2025: The year of risks for medical practices

Pete Reilly: ©HUB International

Medical practices face risks from almost every direction – malpractice, natural disasters, declining reimbursements, rising labor costs – in 2025. Any one of them could force a practice to close, and all of them combined present a daunting challenge for even the best practice leaders. But with the right strategies, a practice can protect itself and help move toward a positive financial future.

Medical Economics spoke with Pete Reilly, practice leader at HUB International, to talk about what risks are trending and what practices can do about them.

(Editor’s note: The transcript has been edited for brevity and clarity)

Medical Economics: Health care costs keep going up and reimbursements keep going down. What's driving this and do you expect this trend to continue through 2025?

Pete Reilly: Well, to answer the latter part of your question -- do we expect it to continue based on what we know now? The answer is yes; the costs are increasing for a whole myriad of reasons. Inflationary pressures that impact people's households also impacts organizations and health care. The cost of doing business has gone up from wages for not only clinical staff, but also the folks in the various facilities. And that's not necessarily a bad thing. We want to pay these individuals who work in health care a good wage, because we have a very robust and good health care system, but we want to continue to keep it that way, and you want it to be a viable career. But that increased labor cost puts additional pressures on so many other things within the care delivery organization and they have to essentially shoulder those burdens. There's also increased use of medications and pharmacy drugs, which are expensive, the GLP ones, and the costs that have gone there, that gets right back to not only the provider, but the consumers. And there's really an increased usage by an elderly population that it does cost more to treat people whose bodies are breaking down, be it through surgeries or just general illness. So all of those factors will continue. We are, in some respects, victims of our own success in terms of extending the lifespan of most people. The reimbursement side is always a challenge, because whether it be CMS or private health insurance providers, they are trying to control costs that they then have to pass back onto the consumer in terms of premiums or tax bills, depending on where you are. And so they are really trying to hold down their reimbursement levels for ideally the right reasons, but it puts a sort of vicious cycle back on the providers themselves or their organizations, and the need to increase costs to almost run in place. It's very much a market-driven dynamic, but at a macro sense, yes, we expect this to continue, because wages, while slowing a bit, continue to rise, and then the inflationary pressures that we see, both in the US and in Canada, persist, and so that's going to make the payors want to continue to keep their reimbursements down so they don't continue this sort of never ending, vicious cycle.

Medical Economics: Based on the recent struggles of rural hospitals, should physicians at these facilities or physicians that do business with them be worried about their future?

Reilly: Sadly, the answer to both is yes and no. Yes, too many rural hospitals, critical access hospitals, the smaller community hospitals, have closed in the past decade. The financial pressures that these institutions face continue to really create a strain for them to continue to deliver the level of care that they have that is going to persist, and physicians who work in these or work with these facilities should ask some tough questions so that they can protect themselves. I think the side where I wouldn't be as concerned is I think America is certainly waking up to the reality that when you close a number of these smaller hospitals, these rural hospitals, you take out not only a good employer base for those localities, but you really create almost health care deserts in many parts of the U.S. where people simply don't get the health care they need. I think there's a gradual awakening, and credit to a number of lobbying organizations that are saying that is really unhealthy in a post-pandemic America, where a lot of people moved out to these more rural locations. The ripples that it will now have go much farther than what they did previously, and so there is some awareness at state and local levels for the need to help protect these institutions. And while that's still a newer trend, if it continues, as I hope it will, and think it will, I think the fear that these hospitals might close will be lessened. but at the moment, I think it is appropriate for practitioners to ask questions, know the financial health, and ask, what are the plans to deal with it? Because these communities desperately need these institutions, need those providers, but you have to do it with eyes wide open.

Medical Economics: The worker shortage and the burnout that comes with it aren't going away anytime soon. Is there anything a physician practice owner can do to help mitigate the mental strain for his or her employees to increase retention?

