Health Care Execs Have Positive 2022 Outlook, but Staff Shortage Casts a Shadow

Health care executives are optimistic that the financial position of their business will improve during 2022 compared to last year, though they acknowledge the risk to growth posted by worsening labor market conditions.

Capital One Healthcare during Nov. and Dec. 2021 surveyed 219 senior executives at health care companies, including providers of clinical services, pharmaceuticals, health care IT, health systems and medical technology companies on their business expectations for the new year. About 76% executives indicated that they expect their businesses to perform better compared to the previous 12 months; 2% said they expect a drop in performance during that time period.

“The optimism is for performance in 2022, relative to 2021. So the fact that folks are expecting a better 2022 doesn’t mean things are rosy and fantastic,” Jim Seymour, head of health care and technology, media and telecom for Capital One’s Corporate Bank. “It means that things are going in the right direction. Generally speaking, it reflects a hope that with that each successive wave of the pandemic will be a little easier.”

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As with other health care providers across the continuum, hospices have suffered financially during the pandemic, often brought on by declining referrals, reduced access to facility-bound patients and skyrocketing costs for personal protective equipment and expenses for telehealth and employee paid leave. While some providers are learning to roll with the punches based on their experiences of the last two years of COVID-19, a solid contingent continues to struggle in their financial recovery.

Coupled with this is the threat posed by the staffing shortage. More than half (55%) of respondents to the Capital One survey said they consider recruitment and retention to be the industry’s greatest challenge.

The respondents indicated that a lack of skilled applicants, candidates being out of their pay range, and competition from more flexible employers are their biggest hurdles when it comes to relieving labor pressures.

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“Recruiting and retention is far and away the biggest problem, not only in the hospice space, but in almost all of the other health care sectors, particularly the registered nurses. This is kind of ground zero,” Seymour said. “We expect the cost pressure to be there and remain there, and in some of the acute care settings, you can see [staffing issues] begin to affect the ability to deliver all products and services on all days, which is going to be a bit of a governor on growth.”

Leaders in the hospice space have expressed similar concerns. The inability to maintain sufficient staffing levels has caused some agencies to close, reduce utilization of their inpatient facilities or sell their assets to larger providers with greater resources to devote to recruitment.

The hospice workforce has been dwindling even as demand for care rises. Factors such as retirement and burnout are leading some clinicians to leave the field. In a Hospice News survey last year, 35% of hospice leaders indicated that the staffing shortage was their No.1 non-COVID related concern for 2021, compared to 16% who cited increased competition.

The pandemic has only made things worse. Hospices have seen rising turnover across the board during the pandemic, as has much of the health care sector. Slightly more than 20% of health care workers have considered leaving the field due to stress brought on by the pandemic, while 30% have considered reducing their hours, according to a study published in JAMA Network Open.

“When you think about the key factors that will shape the hospice space inside of the next calendar year the first one is staffing availability and the ongoing pressure that that’s going to continue to create not only for hospice, but for all health care providers,” Nick Westfall, CEO of VITAS Healthcare, a subsidiary of Chemed (NYSE: CHEM), recently told Hospice News. “Staffing availability inside of the space will drive the outcome of all key predictions in 2022, for all providers.”

A second major health care industry concern for 2022 is regulation, Capital One found. This issue was right behind staffing as a 2022 worry, with 44% of respondents indicating this as a top concern.

Regulators have kept a sharp eye on the hospice space in recent years. During 2021 the U.S. Centers for Medicare & Medicaid Services (CMS) overhauled the hospice survey process pursuant to the HOSPICE Act. Congress passed that legislation in response to two damaging 2019 reports from the U.S. Department of Health & Human Services Office of the Inspector General.

“Regulation and reimbursement are often a high-priority focus for healthcare investors, in particular for sectors that have concentrated government payor sources such as hospice,” said Seymour. “New changes for the industry to navigate will include Congress’ passage — and CMS’ implementation — of new hospice survey requirements with additional enforcement remedies.”

On the financial front, hospice providers can expect continued industry consolidation during 2022 with a continued emphasis on private equity investment. At least 166 home health, hospice and home care transactions occurred during calendar year 2021, up from 153 in 2020, according to recent data from the M&A advisory firm Mertz Taggart. Of those, 73 were hospice deals, with private equity firms participating in most of those.

During Q4 2021 alone, 18 of a total 23 transactions included private equity buyers, Mertz Taggart reported.

Private equity influence in the heath care space will continue to grow, according to Capital One’s Seymour. Nearly half of respondents to the bank’s annual Healthcare Corporate Finance Survey indicated that they would be raising capital during 2022, with 32% of those planning on turning to private equity. This is compared to 21% who said they intended to use bank debt and 8% who expect to use public equity or convertible bonds.

“I think it signals that what has been true over the last extended period of time is still the case, which is as a sector — across business cycles — health care has been remarkably resilient, and it’s performed exceptionally well …,” Seymour said. “I think you’ll continue to see capital attracted to the space.”

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