2025 Healthcare Providers Focus on Efficiency Gains and Supply Chain Resilience

Healthcare providers are expected to enter 2025 with another year focused on maximizing efficiency as the top priority. Although both for-profit and nonprofit providers reported improved operating margins last year compared to 2023, experts say that if systems fail to carefully control costs and explore strategic growth opportunities, they may face performance declines this year.

Health systems will seek to build on the gains achieved in 2024, including improving utilization metrics and learning lessons from major supply chain crises. At the same time, new challenges are emerging as a new administration takes office in Washington and implements its healthcare policies.

"The healthcare industry remains a very fragile industry with extremely thin margins," said Kevin Holloran, senior director and sector head of Fitch Ratings' nonprofit healthcare group. "There will be a change in administration in Washington this year, which brings a certain level of uncertainty to the entire healthcare landscape. Overall, uncertainty... may not be a good thing."

Experts say successful health systems this year can address cost pressures in advance by seeking new types of partnerships to achieve more with less spending, including more joint ventures, direct deals with manufacturers, and spinoffs like Kaiser Permanente's Risant Health.

Here are the top predictions for healthcare providers in 2025.

Providers focus on pharmacy and labor cost reductions

Although operating margins generally improved across health systems in 2024, not all systems achieved the same level of recovery, and experts emphasize that providers need to closely monitor costs in 2025.

In response to cost pressures, 53% of healthcare executives recently surveyed by Deloitte said improving efficiency and productivity is their top priority this year.

Healthcare executives say managing rising drug costs, especially those related to specialty medications, is a top priority. Although these drugs are used by only a small number of patients, they currently account for 54% of total health system drug spending, according to consulting firm Vizient's 2025 outlook. As drug development continues to advance, spending is expected to climb further.

Increased demand for diabetes drugs used for weight loss, known as GLP-1s, is driving most of the growth in specialty drug spending, said Steven Lucio, senior principal of pharmacy solutions at Vizient. Demand for GLP-1s could rise further this year if the incoming Trump administration approves a Biden-era rule allowing Medicare to cover GLP-1 drugs for prescription weight-loss use.

Providers are exploring multiple ways to reduce specialty pharmacy spending. Because these drugs are so expensive, "you need to be very careful in how you use them," Lucio said. However, Lucio noted that since these drugs are typically developed for specific indications, health systems have limited data available to guide effective prescribing.

In response, some health systems are establishing high-cost drug committees to better understand these medications and oversee prescribing practices. Physicians and pharmacists on the committees review operational, clinical, and economic data to evaluate the effectiveness of prescribing these drugs.

Academic health systems, such as Cleveland Clinic and Vanderbilt University Medical Center, are early adopters of this strategy. Vizient predicts that as the importance of managing pharmacy costs grows this year, more health systems are expected to establish their own committees.

Other providers are partnering with nontraditional partners such as Mark Cuban Cost Plus Drugs or the nonprofit generic drug company Civica Rx to directly source generic drugs at lower costs. Community Health Systems is one of the most active advocates of working directly with manufacturers. All 71 of its hospitals began partnering with Cost Plus Drugs Marketplace in June.

"You're going to see more disruption in the pharmaceutical industry," said Fitch's Holloran. Providers are asking themselves: "Isn't there a better, cheaper way to produce some of these drugs?"

Health systems will also continue to prioritize reducing labor costs next year. Although health systems spent less on labor in 2024 compared to pandemic-era highs, healthcare wages remain above pre-pandemic levels, said Mark Pascaris, senior director at Fitch Ratings. Some systems will leverage automation, such as virtual care, to "more creatively decide who is at the bedside," Pascaris said. "Health systems are trying to use more entry-level personnel in certain functions to reduce costs."

Other health systems are exploring offshoring or outsourcing non-core functions, including information technology, human resources, and finance teams, said Alicia Janisch, vice chair at Deloitte and U.S. healthcare sector leader. Allina Health, Providence, and AdventHealth said they have outsourced departments to pursue greater expertise and cost savings. For example, Allina Health commissioned Optum to run its IT department in February.

