Navigating Financial Pressures in 2025

As the financial challenges of 2024 continue into 2025, healthcare systems face sustained pressure on operating margins. Economic headwinds, reimbursement shortfalls, and escalating operational costs demand decisive action from healthcare executives to build financial resilience while delivering high-quality patient care.

The 2025 financial landscape

Entering 2025, median operating margins remain under pressure, and only marginal improvement is expected due to rising workforce expenses, ongoing cost inflation, and slow to modest reimbursement growth. Uncertainties surrounding the new Trump administration’s policies and potential cost-cutting loom in the air. On the positive side, regulatory changes and evolving value based care (VBC) models are creating new opportunities for financial recovery and growth. 

Updated strategies for financial stability

While some financial stabilization is occurring, operating margins for many hospitals and health systems remain below pre-pandemic levels. As a result, a renewed focus on strategic priorities is essential to ensure financial resilience and sustainable operations. Here are five strategies to help your system tackle its financial challenges in 2025.

1. Reimbursement optimization

With inflationary pressures outpacing annual reimbursement updates, defining and achieving an ideal reimbursement structure is crucial. Strategies to consider include:

• A systemwide structure review: Examine and validate your systemwide structure for Medicare, Medicaid, and third-party payments. Thoroughly analyze current reimbursement models and identify areas for improvement. Consider using automation and analytics tools to ensure clean claims submission, reduce denials, and improve cash flow.
• Proactive Medicaid redetermination: Minimize impacts by protecting Medicare DSH payments and 340b eligibility. A proactive approach will keep your organization compliant and maximize available funding.
• Cost report optimization: To secure maximum reimbursement optimization, focus on bad debt, medical education, and disproportionate share. Regularly review and optimize your cost reports to uncover additional revenue opportunities.

2. Cost, productivity, and loss mitigation

Continue to aggressively manage costs and identify opportunities to mitigate losses. Consider the following:

• Feasibility studies. Conduct market studies and demand analysis to test the viability of structural changes, affiliations, or investments. Use these data-driven insights to inform strategic decisions.
• Service line analysis. Validate profitability, and identify areas for productivity and efficiency improvements. Analyze service lines to help pinpoint underperforming areas and find targeted improvements.
• Payment strategy. Develop a robust strategy for payor negotiations. Regularly negotiate contracts to address underpayments, and secure rate increases in line with the rising cost of care.
• Minimize uncompensated care. Enhance financial screening processes to connect patients with charity care programs or coverage options, reducing the burden of bad debt.

3. Operations: Labor productivity benchmarking

Labor costs remain the largest expense for most health systems, making labor productivity a critical focus area for 2025. Improve operations through:

• Labor productivity benchmarking. Adjust staffing models to align with patient volume, demand, and acuity. Benchmark against industry standards to help identify areas for improvement and staff-level optimization.
• Clinical process optimization. Improve efficiency in the emergency department and operating room to reduce wait times, increase throughput, and optimize resource utilization. This will help identify opportunities to minimize overtime and other staffing costs and unnecessary treats or treatments to boosts revenue. Streamlining clinical processes such as patient flow, bed management systems, and reducing time to diagnosis and treatment can lead to significant cost savings and improved patient outcomes. These enhancements allow caregivers to work at the top of their license which reduces costs and increases employee satisfaction — critical factors in recruitment and retention. 

4. Value based care performance and optimization

Success in a VBC environment necessitates operational, ambulatory, financial, and care transformation changes. Areas to look at include:

• Current value based terms. Identify missed incentives and assess current performance. Regularly review value based contracts to ensure you’re maximizing potential incentives.
• Financial impact. Evaluate the effectiveness of current value based payment models and potential savings. This will inform decisions about future participation.
• Technology and data analytics. Ensure you have high-quality technology and effective change management strategies in place. Advanced analytics and technology can drive improvements in care delivery and financial performance.
• Align clinical practices with VBC goals. Use data analytics to monitor performance against VBC metrics and address any care gaps.

5. Employed physician groups

Take a strategic, data-driven approach to managing employed physician groups (EPGs) to ensure accessibility, health outcomes, and competitive positioning that’s in line with fiscal sustainability and your mission. Consider the following:

• Clarify the strategic value of EPGs. Clearly define and communicate the value proposition of EPGs to align stakeholders and mitigate resistance. To help secure buy-in, emphasize their role in maintaining a strong primary care presence to achieve population health goals, enhance patient access, and drive outpatient utilization.
• Perform a comprehensive financial assessment. Analyze the incurred subsidy of EPGs by evaluating productivity levels, compensation models, and operational inefficiencies. Examine management layers, revenue cycle performance, and cost structures (e.g., real estate, staffing, and electronic health record requirements) to find improvement opportunities.
• Implement targeted performance initiatives. Launch initiatives to address unsustainable subsidies, focusing on optimizing scheduling protocols, reducing indirect expenses, and improving revenue cycle processes. Explore alternative compensation and incentive structures to boost physician engagement and productivity.
• Ensure organizational alignment. Foster collaboration between EPGs and hospital leadership by aligning financial goals with mission-driven objectives. Use data to educate stakeholders about challenges and solutions, ensuring informed and consensus-driven decisions.

Taking control in 2025

Key areas to watch include regulatory changes on reimbursement and compliance, technology advancements in telehealth, AI, and advanced analytics, and optimizations around patient-centered care. With expenses rising at roughly 6% annually and revenue increasing at only 3%, 2025 will be a critical financial year for many organizations. With a renewed eye on reimbursement accuracy, cost management, productivity, and value based care, your system can strengthen its financial resilience while delivering high-quality care.

Learn more at plantemoran.com.

Authors: Duane J. Fitch, CPA, MBA, FACHE and Michael Felczak, FHFMA, Senior Manager – Healthcare Consulting.