Inflation, labor shortages, price increases and supply chain bottlenecks are part of today’s business realities. But these conditions can make leaders believe they are reliving the 2020 lockdown, the 2008 housing crash, or the recession eras from the 20th century.
The difference? Today’s issues are supercharged with intense economic volatility from all sides. Economists struggle to make sense of it while healthcare leaders strive to provide value and generate profits. In Alexander Group’s recent research report*, hospital executives reveal their most challenging concerns as they navigate the future of healthcare.
Our research* shows that staffing issues plague healthcare leaders, with 94% increasing nursing pay, making it the #1 concern for executives. The majority, 45%, report an average pay increase between 5-10%, while 35% of leaders reported 1% to 5% increases. A survey from Nurse.com substantiated these findings, noting that average RN salaries increased to $78,000 in 2021 from $73,000 in 2020, with APRN salaries rising from $107,000 to $120,000. Additionally, the demand for qualified nurses continues to rise as these professionals leave the workforce due to retirement and burnout, with an estimated 19% changing employers and 29% considering leaving the profession entirely. COVID has taken a toll on these frontline professionals.
Healthcare leaders feel the pinch as these labor shortages impact hospital capacity. Pre-COVID, hospitals were staffed at 76% capacity, which has dropped to 73%. That 3% reduction in capacity directly impacts a hospital’s bottom line and the ability to earn revenue.
Leaders are aggressively recruiting healthcare professionals but continue to face labor shortages and wage increases as they attempt to bolster revenue.
With annual inflation running above 8%, leaders are keeping a close eye on the bottom line, with 32% citing budget issues as their #2 concern after labor shortages.
Is purchasing power shifting? An estimated 45% of healthcare executives said they were likely to accept price hikes from their vendors, with only 29% stating that they were unlikely to accept price increases. The average requested price increase was 12%, with healthcare leaders getting a 6% price increase from third-party vendors.
Competitive pricing is the most critical factor in purchase decisions, as noted by 45% of healthcare leaders. Company brand and reputation, as well as product offering and breadth, were cited by 23% of leaders as the #2 factor. Notably, sales rep influence has declined, with only 6% of hospital leaders indicating that sales rep expertise and rapport were significant factors.
As revenue and capacity fall, pricing for quality products is the primary decision-making factor. Third-party vendors, while asking for price increases, still must provide a value proposition that sells. Hospitals look forward to improved vendor interaction, with 61% noting that they are likely or very likely to return to pre-pandemic vendor access levels and policies.
Virtual educational programs remain valuable, with 71% of executives citing virtual product education as necessary compared to 68% for on-site instruction. In addition, 77% of executives list virtual case coverage as critical, compared to 48% who value on-site case coverage. However, there remains a gap in the effectiveness of virtual case management, with only 55% of executives who feel it is effective. Leaders list price transparency, communication delays, adherence to regulatory changes, complex explanations and third-party vendor dependence as current gaps in virtual case study offerings.
Technology investments are here to stay, with 74% of leaders investing in connected medical devices, followed by 64% that budget for Healthcare IT solutions. In addition, technology for growing outpatient visits, robotics and AI, and virtual case coverage are significant investments.
As hospitals face the new reality of ongoing economic issues, they still depend on vendors to provide value at higher prices while identifying ways in which technology can grow their business.
Sales leaders have three primary concerns that include supply chain (69%), sales turnover and retention (66%), and inflation (44%). Leaders have worked tirelessly to support customers while providing both value and a positive experience. However, product availability, price increases and trusted sales staff could impact those relationships. Fortunately, sales force turnover has returned to historical averages, with 54% of healthcare leaders reporting their current turnover to be less than 10%.
The pace of change continues. Healthcare leaders realize that they operate in an ever-changing environment. As a result, these executives plan to make at least moderate changes to their commercial model over the next two years. Alexander Group’s research* indicates that 68% of healthcare companies are planning to make moderate changes (39%), major changes (29%), or undergo a complete transformation (3%).
Unlike previous decades, we live in a time of high expectations and limited resources. Healthcare leaders recognize this dynamic and their obligation to provide increased customer value and continuously innovate their operations. Yet, despite these challenges, leaders remain optimistic as they adjust to current realities. While uncertain, investing in people, customers and technology is still a sure bet for the future.
Alexander Group can help healthcare executives navigate these unknown waters. We provide customers with advisory services for current needs and strategies for changing your commercial model. For more information, please contact an Alexander Group Healthcare practice leader.