Featured Guest: Scott Nelson (Host)
Review of risk topics and events that took place in health care during 2023.
Scott Nelson 0:01
Welcome to The Risky Health Care Business Podcast, where we help you prepare for the future by sharing stories, insights, and skills from expert voices in and around the United States health care world with a mission to inform, educate, and help health care organizations and individuals, ranging from one doctor practices to large integrated systems and organizations throughout the dental, medical, and veterinary health care industry with risk, while hopefully having some fun along the way. I'm your host, Scott Nelson, a guy that grew up in Ohio and has been working all over the United States during my 20 plus year and counting career in the health care industry, with a commitment to accelerating health care performance through creativity, not just productivity. Let's dive in.
It’s hard to believe we’re near the end of another calendar year. It might seem as though 2023 went quicker than others, but we’ve had the same 365 days we always do. I don’t know why I’m always surprised how quickly the end of the year comes after Thanksgiving!
This episode of The Risky Health Care Business Podcast is a different format. Instead of interviewing a featured guest, this will be a year-end review of some of the most talked about and reported risk topics during 2023 – actual events that impacted the health care industry and were experienced by individuals and organizations around the US.
This past year has, as usual, been busy for the health care industry. As all types of health care organizations continue to navigate the post-COVID-19 landscape, they’re dealing with those challenges along with the ones that have plagued the industry for years. I'll give you some examples:
- Data breaches continue to occur frequently in health care, risking protected health information and putting providers in danger of hefty civil and criminal penalties, legal and insurance expenses, ransomed or required cash, and lost patient loyalty and a damaged reputation.
- Then there are the staffing shortages affecting health care providers and, ultimately, patients. Many health care professionals who were already burned out before the COVID-19 pandemic left the industry after the added stress of working on the frontlines of care.
- And finally the financial aspects many individuals and organizations have encountered in 2023. Higher inflation, higher interest rates, and higher expenses. Many health care organizations continue to struggle financially, and higher costs certainly can have a negative impact.
What we’re going to do in this 2023 end-of-year review episode is talk about these health care industry topics and the risks and impact of each.
The first topic is technology and data breaches. Eighty-seven million. That’s how many patients in the United States have fallen victim to a data breach this year. If you think that number seems high, you’re correct. That 87 million is more than double the number of patients affected by data breaches in 2022. From 37 million to 87 million in just one year. Again, the same 365 calendar days each year.
Not only have there been at least 100 more data breaches this year than last, but 2023 breaches have impacted more patients on average. So, the 480 data breaches reported during the first three quarters of 2023 have affected an average of 167,000 patients. Compare that to 373 total breaches in 2022 with an average of 99,200 patients affected per breach. Brett McClain, Executive Vice President and Chief Operating Officer at Sharp HealthCare in California talked about cybersecurity during our episode conversation this year.
Brett McClain 3:20
At the top of the list is absolutely cybersecurity. It is something that continues to be critical in nature for all of us in health care, and, obviously a sense of frustration for those of us in this work, but also something that we cannot take our eye off any single day. So you know, just the resources we've had to put into that, that people and the processes and the systems in order to assure that we are safe. We get hits every day, right every single day, someone's trying to bad actors out there trying to trying to make something happen. So that is something that is way at the top of the list that has our focus.
Scott Nelson 4:00
Data breaches are not cheap. According to IBM Security, the average health data breach costs organizations an average of nearly $11 million.
Now onto the causes of these data breaches. Even though the Department of Health and Human Services said that 77% of the large data breaches this year have come from cyberattacks, it’s interesting to note that fewer data breaches these days are from phishing and other email hacking methods. That’s because a lot of health care organizations have improved their defenses against these strategies.
Cyberattacks are becoming increasingly sophisticated. The focus now for many hackers is targeting network vulnerabilities, especially as more health care moves online amid the industry’s digital transformation. The first half of 2023 had 77% of breaches targeting network servers as the point of entry; email-related breaches made up just 19% of reported incidents.
Whatever newer methods these cybercriminals are using are working. Over the past four years, there has been a 239% increase in the number of large breaches involving hacking, at least of those reported to the HHS Office of Civil Rights.
Topic #2 is staffing shortages and other workforce issues. You might have heard it referred to as “The Great Resignation,” the trend of many Americans leaving their jobs post-COVID-19 pandemic for a variety of reasons, including not feeling valued by their employer or burnout. The health care industry is in no way exempt from this.
Thousands of health care workers have taken part this year in labor strikes across the county. As of the end of November, there was reporting on 27 strikes during 2023. Many of them cite concerns about staffing, patient care, working conditions, and employee retention.
