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Regulatory Scrutiny and Labor Issues Top Healthcare Risks Over the Next Decade

Richard Williams, Managing Director Global Healthcare Practice Leader

After two years of navigating the COVID-19 pandemic, healthcare organizations are trying to take full stock of how the crisis has changed their business and industry, while also trying to ready themselves for what’s likely to come next. And based on the findings from our latest Top Risks Survey, what these organizations see on the horizon for this year, and for the decade to come, is an array of complex challenges that could undermine their ability to operate effectively and generate revenue.

In fact, compared with the other industry groups represented in the Top Risks Survey, the healthcare industry group indicated the highest level of risk concerns for 2022. Four of the group’s top five top risks for 2022 were rated at the “Significant Impact” level. Survey respondents in this group also categorized three of the five top risks for 2031 at that same high level.

A detailed analysis of the 2022 and 2031 top risks for the healthcare industry can be found in our executive summary of the survey results. We also explored several of the key risks in-depth with a panel of industry experts in our recent webinar “Healthcare Industry Executives Perspectives on Top Risks.” Following are a few highlights from that discussion, along with select findings from our 10th annual Top Risks Survey, which we conducted jointly with NC State University’s ERM Initiative.

Regulatory Response: The Desire to Become More Proactive, Predictive and Prepared

“Government policies and other pandemic-related regulations” rank as the highest risk for healthcare organizations in 2022. Among the many pressures these organizations face in this area are the need to monitor federal, state and local public health emergency (PHE) communications and mandates to ensure that employees have access to up-to-date information, and the importance of building a culture of awareness and safety around PHE guidance.

Also sitting among the top five risks for the healthcare industry year is “Regulatory changes and scrutiny.” (It ranks fifth, which is the same spot it holds on the 2031 list.) As explained in our Top Risks Survey report, the U.S. government took aggressive actions and exercised regulatory flexibilities (i.e., waivers) to help healthcare providers manage the impacts of the pandemic. With these waivers came relaxation in certain audit, investigative and enforcement activities.

When the waivers end, however, regulatory scrutiny will rise. Panelist Jennifer Ierardi — a leader with an integrated academic health system — said that preparing for this inevitability is a must. “That audit readiness mindset is something that we’ve been thinking about,” she said, explaining that her organization is treating business activities such as the documentation of expenses “like we’re going to be audited tomorrow.”

Ierardi emphasized that healthcare organizations also need to be ready to work with regulators on issues old and new when enforcement and investigations resume. She pointed to the opioid crisis and instances of fraud by post-acute care providers as examples of issues that are, and likely will continue to be, on regulators’ radar. There also will be a focus, of course, on how the organization has used any economic relief funds it received during the pandemic from government sources.

Labor Challenges: Rising Costs, Talent Shortages and Flexible Work Expectations

Top Risks Survey respondents in the healthcare industry group see rising labor costs as an issue that isn’t going to ease anytime soon, ranking this issue second on both the 2022 and 2031 top risks lists. Labor costs already represent about 40-60% of operating expenses for most healthcare organizations. And the constraints of fixed reimbursement models make it difficult for these organizations to recover increasing labor costs, at least for now.

The use of overtime and temporary staffing has helped drive up labor costs considerably during the pandemic, but they’ve been necessary measures to help reduce the burden on overworked, core staff. However, they haven’t eased the overall shortage of talent in the healthcare industry, which existed long before the COVID-19 crisis. And now, burnout and hot-button issues like vaccine mandates are driving more people to leave their current jobs, and even the industry.

“Compassion fatigue” has been an ongoing problem for healthcare workers during the pandemic, but the recent Omicron variant surge has been the tipping point for many healthcare workers, as panelist Dr. John Kenagy, a senior executive with a community health system, noted. Kenagy said low morale is another problem, and local communities are playing a role in many cases. “People have gone from banging pots and pans to celebrate healthcare workers to shouting at them because they believe COVID is fake, or they don’t want to wear masks,” he said.

Offering salary increases, more benefits and professional development opportunities are among the strategies many healthcare organizations are using to try to attract and retain skilled talent right now. Flexible work arrangements is another, especially because it’s something that many healthcare workers are now asking for specifically — and will likely come to expect.

A Renewed Interested in Enterprise Risk Management

Regulatory scrutiny and labor costs are just two of the key risks for the healthcare industry that our panel discussed. What’s clear from the webinar, and our latest Top Risks Survey, is that healthcare organizations have a lot on their risk plate now, and for the next decade. It is also clear that — given the potential impact of these risks—enterprise risk management is more important than ever.

Panelist David Thompson, a board member with an integrated health system, said he expects this “renewed interest” in enterprise risk management to accelerate. And he offered these words of warning to healthcare organizations that aren’t preparing to manage their key risks effectively: “If they haven’t started to develop a risk framework that can be used consistently either to address operational risk or strategic risk or emerging risk, then they’re really behind the eight ball.”

To hear more insights from our healthcare industry panelists, view our free webinar on demand. And for more data and analysis from the Top Risks Survey, download our full survey report and other related materials here.

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