Reilly: This is probably, in my opinion, the single biggest sort of silent killer, if you will, to health care delivery for physicians’ offices. Health care delivery is not a rational business. Sometimes, from the patient perspective, we want to be cured. And so the pressure is always on the workforce be it a doctor, be it the receptionist at the front desk, it is an intense environment in which to work. And I do think this is going to continue, because it is oftentimes as much a calling as a career for many people, even those folks at the front desk. So it is going to continue to be a pressure and a burnout situation. There are really a number of ways that these practices can help alleviate some of that. There a number of enhanced employee benefits that don't necessarily cost too much, like enhanced child care strategies. There are a number of flexible workforce options with the number of days that you work, like say, four on and three off. But the best advice I can give is talk to someone that provides a number of your employee benefits, because there are a number of underutilized tools that are there, and if nothing else, providing some access to I'll call it wellness counseling. There are a number of services, not so much the services that people have always had for those who face addiction or other issues, but simply a platform where workers can talk about this in a very safe and welcoming environment. There's enough evidence in the psychiatric community to say that you know when they talk about this, and they can grapple with it openly, rather than hide behind the burnout and the psychological challenges, it does make a difference, and a lot of those can be done. Those types of platforms can be done virtually with telehealth type of arrangements, and they can be very cost effective. I think best place to ask is go to an employee benefits broker who handles your traditional physical health side of the house, and ask about the tools and resources that are now available for employee resiliency.

Medical Economics: We can't talk about risk management for physicians without talking about malpractice. So what's happening in the medical professional liability markets, and how do you see that playing out for rates in 2025?

Reilly: Well, the medical professional liability marketplace continues to underwrite at a loss, meaning for every dollar they take in, the larger industry is paying out more, and so that continues to put financial pressures on the insurance carriers, and thus pass on premium costs to the providers. There are certain pockets in the country that are now seeing a great deal of more and effective competition, or sort of rate -- I wouldn't call them decreases- - but stabilization. Some will see decreases with outstanding losses, but at least we're beginning to see some more stabilization. In a number of places, there are a handful of jurisdictions, New Mexico, Georgia, Montana -- a surprise participant in that list -- that have come about in addition to the traditional, really challenging environments of Cook County, Philadelphia County, the five boroughs of New York, those places. So the market continues to be a real challenge for both buyer and carrier. I don't believe the answer is always just to go market and to try to find just a lower premium. This is really a process driven decision on the part of underwriters, and I think buyers need to become more actively involved understand where their losses are coming from, because that's what's driving so much of this: frequency continues to be stable or down, but severity is up. So why is that happening? Really understanding those cost drivers and taking mitigation steps is important to really try and attack those root causes that will bring better long term success in lowering rates rather than just going out to market every single year and seeking the lowest premium. But I would also encourage doctors to talk with the underwriters and explain to them firsthand rate fatigue is real, and I simply cannot continue at this this pace. I need help. There's a lot of talk of partnerships from underwriters and carriers, as there should be, so it's OK to ask, “Hey, I can't take a double digit increase this year, I can only take X, otherwise you impact my quality of care, which ultimately hurts them.” A very frank dialog is not only warranted and appropriate, but I think necessary, because unfortunate losses from certain markets have impacted most of the community, and that degree of dialog between the insured and the insurer needs to take place. But overall, it's still tough. It may be getting a little better again in the macro sense, but we're probably still at least a year or two away from really being able to potentially see a broader rate reduction environment.

Medical Economics: We're seeing a lot more natural disasters that can take a practice offline for weeks or even months. What can a practice owner do to mitigate the risk those types of events pose?

Reilly: There's really two very important pieces of time that practices need to undertake. They need to have a very frank conversation about where they're located, and what is their exposure to climate-related risks. We've always focused very heavily on hurricanes and catastrophic weather locations, Florida or the wildfires of California. But even now, where you see severe cold, practitioners need to take a very clear-eyed view of what are their weather or climate risks. Maybe it's just a potential of a frozen pipe. But if you look at what happened in western North Carolina, I don't think anybody in their fair reflection would say, yes, this is what we thought was going to happen. And then number two, and this is really one that I think the medical community does not always take advantage of, is every single property insurer and even many other insurance carriers wants to help prepare their clients to mitigate their exposure to risk. Go ask about these resources. They are there. If you are in a flood-prone area, what are some basic steps that can be done? One, for life safety, first and foremost, but then are there simple things that can be done in order to minimize the amount of time in which you are out of operation? Are you properly insured for what that business interruption or extra expense might be? Really tap into those carrier resources, because usually your property insurer will have a number of guides, ideas, or resources to help mitigate the risks. If there's a third piece, and this one, historically, was a post disaster problem, but putting together a disaster recovery plan is in order anymore, simply because we're seeing it happen so much more. This isn't, or doesn't necessarily need to be a voluminous document, but simply it's a checklist at a minimum to make sure you're addressing the things you can mitigate. When the disaster hits, often for obvious reasons, your mind is on self-preservation for the individual, your staff, their families, etc. So as a part of utilizing the resources available, putting together at least the beginnings of a disaster recovery plan that can then be utilized and making it meaningful is warranted. There's almost no part of the country that is immune. So knowing how to respond, planning for it before it happens is going to be vital, but utilizing the resources you have to help you do that, and even in some instances, give you a turnkey option, will help address that, and will pay dividends, because this is a huge exposure and the risk management and the insurance industry people want to help.