The first health care worker strike of 2023 involved roughly 7,000 nurses across seven hospitals in New York. The strike lasted three days and ended when the New York State Nurses Association union reached deals with Mount Sinai and Montefiore Health Systems. The union said the deal would provide enforceable “safe staffing ratios” for all inpatient units at Mount Sinai and Montefiore, “so that there will always be enough nurses at the bedside to provide safe patient care, not just on paper.” Nurses at the hospitals agreed to a pay increase of 19% spread over three years.
One of the biggest strikes of 2023 was deemed by unions as the nation's largest-ever health care worker strike – the October walkout at California-based Kaiser Permanente that involved more than 75,000 health care workers and spanned four states. Then in November, members of United Food and Commercial Workers Local 555 launched a weekslong strike at five Kaiser Permanente locations in Washington and Oregon. The union represents hundreds of Kaiser imaging technicians.
More recently, almost 1,300 resident and fellow physicians at Northwestern Medicine announced their effort to unionize with the Committee of Interns and Residents of the Service Employees International Union. These residents and fellows say they are unionizing to have a meaningful say in decision-making that impacts them, their training, and their ability to best serve the community.
Staffing of clinicians, especially doctors and nurses, is already a major challenge for health care organizations. The health care worker shortage was exacerbated by the COVID-19 pandemic, especially for frontline providers. The industry has lost an estimated 20% of its workforce over the past few years. That includes 30% of nurses.
Depending on which source you choose, the shortage of physicians in the U.S. is forecast to be anywhere from almost 38,000 to 124,000 physicians by 2034. That includes both primary and specialty care.
This issue isn’t going away in 2024. Health care staff shortages are projected — especially among nurses — for every state by 2026, when the U.S. will lack an estimated 3.2 million health care workers. Some states — North Dakota, Rhode Island, South Carolina, and West Virginia — are experiencing worse shortages than others. Dr. Stephen Parente, health care economist and researcher, professor in the Department of Finance and the Minnesota Insurance Industry Chair of Health Finance at the University of Minnesota talked about workforce supply and cost during our episode conversation this year.
Dr. Stephen Parente 8:02
There's also just quality of care risks, there's there are risks of not having enough physician staffing, not enough support people that basically be able to just make ends meet as a doctor. One thing I've been noticing is that it's really, really hard now for physicians to be solo practitioners, if at all, because of just the cost of operation, the risk of just keeping in the operation of all the things that they have to do, just to keep the money flow going from a private insurance standpoint, because very little of the health economy is cash. And so that the risk of doing business, if you don't have, you know, an adequate infrastructure that's pretty expensive, actually, to maintain, is very high.
Scott Nelson 8:41
To manage and fill workforce gaps, staffing shortages led to increases in labor expenses, at least for patient-facing positions. And that’s where an increasing number of financial cuts come into play for health care organizations. Strategies range from aiming to reorganize or reallocate expenses to scaling down or closing down services out of financial necessity. Some health care organizations are attempting to boost permanent staff pay to attract needed workers. Unfortunately, though, many have still been unable to curb soaring labor costs.
Keeping all this in mind, it makes sense that attracting and retaining quality talent will remain a top focus for health care leaders in 2024.
You’ve probably heard reports about the pandemic’s effect on Americans’ mental health. During the pandemic, many health care professionals, including doctors, were faced with additional work challenges, from increased exposure to COVID-19 to financial strains on their practice.
More than half of public health workers in this country have reported symptoms of at least one mental health condition, such as anxiety, depression, or increased levels of post-traumatic stress disorder. A Yale study found that nearly 25% of health care workers are showing signs of post-traumatic stress disorder (PTSD), and roughly half are exhibiting signs of alcohol use disorder.
Let’s consider some numbers from a report from the CDC. From 2018 to 2022, health workers reported an increase of 1.2 days of poor mental health during the previous 30 days, going from 3.3 days to 4.5 days. In that same time span, the percentage of health workers who reported feeling burnout very often increased from 11.6% to 19%.
Providers already are at an increased risk for mental health issues, especially depression and anxiety. Primary care providers are particularly susceptible to burnout. They are stretched thin by a heavy workload, long hours, and an often-one-sided work-life balance.
Burnout has been linked to providers losing a sense of control over their own practice, weakened connections with patients and colleagues, and uncontrolled stress. According to the American Medical Association (AMA), it costs the U.S. an estimated $4.6 billion annually.
