Emerging Trends in Healthcare: What To Expect in 2025

January 21, 2025

KSM

The future arrives whether we are prepared or not. Yet the essence of leadership is to prepare for the future. The ripple effects of 2024 are set to reshape healthcare in the year ahead, and understanding these shifts will be crucial. And judging from what happened in 2024, buckle up!

The broader policy landscape is poised for transformation, especially with a new incoming presidential administration. Under a mandate of change and with a team of disruptors, federal agencies will be recast and re-tasked. While the scope and pace of these changes is unknown, several impactful shifts can be anticipated:

Medicare Reimbursement Shifts: Physician reimbursement from Medicare is continuing to decrease, with the Medicare physician fee schedule dropping 2.93% in 2025. But the ambulatory surgery center (ASC) and hospital outpatient prospective payment system (OPPS) rates increased 2.90%.
States’ Roles in Healthcare: The states’ roles in healthcare are likely to move beyond Medicaid, taking on a more proactive and leadership-driven approach rather than a reactive one.
Private Equity Influence: Wall Street and private equity are poised to gain greater influence and credibility in healthcare. Reduced barriers to entry and easing regulations may spur a new wave of medical entrepreneurship. Simultaneously, rising expectations and new federal and state legislation are likely to emphasize improved transparency and accountability.
Alternative Payment Models: Employers’ growing frustration with rising healthcare expenses is driving the adoption of alternative payment models that seek to share risk with providers. Increasingly, value-based population health firms are acting as an intermediary middleman between the payer and the consumer. These firms segregate enrollees by health risk and aggressively manage high-cost, high-utilization members. To the extent costs are reduced, a portion of the cost savings belongs to the population health firm.
Regulatory and Managed Care Challenges: Burdensome managed care approvals are a key source of frustration for providers and patients. Medicare has a technical fix to reduce prior authorization delays in Medicare Advantage plans, but it won’t be adopted until 2026. Many states are pushing ahead with legislation to address these challenges.

As healthcare spending approaches 18% of the nation’s gross domestic product, the industry is attracting much attention. Dissatisfaction with healthcare is on many people’s mind, but there is no consensus on how to improve it. Given the ideologic and partisan divide, it is unlikely large reforms will be forthcoming in 2025. Look for continued piecemeal federal and state-specific efforts, increasing commercial insurance control over health utilization, and lots of niche players with unique offerings.

Physician Practices

Physician practices are navigating a rapidly changing and increasingly complex healthcare landscape shaped by transformative trends. These shifts emphasize the critical need for operational efficiency, strategic planning, and innovative approaches to address growing demands and maintain high-quality patient care. Here is some of what physician practices can expect in the year ahead:

Artificial Intelligence (AI) Integration: AI is becoming increasingly integral to healthcare, aiding in tasks such as patient portal management, prior authorizations, referrals, and clinical notetaking. Practices that adopt AI technology are anticipated to improve operational efficiency and patient care.
Financial Pressures: Physicians are facing financial challenges due to reductions in Medicare reimbursements and rising operational costs. This includes higher costs for staffing, medical supplies, and overhead. Practices may need to explore cost-cutting measures and alternative payment models to stay sustainable. Revenue cycle management should maintain at least 95% efficiency to ensure revenue stability, focusing on denial management and payer compliance with contract terms.
Administrative Burdens: Physicians face a considerable administrative workload, including tasks such as billing, compliance documentation, and maintaining electronic health records (EHR). Implementing technology and advocating for regulatory reforms are crucial steps to reduce burnout and improve patient care.
Provider and Nursing Shortages: The U.S. is experiencing a persistent shortage of providers, particularly in primary care and rural areas. This shortage is expected to continue, increasing workload pressures on existing healthcare providers and potentially impacting patient access to care. This issue is compounded by the lack of medical assistants and registered nurses. As the population in the U.S. continues to age, these care providers will become more essential in all settings of healthcare delivery.
Digital Transformation: The adoption of digital tools, including wearable devices and apps integrated with EHRs, is expected to grow. These technologies can offer real-time healthcare tracking and improve patient outcomes by identifying risk factors and care interventions earlier.
Value-Based Care: There is a continued shift toward value-based care models, which focus on patient outcomes rather than the volume of services provided. This approach aims to improve the quality of care while controlling costs. Practices should review participation with all value-based programs available to them.

Provider Compensation and Fair Market Value (FMV)

In the aftermath of the pandemic, many hospitals continue to find themselves scrambling to recruit and retain providers after an estimated 145,000 healthcare professionals retired or left the workforce between 2021 and 2022, according to Definitive Healthcare. Many that stayed looked for a better practice culture or, in many cases, a more lucrative compensation package. Unfortunately, many hospitals keep their provider contracting on autopilot, leaving base salaries and other compensation provisions unchanged for several years without recent adjustments. The market for provider services is leaving these evergreen contract terms in the dust and in turn creating a largely disgruntled provider workforce.

