collected under half (47.6%) of total patient obligation in both 2022 and 2023. Collection rates drop steadily as the dollar amount owed increases, and the decline is precipitous over $5,000 (Figure 8).^[35] Among physician practices, 29% face very or somewhat significant daily challenges obtaining funds from self-pay customers.^[36]

View PDF of Figure 8^[PDF]

Patient financing demand

Given that 50% of all patients owe between $1,001 and $5,000 for their care, financing programs are crucial.^[37] They should be woven tightly into price transparency communications since a higher priced hospital may be the right choice if its financial assistance is superior.^[38]

Zero interest rate lines of credit that can be extended for longer terms have been well received by patients and generate benefits for all. The credit line can accommodate subsequent additional care charges without a new loan process, heightening flexibility for patients.

The Trends Report documented rising interest in financing based on cost estimates prior to the patient’s service. More organizations are likely to add this patient-friendly option. The blind shopper survey mentioned earlier found that only 45% of the hospitals with financing programs for insured patients provided ability to apply pre-service.^[39]

Competition

The proliferation of new retail health competitors offering affordable care has fueled the “rising consumerism” of patients by prioritizing convenience and low-friction processes. Mid-year 2024 has seen notable activity that may imply a pivot in the market. Walmart and Walgreens recently announced retrenchments from their healthcare commitments. As with previous forays from firms outside healthcare, these retailers have struggled with the industry’s unique dynamics. A health system CEO believes that the “disruptors” often present a fragmented, transactional experience, whereas what is required is “an ecosystem of care that patients will need across a lifetime.”^[40]

Nevertheless, the challenge cannot be minimized. Amazon continues to experiment with its model, and CVS appears committed to expansion since it perceives synergy with pharmacy sales. There is no dearth of interested companies. The American Hospital Association (AHA) recently identified ones to watch in 2024:

• Costco
• Instacart
• Kroger
• Best Buy
• Dollar General^[41]

Relentless attention to patient experience is critical for traditional providers as is innovation. Notes an executive, “the biggest threat to our industry is our own unwillingness to disrupt ourselves.”^[42]

Technology and Automation Update

Technology occupies a pivotal role in healthcare’s endeavors to drive consequential change. The Trends Report explored three major goals of technology investment:

• Generate substantial efficiencies through automation, particularly in revenue cycle management (RCM) and payments processes.
• Use advanced technologies to digitally transform organizations.
• Introduce and expand digital payment modes that are gaining interest.

A scan of the current environment reveals important updates for these strategic objectives.

Automation

Organizations see automation as a source of cost reduction, streamlined payments processing and effective management of suppliers. A clear need exists. Most health system finance executives (87%) say they face intensified demand to upgrade their RCM systems.^[43] Physician practices deem “administrative work” (66%) as a very or somewhat significant daily challenge.^[44] Healthcare’s still-prevalent manual processes are ripe for automation.

Finance is a principal target. RCM is the top IT investment sector over the coming two years for 37% of leaders.^[45] The North American RCM system market is roughly $62 billion in 2024 and growing at a 12% annual clip.^[46] Robotic Process Automation (RPA), software bots that perform human tasks in many financial processes, is projected to show global healthcare compound annual growth of 26% through 2032.^[47]

Optimizing enterprise-level automation entails balancing technology and process reform. Two management experts have proposed a decision matrix to help strike that balance in evaluating projects (Figure 9).^[48] This approach can help avert failure of RCM technology deployments that favor partial solutions to minimize investment but “never reach the minimum threshold for impact.”^[49]

View PDF of Figure 9^[PDF]

Digital Transformation (DT)

A host of technologies aim to “digitally transform” healthcare in ways that unleash major cost clinical and operational benefits necessary to twenty-first century success. The Trends Report described both the progress achieved and the barriers remaining to full realization of these benefits. Current perspectives confirm this duality:

• 89% of healthcare executives call digital transformation a leading priority, but 3 in 4 consider it incompletely planned or resourced.^[50]
• 96% of surveyed finance leaders report that DT is a major emphasis for 2025–26, but under 11% have fully implemented comprehensive solutions.^[51]
• 50% of hospitals and health systems have formulated a comprehensive digital plan that is actively monitored by the financial team, while 27% do not closely review their plan and 23% lack any plan.^[52]

  Two technologies spotlighted in the Trends Report — cybersecurity and artificial intelligence (AI) — have been prominent throughout 2024. A recent CommerceHealthcare^® white paper provides a comprehensive look at cybersecurity’s current status and concerns. Among the numerous statistics:

• 333 data breaches involving more than 500 records in the first five months of 2024.^[53]
• $1.3 billion in 2023 total industry ransom payments.^[54]
• $11 million in average hospital and health system data breach costs per incident in 2023.^[55] Healthcare leads other industries in this regard.

