What’s new: Healthcare organizations continue to face familiar challenges in 2024, including rising labor costs and talent shortages, increasing inflationary pressures, and continued changes in the regulatory environment, according to our Executive Perspectives on Top Risks Survey.
Significant impact: Healthcare industry leaders ranked seven risks at the “Significant Impact” level for 2024, including talent shortages, cyber threats, third-party risks and data privacy.
Bottom line: Healthcare organizations must make long-term transformational changes to their existing business models if they are to align financial and clinical objectives, streamline processes and improve operating models.
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Healthcare board members and C-suite executives continue to see a challenging risk landscape over the next 12 months, according to our latest Executive Perspectives on Top Risks survey, conducted jointly with NC State University’s ERM Initiative. The survey analysis reveals several interrelated challenges that could result in disruptions significant enough to test an organization’s agility and resilience. Healthcare industry leaders ranked seven risks at the “Significant Impact” level for 2024, including talent shortages, cyber threats, third-party risks and data privacy. A detailed analysis of the 2024 and 2034 top risks for the healthcare industry can be found in our survey research brief.
During a recent panel discussion with industry experts, we delved deeper into several of the key risks. Following are highlights from that discussion, along with select findings from our survey.
Labor costs and talent management matters rank high in healthcare risk rankings
Increasing labor costs ranked as the top risk for the healthcare industry in 2024, moving up from the second position in 2023 and 2022. According to the American Hospital Association, labor costs, which on average account for about half of a hospital’s total budget, have increased by more than 20 percent in the years since the onset of the pandemic. Meanwhile, workers are leaving healthcare due to factors like burnout and aging. Mindy Phillips, system vice president for corporate responsibility and risk at SSM Health, noted, “We are definitely into territory where we can no longer use old ways of addressing labor and talent issues in this current environment. Not only is talent management a standalone risk, it’s also a significant contributing factor to other risks. Its impact and reach can’t be understated.”
Shortages of both clinical and nonclinical workers and continued competition for healthcare workers with in-demand skills will continue to increase labor costs. With little relief in sight, healthcare organizations will need to establish new ways of working by rethinking and redesigning jobs and increasing the use of technology.
The ability to attract and retain talent and address succession challenges ranked as the third-greatest risk for 2024. According to Phillips, “Recruitment alone can’t address the issue; what’s needed is transformation, including job redesign, automation, reskilling and upskilling workers, and creating new career pathways altogether.”
Flexibility will be key in tough economic conditions
Economic conditions, including inflationary pressures, ranked second among healthcare leaders’ top risks for 2024. Most healthcare enterprises have faced below-average operating margins due to rising expenses resulting from inflation, labor shortages and COVID-endemic recovery. Half of U.S. hospital and health systems continue to operate at a financial loss.
Healthcare organizations increasingly are reexamining strategic plans and operational priorities to help ensure that capital is deployed for optimal return on investment and that funding levels are appropriate for services critical to meeting customer demand. Their leaders are seeking to align financial and clinical objectives as they streamline processes, optimize data, enhance consumer experiences, and improve the performance of financial and operational functions.
Tina Barker, senior vice president of strategy, marketing and digital at CHRISTUS Health, described the importance of finance departments in navigating tough economic conditions. “It’s important for organizations to have a strong finance team monitoring key operating indicators and being nimble and able to pivot when interest rates are lower so they can refinance debt or make swaps. Organizations also need to be serious and intentional around their strategy and growth, as those will help them be successful in navigating through hardships.”
To improve their margins, organizations are implementing cost-cutting measures and improvement initiatives that include flexible staffing models and strategic outsourcing partnerships, leveraging automation, and increasing visibility into productivity and performance. Chris Turner, a board member at INTEGRIS Health, summed up, “With the inflationary pressures and declining reimbursement rates, boards are consistently looking at the balance sheet. Building flexibility in that balance sheet is going to be the key, because we really can’t anticipate what’s going to happen. But we can be prepared to pivot, and that’s what most boards are looking at. Are we flexible enough to take advantage of opportunities that present themselves?”
Healthcare organizations face intensifying regulation, third-party risks and data privacy concerns
Maintaining compliance in the face of heightened regulatory scrutiny and continual regulatory change ranked as the fourth-highest risk for healthcare in 2024. The U.S. federal budget contains increased funding for regulatory enforcement, particularly for investigative efforts aimed at identifying healthcare fraud. Additionally, changes in the regulatory environment, including requirements around the use of technology, will be a constant for the healthcare industry well into 2034. Regulators are becoming more interested in the root cause of issues, and their inquiries are backed by data and increasingly sophisticated. Organizations must be prepared to respond in kind, using data and analytics as well as continuous monitoring to identify issues sooner and to mitigate them faster.
Reliance on third-party vendors continues to be an emerging long-term risk for healthcare organizations, ranking sixth for 2024. Third-party vendors provide critical operational and support services to industry members, but some have proven to be unaware that they are subject to intricate regulations as a result. Failure to manage vendor risk can leave organizations exposed to regulatory action, business outages, financial losses, litigation and reputational damage.
Ensuring compliance with growing identity protection expectations and regulations remains top of mind for healthcare organizations, ranking seventh for 2024. States continue to implement their own data privacy laws and regulations; proposed federal HIPAA Privacy Rules await finalization; and Congress continues to explore the possibility of new, sweeping privacy protections. Meanwhile, organizations share information with vendors and third parties to improve operational efficiency and patient outcomes, but face challenges in managing how that shared data is used. Gorman noted, “Growing pressure around identity protection expectations, happening at the same time as increased expectations around interoperability, coordination of care and transparency, will continue to be a very fine balance for everyone moving forward.”
Cyber threats and legacy IT infrastructure continue to be top concerns
Cyber threats ranked as the healthcare industry’s fifth-highest risk for 2024 and is expected to be the number one risk for 2034. Following close behind at number eight is the risk of existing operations and legacy IT infrastructure impacting the ability to meet performance expectations as well as born-digital competitors. The inherent complexity of data environments and the outdated technology systems prevalent in healthcare exacerbate these risks.
Cybersecurity programs require consistent annual investment and innovative use of technology, partnerships and vendor relationships, as well as continually updated skills and comprehensive training for stakeholders. Sanjib Dutt, chief information security officer for John Muir Health, noted, “Cybersecurity professionals are doing their jobs, but it’s a fairly complex environment. We can create a culture of security that drives confidence if we empower communication all the way from the board to the senior-most leadership in the organization and down to the folks on the ground doing the work.”
Skills and readiness to adopt digital technologies, in short supply, may hinder transformation
Developing fluency in digital and emerging technologies will continue to be important for both payer and provider segments in the healthcare ecosystem. The significant efforts needed to upskill and reskill existing employees to fully utilize the new capabilities may impact innovation and transformation efforts. Healthcare leaders ranked this risk at number nine for 2024 and number seven for 2034. According to John Kenagy, senior vice president and chief information and administrative officer at Legacy Health, “Innovation is key, whether it’s process innovation or computer technology innovation. Clearly the revolutionary change of technology is going so fast that in the next three to four years, this is going to be a huge issue.”
Additional detail and analysis can be found in our healthcare research brief. And for insight across all industries, executive positions, and more, read our Executive Perspectives on Top Risks Survey executive summary and full report at www.protiviti.com/toprisks or http://erm.ncsu.edu.
