Building financial resilience: Strategies for healthcare providers facing unprecedented disruptions

Healthcare providers are facing financial uncertainty alongside increased credit risk, lower revenue, and liquidity challenges that could ultimately impede operations. But these organizations can also bridge liquidity gaps by updating risk analyses, exploring new payment and revenue generation models, and working with banking advisors to create tailored solutions. The private banking sector is stepping up in many ways to address these new challenges and provide support.

Diminished federal support

The July reconciliation bill enacted spending cuts across the healthcare sector. The cuts span Medicare, Medicaid, and The Affordable Care Act, representing $1 trillion reduction in federal healthcare¹ spending over the next decade. This is the largest reduction in healthcare spending in American history and is expected to have a far-reaching impact.

There are a number of nuanced cuts that have been made to these programs, and ultimately, they will likely result in considerable instability and financial strain in the healthcare sector. The legislation is projected to create 10 million more uninsured individuals.¹ With more uninsured individuals, the cuts will manifest as reduced reimbursement rates, enrollment declines, increased uncompensated care, and a lower volume of elective procedures. Hospital systems will see operating margins fall by an estimated 11% to 18%,² as a result, and private practice providers will face the challenging decision of whether to continue serving Medicaid and Medicare patients or lose revenue.

Legislation impacts doctor shortage

In the background of federal spending cuts to healthcare, the industry is also facing a doctor shortage. The Association of American Medical Colleges estimates³ that the country will have a shortage of 86,000 physicians by 2036. The report credits limited support for training and education, combined with a large number of current physicians nearing retirement age, and it calls for greater investment in graduate medical school education at both the state and federal level. However, the medical field is currently experiencing higher barriers to entry.

The elimination of the Direct Graduate Plus loan program will have the most outsized impact on the doctor shortage. The federal program provided financial support for graduate and professional students, and it was particularly popular among medical students. The AAMC estimates⁴ that half of all medical student borrowers have a Direct Grad Plus loan. The new regulation also places a $150,000 limit on direct unsubsidized federal loans for students in graduate and professional programs. However, the median cost to attend medical school for the class of 2025 was $286,454 for public schools and $390,848 for private schools, according to the AAMC, falling short of meeting the needs of current students.

Responding to the financial strain

The changes won’t all come at once. Many of the federal cuts in the reconciliation bill will roll out gradually over the next decade. The incremental implementation will give healthcare providers time to prepare, strategize, and adapt to the new environment. For example, healthcare providers could re-enroll Medicaid recipients to ensure compliance with patient work requirements and take stock of the organization’s Medicaid patients to understand exposure.

The financial implications are perhaps the most critical for the practice or organization to address. KeyBank is closely tracking the high-stakes legislation and how it is unfolding alongside industry trends. Some solutions KeyBank can provide include a line of credit to help bridge liquidity gaps, as reimbursement rates fall in the near term, bridge loans to fund federal financing gaps, or medical equipment loans to support upgrades without increasing operational costs. Banking professionals can also recommend alternative revenue generation models, like fee-for-service and concierge medicine, which can be more affordable for patients than insurance systems.

KeyBank also has unique tools to support healthcare operations. Cash flow management software can help providers manage tighter margins, automated payment systems can improve collections — especially critical as uncompensated care rises — and Laurel Road provides tools for young professionals, including student loan refinancing and practice acquisition loans.

The changes happening in the healthcare space today are unprecedented, and healthcare systems are understandably concerned about evolving and surviving. But there are options. Through strategic planning with a healthcare banking team, healthcare providers will find a pathway to profitability.

For more information, contact an expert:

Andris Balodis
Relationship Manager, Commercial Healthcare, KeyBank
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