Healthcare’s 2025 Challenge: Strengthening Resiliency in Face of Entrenched Issues

The pressures on the U.S. healthcare system show no sign of relenting in 2025.

It’s not just endemic issues like a fast-aging population and persistent provider shortages that are tightening the vise. It’s increasingly hard to work around other challenges to economic viability like flagging reimbursements and skyrocketing pharmaceutical costs.

There’s no single cure for the system’s ailments. To protect and bolster economic viability and ensure long-term resiliency will take a disciplined enterprise risk management strategy and a continued focus on collaborative solutions when they arise.

Here’s what the industry can expect for 2025.

A continuing squeeze on margins

Hospitals and hospital systems can expect to experience “new normal” operating margins of 1% to 2% as reimbursements fail to keep pace with mounting costs. The gap in Medicare and Medicaid reimbursements versus the cost of patient care has reached $100 billion. Contrast that to continuing pressure on costs: drug prices alone have risen an average of 15.2% annually since 2017. 

It’s left half of rural hospitals in the red, with 20% at risk of closing. And while bankruptcy filings overall of healthcare organizations have fallen this year, credit rating of several have been downgraded

Some relief can come from new revenue streams, and partnering with life sciences and clinical research entities is one potentially lucrative strategy that’s gaining momentum. But this isn’t without downside risks: a third-party financial loss tied to a mismanaged drug trial protocol, for example, is typically excluded from insurance policies. It’s another reason to proceed cautiously, and with appropriate counsel.

The labor shortage continues to hamper healthcare

The industry also must grapple with the worsening shortage of healthcare workers at every level. 

The labor shortage continues to impact every aspect of the healthcare organization – services, finances, and overall work environment. Better pay has only added to overall costs, accounting for 60% of the average organization’s expenses. Aggravating the financial drain is the $50-plus billion spent on contract labor to make up personnel shortfalls. 

Long-term strategies must be devised to address the roots of the problem: solutions for problems in the education system, like shortage of qualified educators, and in the work environment that cause burnout and emotional stress. A benefits strategy based on personalizing benefits meets individual employees’ needs and improves work-life balance, going a long way toward improving recruitment and retention. Health systems also are partnering with nursing schools in creating programs offering opportunities for employment upon graduation. 

No letup in cybercrime either

The all-too-often successful and costly shakedowns by cyber criminals show no signs of relenting any time soon.

These crimes not only cost healthcare more than any other industry, but they have an expansive impact. The Ascension ransomware attack, for example, shut down entire processes and systems in member hospitals. Patient care was jeopardized as they were diverted to other hospitals. Lab tests were delayed or lost, requiring paper record-keeping that risked medical and prescription errors.

Guarding against these exposures has never been more critical, and it’s leading cyber insurance underwriters to look closely at the mitigation policies in place and practiced before issuing coverage. In addition to mandating two-factor authentication and strong internal controls over email and social media, they require:

• Thorough and well-documented contingency plans for managing an intrusion
• Improved cybersecurity for new tools and software, along with ensuring proper security protocols are in place and practiced by third-party vendors
• Regular staff training on cyber safety requirements and practices to avoid intrusions by cyber criminals

Building resiliency in 2025 – and beyond

The resiliency of healthcare organizations will be hard to strengthen during this period. It’s not just business and economic challenges that remain entrenched. Others that are even more difficult to manage are doing damage, too.

As global heat waves, wildfires and wind and rain storms have shown, climate change and its risks to people and operations are real: economic losses to the global health system are projected to reach $12.5 trillion by 2050. Compliance risk is another concern, especially with state-level abortion restrictions, compounded by questions over the future of fertility treatments.

It’s affected the insurance marketplace. Property-casualty, liability and catastrophe coverage are now settling down years of double-digit increases. Medical professional liability rates could rise by over 15% in 2025, as these carriers have been unprofitable. But the prevalence of nuclear $10 million-plus verdicts has underwriters hesitant to fully cover liability for one client.

Now’s the time for the industry to move toward enterprise risk management (ERM) in order to achieve long-term resilience. It’s key to review the fundamentals of what’s insurable and what can be retained or transferred. More important: by assessing and managing the scope of potential risks, organizations grow more resilient. And underwriters look more favorably on them.