According to industry experts, the continuous rise in prices of everyday goods and services since 2022 will soon result in an increase in healthcare operational expenses. Providers will be the first to feel inflation, spending more on supplies, equipment, and labor. The full impact of high consumer prices can take up to two or three years to reflect across the healthcare sector.
This delay is due to how the industry operates — insurers reimburse hospitals and doctors after they provide care. Typically, payer-provider contracts last three years, with rates for procedures set at the time of signing. Providers whose contracts expire in 2024 may experience inflationary cost increases in medical care expenses as soon as next year.
Some providers are already facing high expenses they can’t immediately recoup. Certain categories of medical costs have already risen, including supplies (up 9.7% from June 2022 to July 2023) and labor costs. Pandemic burnout drove many healthcare workers to quit or retire early, creating widespread labor shortage issues affecting productivity.
How should healthcare organizations prepare for the end of inflation immunity — and fight the spending issues that already disturb them?
By establishing cost mitigation strategies now, before inflation can fully catch up.
“Doing more with less” will define the healthcare industry in 2024. Hospitals and offices must embrace innovative technology solutions to boost productivity and keep costs down. Industry consultants predict the industry will increasingly turn to AI and related technology to streamline administrative processes and cut expenses.
Here’s a sneak peek at how healthcare organizations are automating expense management processes and mitigating costs in the coming year, based on research from HealthLeaders and Emburse. For a complete look at the time- and cost-savings strategies shaping the healthcare industry, check out our new report: Redefining Expense Management in Healthcare.
To Balance Cost Savings and Finance Productivity, Healthcare Turns to AI
According to the Medscape Physician Compensation Report for 2023, physicians spend an average of 15.5 hours per week doing administrative tasks, including managing expenses. In 2024, healthcare organizations will prioritize implementing automation to complete mundane paperwork and increase their time spent with patients. AI-powered expense management tools can knock out administrative chores like expense report approvals and policy enforcement, liberating healthcare workers for tasks and projects that directly impact patient care and staff development.
“Whether it's a patient-facing or an operational role, expense management technology can help organizations expand their footprint and even the level of services they're providing,” says Dustin Thornton, manager of corporate sales at Emburse.
Automating expense policy enforcement helps healthcare organizations govern their finances more effectively. When using manual expense tools like Excel and even more basic ERP systems, it’s all too easy to reimburse employees for authorized or duplicate spending or pay the same vendor invoice twice. Healthcare organizations can’t afford to make any payment mistakes — and administrators can’t afford to spend any extra time tracking down data entry errors.
Tony Hagen, senior sales executive at Emburse, notes that: “In the past when buying medical supplies, many institutions used several systems for approvals and tracking. This practice sometimes led to untracked supplies. By using a single software platform that brings together data from various systems, healthcare institutions can better manage and track expenses and supply spending, ensuring a consistent and efficient process.”
With the cost of doing business rising, healthcare organizations must ensure every dollar spent aligns with their goals and priorities. Allowing leaders to redirect funds to areas that directly impact the quality of service to their patients. Modern expense management technology allows the finance department to set rules that specify preferred vendors for medical supplies, place limits on travel expenses, and flag out-of-policy claims.
Expense policies also generate data that help finance teams uncover inefficiencies, make informed decisions about budget allocations, and optimize supplier relationships. Armed with real-time insights and historical spending data, AP managers have the tools to unearth vendor rate disparities. For instance, one healthcare organization spanning 45 locations discovered that a medical device supplier was charging a different rate at every location while their contract guaranteed a consistent rate. Gaining this kind of significant, long-term cost savings would be impossible without expense analytics.
Conclusion
Hundreds of payer-provider contracts will need to be re-negotiated in 2024. Payers typically agree to about 2% or 3% rate increases, but there’s no guarantee those increases will fully cover the inflationary impact on medical supplies, equipment, and labor — if payers agree to rate increases at all. Providers may need to be prepared to absorb extra costs.
Healthcare organizations should focus on building financial resilience now, adapting their spending practices to this new landscape before inflation takes full effect in the industry. Embracing modern expense management technology, especially AI-powered solutions, can help establish expense practices that save time and money and maintain focus on patient care.
Learn more about how your peers are using expense technology to protect the bottom line, according to new research from HealthLeaders and Emburse. Read Redefining Expense Management in Healthcare now.