Burnout does not only affect health care providers. Along with being associated with worse quality of patient care, ramifications include more frequent medical errors and lower patient satisfaction.
Even health care executives are now reporting symptoms of burnout, leading some to consider career changes. Nearly 75% of surveyed health care executives reported feeling burned out during the last six months of 2022.
Provider burnout also can have a big impact on patient experience. Because providers experiencing burnout are more likely to have impaired attention, memory, and executive function, all of which decrease their recall and attention to detail, and they are twice as likely to provide suboptimal care. A negative patient experience has the potential to damage a practice’s reputation, leading patients to seek care from other medical groups.
What happens with so many providers and other professionals leaving the health care industry in such a short time? Higher turnover.
A high turnover rate might not seem so problematic – simply hire a new person or two, and you’re back in business. But It’s not that easy. Each time a doctor in a practice departs, for whatever reason, there likely are costs incurred for recruiting and training a replacement. Replacing a doctor often costs a health care organization two to three times the annual salary of the doctor that left.
Here’s another way in which burnout and turnover intersect. Research shows that turnover leads to an additional $979 million in annual excess health care spending across the U.S. population. Nearly one-third of those costs — roughly $260 million — are attributable to burnout.
The 3rd and final topic is finances. There have not been many financial wins for health care organizations in 2023. That’s not particularly surprising given higher inflation, higher interest rates, and higher expenses. Also perhaps not too surprising is that health care companies' default risk is steadily rising.
A lot of these challenges were outlined in a recent report from Moody's Investors Service. And they’re covered well in an article by Heather Landi, senior editor of Fierce Healthcare. As she explains, “Amid a weakening macroeconomic environment and ongoing pressure by private and public payers to reduce healthcare costs, a growing number of healthcare companies are faced with credit rating downgrades and potential defaults.”
According to the article, the health care industry's social risk also is rising. Moody’s notes that that issue is exemplified by credit-negative legislation such as the No Surprises Act and ongoing litigation around opioids.
Another important point made in the December 12th piece is that credit stress is rising in health care, even though the industry has long been considered a defensive sector for credit investors.
Here’s a prime example: the ratings of 24 North American health care companies have been downgraded to B3 negative or lower. According to Moody’s analysts, that represents a "material deterioration" in the sector's credit quality. Health care companies now represent approximately 16% of the 207 companies on Moody's Investors Service B3 Negative and Lower List — called the B3N List — as of November 30.
Here is a quote from the article: “With rising interest rates, these companies now have to contend with higher financing costs amid persistent inflation along with slowing economic growth that will pressure earnings.”
Thirteen health care companies have defaulted since January 2020. For these and other health care organizations, operating weakness has come from a variety of sources, including technological obsolescence, shortages in skilled labor or increases in labor costs, changes in the operating environment or simple mismanagement. And, of course, disruption caused by the COVID-19 pandemic. Marc Mertz, Chief Strategy Officer at Kaweah Health in California, talked about inflation and increased costs during our episode conversation this year.
Marc Mertz 14:14
What we didn't anticipate is really, the aftermath of the pandemic was greater, perhaps, than the pandemic itself, and I'm thinking about the inflationary pressures that we're seeing, and I think everyone has seen these days. Labor costs more. Medications cost more. Equipment costs more. Energy costs more. Everything just costs so much more than it did, and that, especially the staffing part was so unexpected. You know, we lost so many nurses during the pandemic, you know, nurses that either left the state, left the industry, retired, or went into travel nursing, that, you know, we struggle every day now to staff the hospital. And that is surprising that it's a bigger issue after COVID than it was even during COVID. I don't know that we could have foreseen it. But, you know, to answer your question, you know, what didn't we see coming as a risk? That inflation and especially the staffing challenges were probably the biggest unexpected risks that snuck up on us.
Scott Nelson 15:16
These topics paint a somewhat bleak picture for parts of health care. And these weren’t the only topics and experiences during the year – there were others. But by proactively addressing risk – creating plans to mitigate and manage risk – there is potential to withstand an adverse event.
A lot has been learned during 2023 and that knowledge can be taken forward and applied to 2024. There’s always room for improvement – it’s never too soon, too late, or too small of a start – especially when it comes to being prepared for the risk that’s obvious or hidden in health care.
I wish each of you a safe and happy holiday season.
Thank you for listening to The Risky Health Care Business Podcast. You can listen to all episodes from the resource center page of the SpringParker website, springparker.com, or click the Listen link in the show notes to listen and subscribe for free on your platform of choice. And remember, accelerating health care performance is achieved through creativity, not just productivity.