Health System Leader Expectations for 2024

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Curious about what is in store for healthcare systems in 2024?

In this episode, host Jen Johnson dives into VMG Health's latest Health System Leader Expectations for 2024 survey with Managing Directors Ed McGrath and Colin McDermott. With 141 responses from healthcare leaders, the survey offers a glimpse into what's on the horizon for financial outlooks, M&A activity, and operational trends.

Highlights from this conversation include:

  • The goal of the survey and its significance in addressing client concerns
  • Recent financial challenges, such as declining operating margins, and the optimism for improvement in 2024
  • Where healthcare leaders plan to allocate financial resources, including core operations and facility expansion
  • Insights into joint ventures and private equity partnerships in healthcare M&A
  • Operational challenges and strategies, particularly in physician alignment

Tune into this episode for valuable insights and strategic guidance to prepare for the year ahead. For more information, check out the full survey report at

You can also visit for more resources and stay connected with VMG Health's newsletter. Thanks for listening!


Intro 0:06 Welcome to the Healthcare Download with VMG Health. We are the leaders in strategy and transaction advisory dedicated to finding solutions for the healthcare industry. In each episode, we will leverage our expertise to provide trends and timely updates about what is happening on the business side of healthcare so you can move your strategy forward.

Jen Johnson 0:32 In this episode, “Health System Leader Expectations for 2024,” I will be speaking with Ed McGrath and Colin McDermott. These two gentlemen were integral to developing VMG Health’s just-released Health System Leader Expectation Survey. So first a little bit about the survey, it was developed to provide the market with insight from some of the most prominent healthcare leaders today. We wanted to better understand what these leaders expected in terms of financial outlook, M&A activity, and operational trends for 2024. Our ultimate goal was to provide strategic insight and having received 141 responses, thank you very much, healthcare leaders, the results clearly indicate that 2024 is going to be an active year. So, I’d like to start with Colin McDermott, who’s a managing director in our Valuation & Transaction Advisory Division. Now, Colin, this survey was a Hospital Affinity Group initiative, and as co-leader of this group, can you tell listeners a little bit about what you all were hoping the industry would learn from our survey results?

Colin McDermott 1:31 Jen, VMG Health has an impressive list of health system leaders that we’re lucky to call clients. The idea of the survey was really simple. We wanted a reason to learn more about our clients’ expectations for 2024 and be better prepared to address their concerns going into the new year. We have the opportunity to talk to health system leaders on a daily basis through our project work. But our conversations are always focused to a specific task or a specific project. The survey allowed us an opportunity to distribute a list of questions and get answers to those questions back from many different respondents. The best news of the entire survey process was the number of respondents exceeded 140 folks.

Jen Johnson  2:11 Yep, it was excellent. Well, perfect. Thank you, Colin, I think the survey did just that. We got some great insight. But what I’d like to do now is turn it over to Ed McGrath, who’s a managing director in our Strategic Advisory Division. Now Ed you’re also part of the Hospital Affinity Group and you provided a lot of insight to help with the survey. You really added a lot of value with your deep expertise and healthcare strategy and long history of insight from your hospital client leaders. I thought the way you framed up the last couple of years in our report was really, really well done. So could you lay the groundwork here for what health systems have been dealing with recently?

Ed McGrath 2:44 Sure, Jen, thank you. Unfortunately, 2022 and 2023 were pretty difficult years for most healthcare systems. The systems had to address a number of challenges, including material increases in staffing and supply cost, combined with payer mix shifts away from commercial payers. Reimbursement from payers has not kept up with the large increases in the staffing supply and other operating costs, which has led to material operating and cash flow losses for a number of organizations. For context, about 18 months ago, one of our VMG Health colleagues wrote a white paper on financial performance of not-for-profit healthcare systems in the U.S. It compiled data on over 20 systems across 32 states, with a combined revenue base of nearly $185 billion. It compared financial performance in ‘22 compared to ‘21. Those findings were stark, operating margins declined about five points meaning if a system had a positive 2% margin in 2021. On average, those same systems had a negative 3% operating margin in 2022. There were similar findings with operating cash flow, we are updating that report for full-year 2023 performance. But 2023 was unfortunately for many of the not-for-profit organizations worse than 2022. I saw a report this morning that noted hospital bankruptcies in ‘23 hit a record rate, and we had more hospital bankruptcies in ‘23 than what was experienced in the industry for the entire three-year period of 2020-2022. So healthcare systems are facing financial challenges that caused a great deal of pain and in recent years for those organizations and more importantly, for the communities that they serve.

Jen Johnson 4:23 Perfect. Well, pretty bleak. But thankfully, things are expected to improve over 2023. So, from our survey results, we learned that 94% of leaders expect financial performance to be similar or better than 2023. Thank goodness. So, Colin, we’re also excited to see that 59%, a good majority of respondents, actually expect better financial performance in 2024. Can you talk a little bit about where health systems expect to allocate significant financial resources in order to grow in this next year?