Medical Economics: Health care continues to be a major target for cyber criminals, and I think everyone's aware of the Change Healthcare cyberattack and how it affected the entire health care system. How can practices manage the risk, not just to their own facility, but also the risk posed by vendors they might rely on to do business?

Reilly: One of the vital pieces that is overlooked is the interconnectivity of systems. Certainly, medical practices or facilities that do all the right things of keeping the patches up to date on their various programs, and having firewalls and security pieces, that's all well and good, and that needs to continue. And there should be continuous training for the front line employees, because people are the best defense to prevent cybercrime from really impacting you. But an understanding of the interconnectivity, and Change is the perfect example, of how another network could really bring yours down is important. Speak with your vendors or anyone you were working with where you have that cyber connectivity, and get an understanding of their defenses. It's a step that probably five years ago people didn't even think about taking, at least the general medical practice, contractually. If those that have interconnectivity with you become a problem, you should be reimbursed by them. You should have adequate contractual protections to get through that. And as we spoke a moment ago about climate disaster recovery plan, the same should really be there for a data security plan. And if all else fails, and I'm not advocating at all that people go back to paper medical records, but there should always be, and this is risk management, 101, a backup and duplication of a vast majority of your records, because as the owner of the covered entity under HIPAA and other regulations, you need to take proactive steps so that you can secure your data for your own patient population. Cyber criminals know health care is one of the sort of perfect five points in the road where you have personal health information and personal identifiable information, and all the financial data that comes with it. But it's also back to some basic 101 training, , and that's don't click on links. If the staff doesn't understand an email or doesn't get it, pick up the phone. Talking to an individual often works better, but we do not see cyber criminals making any less effort to come after health care and to think that just because you have either embedded insurance in your medical malpractice policy, or you may buy a million dollars of coverage in a standalone cyber policy, that is not enough. There are a number of proactive steps that have to be taken, and what we're also seeing is the plaintiffs bar, the act that if you don't take those proactive steps, they will come after you for any one of a number of other allegations. Data security is a very well-known risk. I still worry that too many providers, particularly physician practices, don't take it seriously enough. They will think, I don't own the records, it's off for the cloud with whomever. Talk to a lawyer and let them answer that for you, because you may not like the answer your insurance broker gives, but that's often the case. It's theirs, and they need to protect it as if it was their own wallet.

Medical Economics: Is there anything else risk management wise physicians need to be thinking about in 2025?

Reilly: It’s hard, because we don't want to give the impression that we're trying to scare them off with every one of these issues. And it is a scary world when you think about all that could go wrong. But as I mentioned, there are so many resources available to medical practices and practitioners that can help mitigate that, and oftentimes they are either paid for in the premiums or you work with a broker or consultant or other intermediary who can help address these risks. What I would say that practitioners need to know, or at least take some time to do, is just as they sit down to do planning with patients and their charts, look at the financials and make efforts to understand the risks that are faced by the practice. We talk about leaning into it a little bit like having wellness for illness prevention; if you understand what the illness can be and lean into behaviors and actions and things that you can do to mitigate it, if you understand your risks as a practice, lean into them. And by that I mean look for solutions and actions and things to do to help mitigate it. Those are there, and there's a very robust community that can help. And so leaning into that as a practice to understand it, and it's mostly scary when you don't understand it. Once you do, short of a natural disaster, which we can't control, so many of the other things are at least knowable. And just like the practice of medicine and treatment of a disease, there is a process by which you can address them and then they can sleep more soundly, knowing that their practice is unlikely to have an absolutely calamitous outcome in the event of a risk coming to fruition.