RISK & PEOPLE SOLUTIONS
3 key areas to know
KEY AREA 1
Cost pressures intensify
The rising cost of care, liability exposures, workforce demands, medical innovation, and reimbursement challenges are creating new affordability and sustainability pressures across the healthcare ecosystem.
Healthcare organizations continue to operate in an environment of significant financial pressure, with persistent labor shortages, rising supply costs, and reimbursement challenges tightening margins, while advancements in medicine and drug therapies are adding new costs. The changing policy environment, including 340B and reimbursement pressures, is contributing to financial strain.
Rapid advancements in medicine, including cell and gene therapies and other high-cost treatments, are transforming patient care and improving outcomes. However, these innovations come at a significant cost. Beyond the price of the therapies themselves, healthcare organizations must invest in the infrastructure required to deliver them, including new equipment, clinical workflows, staff training, and operational processes.
As employers sponsoring health plans, healthcare organizations can face higher benefit costs as new therapies and treatments become more widely utilized. This creates a unique cost dynamic: Healthcare organizations are investing in innovation for their patients while managing the financial impact of covering these new therapies for their own employee populations.
Above CPI
Hospital employer health plan claims are trending at 7.3%, more than twice the rate of inflation.
What’s squeezing healthcare margins?
RISING EXPENSES
- Labor and supply costs
- High-cost therapies and drugs
- New medical technologies
- Infrastructure and workflow investments required to adopt innovation
- Benefits and risk programs: Insurance premium increases and higher-than-market hospital per member per month (PMPM) spend
- Unreimbursed care
REVENUE PRESSURES
- Reductions in federal spending
- Changing payer-provider dynamics around prior authorizations and denials, as well as network participation
- Policy changes
- 340B changes for eligible organizations
- Bundled payments
Hospitals face increasing pressure from CMS's expansion of bundled and episode-based payment models, which place more reimbursement at risk and require stronger care coordination, analytics, physician alignment, and post-acute management capabilities.
The uninsured rate also appears to be reversing course after years of coverage expansion. While some increase is already occurring due to Medicaid disenrollments and marketplace changes, most analysts expect the largest growth in the uninsured population to occur over the next several years as Medicaid eligibility changes, work requirements, and ACA subsidy reductions are fully implemented.
At the same time, healthcare organizations face myriad risks that contribute to cost pressures and financial strain. Evolving regulatory requirements continue to pose difficulties, as they have in the past. Rising claims costs represent a primary threat to healthcare organizations. Additionally, clinicians labor under the prospect of malpractice lawsuits that can bring about burdensome verdicts and settlements.
Such verdicts take their toll on an organization’s balance sheet and reputation. But the costs extend beyond those organizations that suffer nuclear verdicts. Medical malpractice claims are often complex, take time to litigate, and require the input of expert witnesses. All of these factors drive up the cost of defending malpractice claims, which then leads to higher insurance costs.
The AMA reported in May that medical liability premiums have increased at a sustained trajectory not seen since the early 2000s.
KEY AREA 2
Workforce dynamics evolve
Organizations are balancing investments in talent, benefits, culture, and workplace safety against the rising costs of being in the business of care delivery.
Healthcare organizations have historically invested heavily in their workforce and continue to view talent as a critical business priority. But mounting financial pressure is forcing organizations to balance the need to attract, retain, and support employees with an increasing focus on controlling costs.
Healthcare organizations continue to prioritize talent more heavily than the broader employer market.
But recent data points to a meaningful shift: Cost management is becoming a much greater organizational priority. This does not mean workforce challenges have disappeared. Rather, healthcare organizations are increasingly trying to solve both challenges at once: maintaining a competitive employee experience while managing a significantly more difficult cost environment.
High investment does not always translate to high perceived value.
Hospitals and health systems often provide richer benefits than the broader market, yet employees do not always perceive those benefits as delivering equivalent value. That disconnect creates an opportunity for organizations to examine not only what they offer but whether employees understand value and can effectively access those programs.
Growing expectations are increasing the need for workforce segmentation in the employee experience.
Healthcare employees vary widely across roles, socioeconomic and educational backgrounds, value drivers, and communication preferences. Organizations need to understand those differences and use segmentation to create more relevant, personalized employee experiences while maintaining the ability to scale across a diverse employee population.
