Strategies for Building a Financially Sustainable Health Care Practice

Financial stability and predictability are important tenets of any successful business model, but in health care, they are absolutely essential. 

For one thing, they are often difficult to achieve. Margins in the health care industry can be uncomfortably thin, depending on the size of your practice and where you’re doing business, and there’s evidence that things are only getting more tricky. 

Despite a jump in 2023 (the last year for which full data is available), hospital operating margins have remained below pre-pandemic levels, with the average rate falling to 2.7% in 2022 before increasing back to 5.2% the following year. Still, many businesses are operating with little margin for error. 

Profitability is one thing, but in today’s ever-changing health care landscape — with evolving patient needs, a shifting regulatory landscape and the rise of industry-altering technologies — it is increasingly critical that providers establish sustainable financial practices that prepare them for the future. 

Building a business around these principles creates resilience and adaptability, giving providers the wiggle room to navigate the drastic changes ahead. In this article, we’ll break down four key strategies for managing your health care practice with longevity in mind. 

Diversifying revenue streams

Diversification is a must for any business, but in health care, it can be somewhat difficult to pull off due to the interconnected nature of services. Still, there are ways — both small and large — that providers can adapt their strategies in order to establish a resilient revenue stream that can withstand periods of strain.

The simplest of these is offering ancillary services, which allow providers to fill in coverage gaps wherever they may exist. For rural practices, this may be easier to manage. In areas with fewer providers, it could be as simple as adding new testing services or therapies that aren’t being successfully offered elsewhere. 

In metropolitan areas, it may involve a bit of market research, discovering which specialties patients are lacking nearby, and investing in the infrastructure to offer them. 

The benefits of ancillary services are threefold. Not only do they open the door to new revenue opportunities, but they also help providers add health care options that people want and need, helping to further integrate the patient experience. 

It also opens the door for partnership opportunities, which is a potential revenue category in and of itself. While these provider-to-provider partnerships can take on many forms, they often involve two businesses that offer complementary services — for example, orthopedic surgery and physical therapy — which combine resources to offer patients with a more streamlined experience. 

That said, partnerships can also involve a consortium, which is where two providers pool their resources to fund a service that neither of them currently offers. On top of these options, it’s also important that providers stay aware of new opportunities for grants or donations. When done properly, these streams can offer a path to diversified income rather than just a one-time infusion of funding. 

Identifying low-efficiency processes 

While short-term financial advice might involve a recommendation to “trim the fat” — that is, remove anything that’s costing more money than it’s worth — a strategy rooted in long-term sustainability can focus instead on improving processes that exist, rather than replacing them wholesale.

This is particularly important to remember in health care, where many services are critical to the patient experience and can’t be simply axed to cut costs. 

Instead, providers can perform a gap analysis, which involves looking at how a business is currently performing and how its leaders would like it to perform in the future. The “gap” between the two is where improvements take place. 

It’s a holistic way of looking at things, as it requires an honest look at what a provider’s goals are, which ones they’re currently achieving and what’s stopping them from reaching the rest. In doing so, leaders are forced to face their biggest shortcomings — in this case, the processes that are wasting time, costing money and creating more problems.

Take “pajama time” as an example. The phenomenon, which refers to the time physicians spend doing excess work outside of their normal hours, is an ongoing issue and a big contributor to burnout. One recent survey found that some physicians averaged around 15 hours of pajama time per week, while 93% of them said they regularly felt burnt out by their work. 

A gap analysis may find that excessive pajama time is contributing to dissatisfaction among doctors, which is increasing turnover and decreasing a provider’s efficiency. 

Following the analysis, leaders could set a goal of reducing that time to, say, five hours per week instead. Then, they could adopt a plan to streamline several administrative and note-taking processes, helping to alleviate the issue. 

Streamlining key processes 

The next step after a gap analysis is to actually streamline the processes that seem inefficient. With the rapid rise of AI and other technologies, however, this philosophy can extend far beyond what’s not working and into areas that are functioning fairly well.

A wide-angled view of this would involve a hard look at all essential processes, no matter how well-run or profitable they currently are. 

A great example is billing, which, due to the complication of the claims process, patient intake and more has become a fairly advanced operation for most providers. But since it’s literally how a practice gets paid for its services, there’s an argument that it’s the most critical part of any health care business. 

It’s also, for better or worse, the front door. The billing process can be a major source of frustration or convenience for patients, and the difference between the two is costly. Consider a recent survey from Accenture, which found that 89% of health care customers who switched providers did so partly due to issues navigating their former provider’s administrative platforms. 

On the other end of the process, a less-than-efficient billing system can result in greater claims denials, which is a growing but avoidable reason for profit loss. Denials have been on the rise, and a recent survey from Experian Health found that missing or inaccurate data was the leading reason for claims being rejected. 

An advanced revenue cycle management (RCM) system is the simplest solution, as it streamlines the process from start to finish, accounting for patient billing, insurance claims and more. Of course, upgrading these systems can be costly, so it’s a good idea to evaluate all pressing business needs before choosing to make an improvement. 

Investing in new technologies

Last but not least is the incorporation of new technologies, from predictive analytics to AI agents to at-home care options. 

It’s worth noting that these technologies aren’t solely about efficiency and cutting costs in the short term, as some view the concept of AI “replacing” certain administrative and billing work. Perhaps more importantly, they should be seen as tools that allow for greater flexibility in the future, especially when it comes to improving the patient experience. 

Take at-home care, which is expected to increase significantly in the next decade. Investing in related technologies — like telehealth, wearables, digital therapeutics and more — makes it easier to provide at-home services that, in turn, give patients care on their own terms. 

As a recent survey found, most patients now have a favorable view of at-home care, with 56% of patients believing they’d recover faster at home than in a hospital. Here, new technologies can build longevity that’s rooted deeply in patient satisfaction.

The same approach should be taken with AI and all the other emerging technologies geared to transform the industry. They should be adopted and implemented quickly, but with an eye toward long-term improvements that will build financial stability for years to come. 

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