Colin McDermott 4:57 Absolutely, Jen, the respondents indicated that physician alignment, de novo expansion of new services with an existing service area, and on-campus facility expansion will be their biggest focus areas. They indicated that there will be less focus placed on expansion and new markets or M&A in new markets. These results to me strongly indicate that survey respondents are going to focus on their core operations within their core market to drive future growth, which I think is a really good thing. As you know, our survey was issued during November of 2023. We published the results in the very beginning of January. But now we’re sitting here already in early February, and we’ve had several public companies release their full-year ‘23 and Q4 fiscal results, including HCA, Humana, and United, just to name a few. HCA indicated they experienced strong demand for services across their market, their facilities, and their service lines with strong same-facility volumes across the organization. Both United and Humana indicated increased utilization and increased medical claims expense. Hopefully, the reported results by these payers at HCA for ‘23 signals strong utilization expectations for ‘24, and the investment in core markets will see returns to our health system partners.

Jen Johnson 6:20 Yep. I agree. That’s always a leading indicator there. So that’s good news for all. Kind of on the flip side, Ed, you noted challenges health systems have faced in recent years. What financial challenges do leaders expect continuing into 2024?

Ed McGrath 6:37 Thanks, Jen. We asked survey respondents to identify their greatest challenges for 2024. Respondents could check more than one category box, not surprising staffing, labor shortages, and contract labor topped the list, with this being identified by over 75% of the respondents as a greatest financial challenge in 2024. This issue is extended unfortunately into the provider base as well. Anesthesia is an example of this where we have a number of clients that are facing provider staffing challenges in anesthesia, especially for hospitals that are trauma centers and/or that are located in rust belt states. Radiology providers are starting to emerge as well as a major staffing issue. Physician enterprise capital losses was the second most identified challenge with 40% of the respondents noting this was a material issue. We will talk more about that later in this podcast. The next topic that was raised was the aging physical plant infrastructure that was identified by 35% of the respondents as a major issue. We believe this is a direct correlation to the financial challenges of the last two years. One of the outcomes of these challenges is health systems postponing or minimizing capital expenditures. But that can only go so long before the infrastructure gives out. Replacing chillers and boilers is expensive, but there is no direct ROI for that investment. The fourth area of focus identified in our survey were payer contract negotiations, which came in at about 30% of the respondents noting this is a major financial issue. I was personally a bit surprised it was not higher on the list, but that could be influenced by the timing of the payer contracting. Some of those may extend into future years. One good finding was that only about 20% of the respondents identified supply chain issues in this survey. If we conducted this survey back in November of ‘22 versus ‘23, that topic probably would have been much higher on the list.

Jen Johnson 8:32 Yeah, perfect. I know a lot of what you mentioned are really unavoidable challenges. But I’d like to note that your team has done an incredible job helping healthcare leaders tackle both physician enterprise losses and thinking through ways to curb these labor issues that just continue. So, just a little shout-out to your team. So, I’m gonna go ahead and switch gears to M&A expectations for 2024. So first, only 15% of leaders expect less M&A activity in 2024 and 27% actually expect more. So obviously, M&A  comes in all forms and joint ventures are prevalent strategy and healthcare. We do a ton of work with these deals. So I’d like to switch it over to Colin, can you talk a little bit about what we learned on the joint venture partnership front from our survey results?

Colin McDermott 9:20 Of course, Jen, not a problem. Respondents indicated their top five joint venture opportunities are likely in outpatient surgery with 60% of respondents, behavioral health with 55% of respondents, outpatient post-acute care 45%, outpatient imaging also 45% of respondents, and physician services with 39%. But respondents also indicated they would consider urgent care, impatient post-acute, laboratory, and hospital-at-home, all had significant response rates. So, the takeaway for me is this: health systems are willing to consider a partner in service lines that are secondary to core operations of running an acute care hospital. This is really consistent with the earlier survey results regarding system investment in core services within existing markets. It should be noted that a partnership with an operator that’s focused in a single healthcare service sector could really have its advantages, you know, those organizations can move quickly. They wake up every day, and they think about one thing. And I think our acute care hospital systems recognize that they could do things a little bit more efficient, and probably quicker.

Jen Johnson 10:31 Yep, I completely agree. I mean, so obviously, with those stats, that’s a lot of activity expected across many service lines and sectors. And you know, to add to that, we’ve seen for quite some time a move towards developing deep expertise within sectors, and to your point, new players coming into the market with a laser focus. So as we know, part of these players include private equity, and they’ve been one of those new market participants. So, Colin, we did have some really interesting results from one of our PE-related questions. Could you give us your insight on why you think only 15% of healthcare leaders expect their M&A strategy to include a private equity firm?

