Cautious Pessimism – What Isn’t Being Talked About, And What It Means For Healthcare

Conference season in healthcare is well underway. Two of the marquis events – ViVE, in Nashville last month, and HIMSS, which took place this week in Las Vegas – have just passed, and many of the themes are familiar. Artificial intelligence has found its way into every conversation. There is continued excitement about the impact that technology can have on health systems and hospitals, even as vendors are pushed to show a more concrete plan to achieve improvements and ROI.

But under the surface, this year, there is something else, and I’m not sure it’s getting enough attention: anxiety.

The new administration has signaled intention on two policy directions that would add a lot of pressure to health systems already struggling to drive positive margins:

First, some level of reduction in funding for CMS programs, quite probably starting with Medicaid, will have a negative impact on revenue, cash collections, and potentially capacity in some areas. Many health systems rely on Medicaid for a significant amount of their income and, at the same time, benefit from Medicaid being one of the quickest to reimburse. If the Medicaid program has funding reductions, and fewer Americans have health insurance coverage, it will also shift some care to ‘emergency’ care, which health systems are required to provide, even if at no cost, to uninsured patients.

There is a lot more we can say about the potential impact to overall hospital performance and patient outcomes, but a reduction in revenue is certain.

Second, shifting policy on trade is going to result in cost increases for hospitals. Many things that hospitals rely on every day are imported, including a large amount from China. Any level of tariff increase will drive up costs. Core building supplies like steel and lumber, will increase capital expenses for anyone with renovation or expansion plans.

Whether or not there is a positive intention behind the trade strategy, hospitals are positioned to lose the battle as costs go up for necessities.

All of this is being discussed but in hushed voices and private discussions. It could be that anything even resembling a political discussion is risky these days, and people are being cautious to avoid confrontation.

But it really doesn’t matter what your political alignment is, whether you agree with the policy directions or not, or frankly, how much gets implemented and what the outcomes are. The major concern right now is the uncertainty and anxiety they drive.

Here are three key impacts I think we’re going to see in 2025:

(Even) slower decision making – if health system CFOs are presented with the potential of lower revenue, slower collections, and an unknown increase to cost and expense, anything that can be treated as ‘discretionary’ will likely be delayed or paused. Only the most mandatory of projects will proceed for most systems, where one of the most important metrics is the number of ‘days of cash’ to support operations. That cool AI project probably isn’t happening quickly unless it can be tied to hard, provable savings somewhere.

Technical consolidation – we have already seen indications that health systems need to focus on reducing technical sprawl. The proliferation of point solutions has created disjointed workflows that rely on multiple technologies, and in some cases, even multiple ‘AI solutions’ contributing to steps on the same workflow. The cost of maintaining the technology is increasing, and every contract renewal is going to be under more review as health systems look for cost and workflow efficiencies.

A reckoning for vendors – if spending is slowed down, and renewals are under more scrutiny, the competition for new revenue is going to be even more fierce. Many of the vendors in healthcare rely on venture capital money for their growth plans – a source already proven to be impatient about the speed of healthcare. If investors are more cautious and revenue slows, we could find many of the earlier-stage vendors making tough decisions this year.

2025 is off to an interesting start, with huge reasons for optimism from a technology perspective. The lessons learned and shared by some of the industry’s leaders are exciting, and some clear opportunities are developing. For those who can navigate the uncertainty over the next few months, there is a lot of upside.

We’ll just have to see what happens in the meantime.

Photo: bernie_photo, Getty Images

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