For example, on many occasions hospitals are paying primary care physicians well below market levels for base compensation and production incentive. In fact, one hospital paid an average of $200,000 base salary per full-time equivalent (FTE) for family medicine physicians. (The 25^th percentile compensation-per-FTE rates in 2025 terms is approximately $268,000.) That same hospital was also paying an average of approximately $41 per wRVU as a productivity incentive rate. (The 25^th percentile compensation-per-wRVU rate is approximately $44 per wRVU.) Is it any wonder that employed family medicine physicians were knocking loudly on the door of leadership demanding compensation reviews and that physician recruits were quick to decline offers?

New Revenue Sources for Health Systems

Community and not-for-profit health systems face mounting challenges as healthcare demands grow and access disparities widen. Addressing these issues requires innovative strategies that balance community needs with financial sustainability.

Growing Medicaid Demands: According to the American Community Survey, the percentage of Americans receiving Medicaid benefits has risen by 6.8 million between 2019 and 2023. However, as states unwind their expanded Medicaid access programs instituted during the pandemic, the number of Americans lacking access to affordable healthcare is expected to rise over the coming 12-18 months.
Increased Uninsured: During the same five-year period, the number of uninsured individuals increased by 330,000, with more on the way. Specifically, a continuation of the recent trend of 200,000 more children lacking health insurance between 2002 and 2023 is expected to occur in the coming year and a half.
FQHC Look-Alike Strategy Deployment: Citing the high cost of healthcare insurance as the reason for this emerging trend, many communities are looking with increasing frequency to safety net providers such as federally qualified health centers (FQHCs) and federally qualified health center look-alikes (FQHC Look-Alikes) to fill this ever-widening gap to access care. In addition, FQHCs and FQHC Look-Alikes provide enhanced patient care revenues from Medicaid, Medicare, and discount drug pricing programs (340B), which offer a basis for financial sustainability in caring for the poor and uninsured.

Next Steps

Navigating the complexities of today’s healthcare environment requires a proactive approach to both financial stability and operational efficiency. Focusing on key areas can help position your organization for long-term success. Here are some steps you can take to get started.

Optimize Revenue

Optimize and Diversify Revenue Streams: Review your complete revenue cycle process and resolve any gaps. Introduce ancillary services like telemedicine, wellness programs, and chronic disease management.
Leverage Value-Based Care Models: Emphasize preventive care and align with value-based payment models to benefit from shared savings incentives.
Maximize Payer Contracts: Negotiate more favorable contracts with insurance providers based on outcomes and efficiency.
Invest in Technology: Use AI-driven tools for diagnostics, billing, and patient engagement to enhance efficiency and reduce errors.
Expand the Patient Base: Implement targeted marketing to reach underserved populations and increase patient volume.
Consider an FQHC Look-Alike Strategy: Evaluate whether your hospital could utilize an FQHC Look-Alike model to address the gap between growing Medicaid demands and the increasing uninsured population.

Reduce Expenses

Adopt Automation: Automate administrative tasks such as billing, scheduling, and patient communication to reduce labor costs.
Optimize Workforce Allocation: Use advanced analytics to balance staff workload and avoid overstaffing or overtime expenses.
Implement Cost-Saving Measures: Purchase supplies in bulk, renegotiate vendor contracts, and focus on energy-efficient infrastructure.
Focus on Preventive Care: Reduce operational costs by minimizing acute care needs through patient education and preventive services.
Use Data Analytics: Track and analyze practice performance metrics to identify inefficiencies and implement targeted improvements.

Review Provider Compensation

Assess Foundational Elements: Take stock of your current state of foundational compensation provisions, including base salary (or applicable base shift rate), production incentive rate, and call coverage shift rate, for example.
Analyze Recruitment Incentives: Evaluate your recruiting incentive package (e.g., starting/signing bonuses, retention bonuses, student loan assistance, residency/fellowship training expense stipend).
Incorporate Value-Based incentives: Consider the extent to which your compensation plan includes robust value-based incentives and you aren’t just paying for production.
Address Inflation Adjustments: Consider annual inflation adjustments within employment agreements based on appropriate compensation targets.
Leverage Comprehensive Market Data: Consider using multiple sources of market data surveys to create a robust perspective of compensation trends.

Need support navigating the evolving healthcare landscape? Connect with KSM’s team of healthcare consultants via the form below to explore how we can help you improve profitability by increasing revenue streams and optimizing operations.