An Unsettled Healthcare Environment Puts Focus on Enterprise Risk Management
By Pete Reilly
Even during “normal” times, predicting the future is a dicey business. The breakneck pace of actions taken in the first weeks of the Trump presidency only makes every glass ball more opaque and puts the onus on healthcare leaders to sharpen their enterprise risk management practices for the challenges ahead.
Managing the squeeze on profitability
Healthcare providers will continue to be pressured by high medical cost growth as reimbursements fall short.
The Medicare/Medicaid reimbursement gap has reached $100 billion—or 82 cents for each dollar of patient care. Meanwhile, pharmaceutical costs are a leading source of pain. Prices have soared an average of 15.2% annually since 2017, with prices aggravated by shortages of many—think the GLP-1 class for diabetes and weight management. A 2023 Biden executive order that established new drug pricing models was rescinded by Trump; the potential impact is in question.
Rural hospital systems remain among the nation’s most troubled: 50% of them now operate in the red and 418—or about 20%—of all rural hospitals are at risk of closing due to financial and workforce challenges. Senior care has also been under pressure, though positive trends are underway with improved occupancy rates and growth by more nimble regional players.
Both those healthcare sectors are pushing for the new administration to toss the Biden mandate on minimal staffing requirements for skilled nursing facilities. This rule didn’t exempt rural facilities and wouldn’t have made more healthcare workers available to the rural system overall. But its recission might relieve some of their regulatory burden.
Many healthcare organizations are developing new revenue streams to relieve their financial pressures. Partnerships with the thriving life sciences industry—clinical trials are essential to the development process—can be lucrative. The new regulatory environment is shaping up to be disruptive, though, whether through grant freezes or possibly eroding trust in oversight. Anticipating related risks is critical, requiring an experienced broker’s input on insurance requirements.
The ongoing pain of the labor shortage
No single cure is going to address the shortage of healthcare professionals, which continues to affect every aspect of the business.
Hospital labor costs accounted for 60% of an average hospital’s expenses in 2023. Then there’s the $50 billion earmarked for expensive contracted labor to fill the staffing gap. By 2026, the shortage of full-time registered nurses is expected to hit 350,000. An additional 4 million direct care workers will be needed for a fast-growing senior population through 2031.
Technological advances may help—automating some tasks and improving functions, like remote patient monitoring. And artificial intelligence shows promise for powering decision support tools and workforce management systems. Plus, the Trump administration’s promised $500 billion investment in AI infrastructure could have implications for healthcare. But neither can supplant absent bodies, or the burnout that has been a prevalent issue—affecting 50% of physicians alone.
Improved benefits and pay, with flexibility a priority, are an important part of the solution; the focus increasingly is on personalized benefits that create an optimal employee experience. Especially important are benefits that help prevent burnout, show employees they’re valued and improve work-life balance—all top reasons for healthcare worker defections.
Longer term solutions include health system/nursing school partnerships to design customized programs and post-graduation jobs. And telehealth remains a prime way to lessen work pressure on physicians.
Passing the resiliency test
Ongoing tests of the industry’s—and individual players’—resiliency loom large in 2025.
The heat waves, wildfires, rain and windstorms that come with climate change put people at risk and disrupt operations, too. It’s played out in double-digit rate increases for property-casualty, liability, and catastrophe coverage, although the market is settling somewhat in 2025 with reductions in some markets.
Still, institutions are well advised to employ hazard vulnerability analyses, and not just for long-term infrastructure planning. These are critical to ensure their structures can withstand extreme weather events. They may also need to retrofit their facilities to ensure care won’t be impeded during a catastrophe.
Another concern is the continuing pressure on medical professional liability insurance; rates could be rising 15% or more in 2025. Carriers haven’t been profitable, but nuclear verdicts of $10 million or more are also having an effect. It’s causing underwriters to hesitate to fully cover liability for a single client.
To achieve long-term resiliency, enterprise risk management must become a priority for the healthcare industry. Reviewing the fundamentals of what’s insurable, and what can be retained or transferred is only part of it. Assessing and managing the scope of potential risks makes organizations more resilient and gives underwriters more reasons to look favorably on insureds.
Pete Reilly is the practice leader and Chief Sales Officer of global insurance brokerage Hub International’s North American healthcare practice. In this role, he directs and coordinates HUB’s healthcare planning, growth and strategic initiatives. He also works with other leaders and experts within HUB to develop and introduce proprietary products that will help healthcare organizations and providers across the care delivery spectrum.