Colin McDermott 11:09 Gosh, Jen. I’ve really thought a lot about this question. The first thing that I’d like to acknowledge is that 26% of respondents were undecided, which indicates the respondents are still really considering their options and partnership with these types of partners. The second thing that I really wanted to acknowledge is that individual respondents might not realize that private equity investment exposure already exists across healthcare sectors like urgent care, advanced imaging, ambulatory surgery centers, and these organizations have successful partnerships with health systems. So given this, I was a little bit surprised by the response. And wonder if some of the response is just folks need to kind of understand where private equity sits within healthcare, and what private equity really means. Alternatively, the negativity around maybe a lack of willingness to partner might really be focused in the physician services space. Obviously, health systems often are acquiring physician practices, partner with physicians in market. And in certain instances, private equity is a competitor there. So, maybe that’s led to some of the response rate.

Jen Johnson 12:22 Yeah, I think that’s a great takeaway and I would agree wholeheartedly. We will see how this shapes up. I mean, I expect this to change, and really the adoption of private equity partnerships to grow. And I think it’s just going to take a little bit of time, but I agree with all your points. And we actually posted a podcast on this in December with our CEO Greg Koonsman, and he provided some in-depth insight on PE strategy within healthcare, which I would highly recommend folks check out if you’re interested in how they play around in this space. So now, I’d like to end this podcast on the topic of operations. So, Ed, we’ve talked about some of the operational challenges health systems have faced. What about some of the opportunities as it relates to physician alignment strategy? Can you talk about what our respondents plan to focus on in 2024 as it relates to this?

Ed McGrath 13:11 Sure, Jen. As I noted earlier, in the podcast, the second biggest challenge identified by the respondents had to do with the physician enterprise cash flow losses. Most healthcare systems have made material investments in their employed or aligned medical groups. These systems are increasingly struggling with losses for these medical groups. Some of those losses are a factor of where ancillary services are provided, many are still provided as part of the hospital. But beyond the classic question of how one defines losses and where revenue is generated, it’s a larger issue that our respondents identified, they need to find ways to improve the ROI on their medical group investment. Nearly 70% of the respondents’ top physician-related strategy related to expansion for their provider network. As again, I noted before, while facing headwinds that provider shortage is driven by a number of factors including lifestyle choices for younger providers, an opportunity to providers to work with nit organizations, often backed by venture capital and private equity entities just as we were talking about. Survey also noted their material interests in medical group reorganization and revamping provider compensation approaches. It is a rare week when I do not talk with a client who wants to find a better way to engage with physicians to generate stronger returns for the system. We have a number of assignments underway now with clients working with them to modify their approaches and models. This impacts provider compensation models, medical group structure, and other related components. Some recent examples we have underway include joint venture models, revised compensation approaches, and re-empowering physicians to help lead the group. In some, health systems are looking to grow their aligned and employed provider base, while at the same time seeking avenues that offer improved financial and other operating outcomes.

Jen Johnson 15:02 Perfect. Well, I mean, that is a ton of different opportunities to use physician strategy to make significant positive changes in 2024. And I know you guys are going about this with a lot of different clients and a lot of different ways. And it’s a good area to focus on. And obviously, our respondents are very interested in it. So, what I’d like to do is I’d like to end just by getting both of you to provide some comments on the results of the survey. And we’ll start with you, Colin, did any of the results surprise you?

Colin McDermott 15:31 Well, we touched a little bit on the private equity results. I kind of would have thought it would have looked a little bit different where health systems might have leaned a little bit more to having interest in a private equity partner, as a capital partner as a source of capital to expand growth through a different avenue. The fact that so many individuals responded positively about the outlook for ‘24. Given Ed’s commentary of what the acute care hospital industry has experienced over the last several years. I mean, that was the most positive takeaway. It caught me a little off guard.

Jen Johnson 16:06 Yeah, it was exciting. What about you, Ed? What do you love about it? Or what surprised you from the results?

Ed McGrath 16:11 I agree with Colin, I thought it was great news about the positive outlook for 2024. I was frankly a little surprised by that. But I feel that’s a good thing. As I noted, from a couple of clients that we’ve talked with, it can’t get much worse than ‘23. So, I think that was a great thing that people are feeling better. The other thing that surprised me was the lack of interest in hospital-at-home. Going into it, I thought that might be a major area of focus for clients going forward and systems going forward. But it did not really rise to the level that I thought it might when we were developing this survey instrument.

Jen Johnson 16:48 I totally agree with you. And I forgot we have a whole trending topics section in the survey and hospital-at-home was one of the questions so that’s a really good point. I think people will be interested to see the output there. So, Ed and Colin, we appreciate your excellent insight and want to make sure listeners know they can reach out to either of you anytime with questions. And that wraps us up to learn more from the results of this proprietary survey, including our top four takeaways and trending insights, please go to to download the full report. I also want to thank all the survey respondents for taking the time to fill out the survey and our clients for downloading it and reaching out with their ideas and comments. We hope this insight gets everyone excited about opportunities for the new year. Everybody take care.

Outro 17:33 Thank you for listening to the Healthcare Download with VMG Health. Make sure you subscribe to the show wherever you listen to podcasts to receive new episodes when they release the first Wednesday of each month. You can also go to or visit the episode notes to follow VMG Health’s monthly newsletter and to learn more about this conversation.

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