AI is one of the most potentially transformative technologies, and 2024 has witnessed little diminution of provider enthusiasm for identifying and implementing tangible applications. Growing uses range across decision support, radiology interpretation, clinical documentation, analytics, and many others. RCM ranks highly on leadership’s list of important use cases, with 12% already using AI in RCM and an equal percentage planning further investment in the next year.^[56]

Generating cost savings is a compelling goal for healthcare AI. One study that evaluated “specific AI-enabled use cases that employ today’s technologies, are attainable within the next five years, and would not sacrifice quality or access” concluded that wider adoption could reduce industry spending by $200–$360 billion annually.^[57]

More progress is needed on integrating the technology into existing workflows and on beginning to obtain the desired financial ROI (Figure 10).^[58]

View PDF of Figure 10^[PDF]

Additional current considerations germane to strategic planning deserve mention:

• Doctors are optimistic about AI’s potential but 60% fear loss of medicine’s “human touch” while 42% feel it will complicate care.^[59]
• The healthcare information that will power AI is “unstructured, spread across multiple data sources, and stored in varying data structures.”^[60] In a revealing snapshot, under half of polled healthcare IT executives characterized “more than 75%” of their data as accurate and reliable, and even fewer deemed it complete and timely.^[61]
• Some analysts are beginning to sound notes of caution about the eventual returns on AI, questioning the breadth of tasks that Generative AI will be able to impact and whether AI costs will decline sufficiently to make large-scale automation work.^[62]

Digital Payments

The drivers impelling growth in business and consumer digital payment use in healthcare that were described in the Trends Report — convenience, cost savings, support for telehealth — are firmly in place in 2024. Brief updates on selected digital payment rails follow.

• ACH continues to be popular, registering 126 million healthcare transactions in the second quarter of 2024, a gain of 2.8% over the same period in 2023.^[63] Same day transfers are growing rapidly, with volume up 47% year over year across industries. Commerce Bank is in the top 50 nationwide institutions for volume of ACH origination and receipt.^[64]
• Real-Time Payments. Analyses released since the publication of the Trends Report show ascending demand for real-time or “instant” payments. E-Money payments, including mobile wallets, will reach 28% of $2.3 trillion in global non-cash transactions by 2027.^[65] One-fourth of consumers so value speed that they would pay up to 1.7% of the transaction to obtain funds immediately.^[66] Almost 35% of small and mid-sized businesses would pay fees to receive instant payments. Advanced technologies are also powering banks’ ability to provide “real-time treasury services” that facilitate swift transactions to improve “cash management, risk mitigation, and liquidity enhancement.”^[67]
• Buy Now, Pay Later (BNPL). The ability to pay for purchases digitally over a few interest-free installments has shown appeal, and 29% of consumers told a 2023 poll that they had used BNPL over the past twelve months.^[68] Credit card companies are pulling back support, and new regulations are likely to emerge amid concerns that BNPL may encourage taking on too much debt.
• Earned Wage Access (EWA). The Trends Report noted the growth in rapid payments to employees. Regulators are examining this popular mode as well, and the market anticipates that new oversight will underpin expansion of this tool.
• AI-influenced Payments. AI will help embed digital payments into broader financial apps and enable “voice-activated conversational front ends” that many users want.^[69] In finance, expect to see AI power new levels of intelligent payment routing, real-time credit decisioning, smart payment reconciliation, and other transactions.^[70]
• Blockchain as a Support Tool. Proponents say blockchain can bring robust privacy/security support to the payments infrastructure as well as mechanisms such as “smart contracts,” which are projected to grow 21% annually through 2031.^[71]

Collaboration and Trust

The Trends Report asserted that collaboration and trust are increasingly central to strategic success. Recent research has underscored the contribution these twin connected values make to several healthcare initiatives:

Value-Based Care (VBC) and care coordination

VBC embodies the objective of delivering high quality, cost-effective care over time and across sites. There is broad agreement on the opportunity but frustration over slow adoption. Currently under one-quarter of providers derive 15% or more of net patient revenue from VBC payments (Figure 11).^[72]  Robust growth forecasts see 90 million lives covered by VBC models by 2027, up from 43 million in 2022.^[73]

View PDF of Figure 11^[PDF]

VBC depends on integrated health plan and provider data, but trust issues pose roadblocks. Among surveyed providers, 57% have little or no trust in health plans.^[74] That is a difficult foundation on which to build strong data sharing and care coordination. But both sides equally believe that an improved “data infrastructure to support whole-person, longitudinal care” is important, creating “a worthwhile place to begin untangling distrust.”^[75]

Responding to competition and disruption

The AHA advises hospitals to “emphasize the value your providers deliver consistently as a trusted health partner for the community.”^[76] Such trust is an avenue of competitive advantage in a changing environment.

Technology adoption

AI and cybersecurity are particularly dependent on user trust to attain full potential. A study on AI adoption identifies one principal challenge as lack of patient confidence in data privacy, unbiased output, and algorithm methodology.^[77] Many are calling for applications to be “designed with clear visibility on how data is used and where it originates” in order to foster trust among all users.^[78]

Health equity

Pinpointing disparities in health access and outcomes for different socioeconomic populations hinges on self-reported data, observes a recent study, but “systemic mistrust of the health delivery system” leads important population segments to avoid sharing their information.^[79]

Conclusion

This updated view of healthcare finance today reinforces both progress and continued challenges originally detailed in the Trends Report. The various factors at play are often intertwined and sometimes conflicting, complicating decision-making. Success still depends on balancing cost control with growth investments in solutions spanning financial management, patient financial experience, automation technology, and trusted collaboration. With healthcare poised to undergo substantial change in coming years, understanding industry dynamics and trends is essential.  CommerceHealthcare^® will continue to offer analysis and solutions to help providers.

CommerceHealthcare^® solutions are provided by Commerce Bank.

Disclosures: