2024 private practice outlook

Ben Johnston: ©Kapitus

2023 began with a banking crisis and ended with the highest interest rates America has seen in fifteen years.It also ended with continued economic growth and low unemployment, making it a profitable, yet challenging year for private practices. Continued Fed tightening made borrowing to fund growth more expensive, while a tight labor market meant challenges finding talent and higher labor costs.

The macro forces of an aging U.S. population, new treatment innovations, and broader insurance coverage for Americans continue to make health care an attractive industry in 2024.While staffing shortages, burnout, wage inflation, and inefficient patient billing and recordkeeping reduces employee satisfaction, health care professionals are poised for continued growth in the coming year. The largest problem for many health care providers in 2024 will be staffing given very low unemployment rates which are near zero for trained medical professionals.

America is experiencing an entrepreneurial renaissance that began in the depths of the pandemic and continues to build momentum, with the new business applications registered with the U.S. Census Bureau significantly increasing. Health care is one of the industries with the largest increases in new business applications since 2019 as more Americans are covered by health insurance and an aging population demands greater care.

Other factors that will impact private practices this year:

Inflation: The Federal Reserve has succeeded in bringing inflation under control without causing a recession, a feat many of us viewed as unlikely at the start of 2023.Unemployment has remained low throughout this tightening cycle and while wages rose in 2023, wage increases were more muted compared to 2022. The Federal Reserve has indicated that it will likely be reducing rates in 2024. Inflation now sits just above 3% and we expect it to remain in this range throughout 2024 as rate reductions spur greater demand in the economy. So, while we don’t expect significant price increases in 2024, we also do not expect to fully return to the 2% and below inflation environment of the pre-pandemic era. This means that private practices should expect slightly higher than average increases in operating costs and should be prepared to pass these costs on to patients in the form of higher prices.

The political environment:With 2024 being a presidential election year, and an already divided government struggling to pass basic legislation to keep the government functioning, we have little expectation of significant economic legislation (beyond passing a budget) to occur this year. We see the credible threat of a government shutdown in 2024. Any shutdown would lead to market volatility, impacting interest and currency rates which we already expect to be volatile given the election and the prospect of a new administration in Washington. Private practices will be watching these developments closely as they will impact the cost of capital, cost of goods, and overall economic demand.

Although 2024 presents uncertainty, we are optimistic that the economy is poised for a soft landing that will allow for continued economic growth and strong employment without a material increase in inflation. Private practices should feel better about the economy today, with the prospect of rate cuts just around the corner, than they did a year ago with inflation still high and more rate hikes to come. While this is not a green light for irrational exuberance, practices may want to dust off the plans for growth they put on hold last year and determine what financing rates are required to make a new project viable. While many banks have scaled back their exposure to small businesses, there are many non-bank small business lenders that are ready to fill the funding gap left as banks tighten. As interest rates come down and consumer confidence grows, we expect 2024 to be a prosperous and exciting year for private practices who will serve as a powerful growth engine for the American economy.

Ben Johnston is the Chief Operating Officer of Kapitus, one of the most reliable and respected names in small business financing. Kapitus provides growth capital to small businesses and has provided over $5.5 billion to over 50,000 small businesses since 2006. Kapitus offers multiple loan products to small businesses, including SBA loans, revenue-based financing, equipment financing, cash-flow based factoring, revolving lines of credit and invoice factoring.