Healthcare Market Trends Q4 2024

by Hamilton Espinosa and Sean Ashcroft

As we enter 2025, we’re feeling the first optimistic inklings of a lower-interest market.

Healthcare visitor lounge with large windows looking out onto patio space.

4.2%

Year to date operating margins across all hospitals¹

8% year-on-year healthcare cost increase in 2025.²
80% of all healthcare encounters are now outpatient.³
Outpatient care will account for 60% of hospital revenue in 2025.¹

_{1 Source: Kaufman Hall

2. Source: PWC

3.Source: American Hospital Association}

2024 has mainly been a year of stabilization for many health systems. Though still dogged by economic uncertainty, increasingly devastating natural events, and continuing geopolitical conflicts, as we enter 2025, we’re feeling the first optimistic inklings of a lower interest market.

After a twenty-year high in late 2023, interest rates are down, with the long-awaited rate cut by the Federal Reserve in September. This cut, which brought the benchmark Federal Funds interest rate down to 4.75-5.00%, was the first made since March 2020. The Fed also signaled a program of expected rate cuts that will lower the benchmark rate by an additional 200 basis points by the end of 2026. These cuts should positively affect healthcare in 2025, offering improved access to capital, refinancing options, and the ability to issue more bonds or reprice existing ones.

Median hospital margins have shown stabilizing profit margins, according to Kaufman Hall, a positive sign for the industry. Though half of the hospitals and health systems are still operating at a loss, the deceleration in wage growth and inflation is contributing to this stabilization. Average lengths of stays are trending down, indicating less severe patient acuity and more efficient care transitions. And while expenses are still high compared to previous years, the growth rate is slowing down.

As the healthcare financing landscape eases, healthcare leaders must take a measured and opportunistic approach to future investment and growth. Inflation remains above target, medical costs continue to climb, and the economic environment remains unpredictable. However, owners can navigate these challenges with strategic long-term borrowing and investment planning and shore up their balance sheets for future success.

Customer Priorities for 2025

Maintain Focus on Managing Costs: Health care costs are projected to increase by 7–9% in 2025, the highest rate in 13 years. This will be due to several factors, including inflation, sustained high costs for supplies and labor, the cost of GLP-1 drugs, and increased use of behavioral health services.

Effective Use of Technology Solutions to Enhance Productivity and Reduce Provider Burnout: More effective targeting of advances in generative AI, robotics, cognitive automation, and digitization will help healthcare professionals be more productive and practice to the top of their license.

Targeted Steerage Towards Lower-Cost Sites of Care: Over the next ten years, ambulatory surgical center volumes are expected to grow by 18%, medical office building volumes by 21%, and hospital-based outpatient volumes by 15%. Expect to see targeted steerage of patients towards outpatient / ambulatory settings.

Right Bed, Right Patient, Right Care: National inpatient volumes will grow by 5.6%, and lengths of stay will increase by 5.9% over ten years, driven by the aging population and increasing severity and complexity of inpatient cases.

Safety is All Encompassing: Heightened focus on advanced preparedness, safety, hardening, and resiliency as hospitals prepare contingency strategies to tackle natural disasters, public health emergencies, cyberattacks, mass attacks, and other events.

Alternative Funding and Market Consolidation: Alternative funding models, including physician-backed ASCs and private equity real estate ownership models, will continue to proliferate. In addition, we’ll see more activity related to market consolidation to gain leverage, with continued exploration of potential mergers and/or acquisitions with other providers.

Customer Priorities

How Can We Help?

PLAN EARLY AND OFTEN: With continued constraints on hospital operating margins, an early, collaborative, and integrated approach to project capital planning will yield greater returns. It will extend the ability to maximize capital investments to do more with fewer resources and accurately calibrate cost expectations to program outcomes.

COST CERTAINTY IN AN UNCERTAIN MARKET: Our early integration and cost modeling services provide critical project design, construction alternatives, and information to help inform and execute successful procurements and projects.

PREDICTABILITY AND SPEED TO MARKET: In an age where schedule predictability and speed to market are more important than ever, prefabrication continues to be a solution that our clients come to expect as a means of project execution.

Read and Listen!

Healthcare Insights is a series from DPR Construction’s healthcare core market team designed to consider how new pressures on the market will transform the delivery of care.

Focusing on rapidly addressing today’s environment, our teams advance value to health care providers through strategic assessment, program and cost validation, and informing capital investments in real estate and technology—enabling strategic decisions much earlier in the delivery cycle.

Looking for more general market insights? Take a look at our full market conditions report of Q4 2024. Or take the full report with you by downloading the PDF.

Photo: Satterlee Photodesign