Trust and confidentiality continue to be top of mind for the workforce when it comes to where they are receiving care.
Organizations should adopt policies aimed at reducing risk, particularly in practices involving sensitive exams. For healthcare organizations with domestic utilization strategies in place, it’s important to offer external care pathways for sensitive care needs.
Employee impact is primary consideration when evaluating benefit changes.
87% of hospitals and health systems indicated employee disruption is a primary consideration when evaluating benefit changes, beating the market at 81%.
HEALTH SYSTEMS
MARKET
Workplace safety
Healthcare organizations must be mindful of abuse and misconduct risks. Few, if any, allegations can bring more financial and reputational harm to an organization.
Healthcare organizations, like companies in other industries, have in the past tended to look the other way when red flags surfaced regarding certain employees, particularly when those employees were prominent practitioners.
A common theme in these high-profile abuse cases is that employees voiced concerns about potential misconduct by clinicians and were ignored or felt the institution would not believe them if they reported it.
The consequences of overlooking potential abuse and misconduct are staggering for healthcare organizations, which rely chiefly on patients’ trust in their caregivers. The costs often spread to other organizations in the form of higher medical liability insurance costs. The trends for abuse cases are resulting in decreasing available coverage for abuse claims overall.
Healthcare organizations should monitor high-risk environments, provide regular training for employees regarding identification and reporting of concerning behavior, and offer clear pathways for reporting concerning behavior or misconduct by a clinician. Lastly, best practices regarding response to reports of abuse or professional boundary violations should be hardwired so that investigations and responses are consistent, regardless of the status of the alleged perpetrator.
KEY AREA 3
Policy dynamics shift
Federal and state actions are causing higher levels of disruption in healthcare financing, operations, and compliance.
The healthcare policy environment remains highly active. While government involvement in healthcare is not new, the current environment reflects a different set of priorities and approaches that organizations must closely monitor and adapt to.
The federal government is taking a more active approach.
Previous administrations have often focused heavily on expanding access and affordability through government programs and subsidies. These remain goals of the current administration, while it places greater emphasis on issues such as eliminating fraud, waste, and abuse and reducing government spending. Those objectives may ultimately affect healthcare organizations through changes to funding, reimbursement, regulatory requirements, and program administration.
One example is the continued expansion of healthcare transparency requirements, which are intended to give consumers and plan participants greater visibility into healthcare costs but are creating reporting, administrative, and compliance responsibilities for healthcare organizations and employer plan sponsors.
The administration’s approach is reflected in its commitment to recovering funds lost to fraud and waste against the federal government. The Justice Department set a record in False Claims Act recoveries in fiscal year 2025, with healthcare fraud cases leading the way.
Many of these cases involved fraudulent overbilling of federal health insurance programs.
The government’s posture means healthcare organizations can face the prospect of financially damaging fines and penalties for billing and coding errors. Most healthcare organizations lack clear, concise, robust, fully standardized, and audited billing and coding practices. Therefore, most organizations do not meet the standard for underwriters to treat their billing and coding practices as an insurable risk. The costs of investigating and defending governmental investigations are likely to be material, further impacting margins.
That means healthcare organizations that want to avoid government scrutiny should take the initiative to invest in qualified, adequately staffed billing, audit, and compliance programs, or consider AI-enabled solutions in the market to assist with these functions.
It remains to be seen whether a future administration will continue the current emphasis on fraud, waste, and abuse or decide to dedicate resources elsewhere. But just like federal priorities change, so too can state laws affecting healthcare organizations.
Liability risk remains a paramount concern for healthcare organizations of all kinds. Some states are adopting tort reform laws that can provide healthcare organizations with greater certainty, but in other states, courts have overturned these measures. Even in states with damages caps, court rulings over the last few years have diluted the protective value of these limits on damages.
In today’s unpredictable political and regulatory environment, healthcare leadership should take a broad view of their organization’s risks and weigh them against opportunities to invest in the enterprise and its people to achieve their business goals. Integrating risk management, compliance, claims analysis, and insurance strategy ahead of time can help healthcare organizations better prepare for a choppy and uneven political landscape and head off severe claims and costly legal challenges.
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