The partnership with Optum allows the health system to focus on its strengths, said Allina Chief Operating Officer Dominica Tallarico. She said the agreement also enables Allina to build out its technology suite beyond what staff could develop alone. "Innovation and technology are changing rapidly... It's about how we truly advance, not just keep up, but how we leapfrog in technology and AI," Tallarico said.

Outsourcing revenue cycle management functions is another area to watch, Janisch said. Last year, health systems expressed growing frustration over payers using algorithms to deny claims. She said while some systems may build their own tools to submit prior authorization documents, others will outsource to AI-driven companies.

Supply chain issues will be in the spotlight

Last year, Hurricane Helene temporarily shut down a major IV fluid manufacturing plant in North Carolina, serving as a wake-up call for healthcare providers and highlighting the importance of supply chain diversification and emergency management planning. The storm halted production at the Baxter plant for several days and disrupted IV fluid supplies at 60% of hospitals nationwide, according to a letter from the American Hospital Association.

"Most health systems I've spoken with were caught off guard just like during the pandemic," said Eric O'Daffer, vice president of healthcare supply chain research at Gartner. "It was a reactive response... Nearly all systems had to enter a pandemic-like command center mode again." The most effective health systems, such as HCA Healthcare, were able to mobilize resources to support harder-hit areas after the natural disaster, O'Daffer said. For example, HCA sent personnel and supplies from its Tennessee facilities to its hospitals in western North Carolina. However, other systems lacked centralized visibility into their resource inventories or storage locations, limiting their ability to respond effectively to the crisis, the consultant said.

Heading into 2025, supply chain management will become even more critical as providers seek real-time visibility into where their products are and how to mobilize supplies—especially as systems continue to grow. "Health systems are merging and getting bigger, and the number of cross-state, non-contiguous $20 billion-plus health systems is growing. This brings both complexity and potential opportunity," O'Daffer said.

Some health systems have already begun this work, aided by supply chain disruptions during the pandemic. For example, AdventHealth established a central warehouse in central Florida in 2023 to expand its supply chain resilience. "The pandemic taught me to be as flexible as possible when caring for others," said Terry Shaw, CEO of Florida-based AdventHealth. "You own your supply, and you diversify your sources of supply enough so that you have enough flexibility when you need it."

Health systems will take a more deliberate look at AI investments

Last year, enthusiasm for AI dominated the healthcare industry, with companies partnering with technology experts to launch numerous pilot projects. Experts say that by 2025, providers will begin asking: Does this actually work? Last year saw a surge in AI products aimed at healthcare. Amid the hype, health systems piloted a range of clinical and administrative tools. However, not all pilots were strategic, said Elizabeth Southerlan, partner at West Monroe.

Some health systems applied the latest AI without first asking whether it suited their organizational needs or using human-centered design when creating pilots, Southerlan said. For example, she described a healthcare organization piloting a scheduling tool without seeking input from employees who do the scheduling work. She said other organizations rushed to implement solutions without assessing whether there was broad demand for the tool.

"I think another area of pushback is, you're solving a problem that only takes up 5% of my day. Why are we investing in this when there are things that take up 20% of my day, are extremely redundant, and prevent me from performing at my highest level?" Southerlan said. Now, she said, "all healthcare organizations have a large number of pilots, and they haven't figured out how to move them forward—but they also don't have the courage to say 'this isn't working: shut it down.'"

Evaluating what to keep and what to abandon isn't just about direct costs or efficiency gains, said Andrew Rebhan, senior consulting director at Vizient. He said some tools touted as cost-saving, such as note-taking tools, didn't truly save clinicians much time during pilots. But that doesn't mean they were failures—Rebhan said providers should measure return on investment using qualitative metrics such as user experience. "Does it reduce the burden of administrative work? Does it eliminate the monotonous, repetitive tasks they frequently get bogged down in? I think it's these softer metrics that may be helping sustain these tools," Rebhan asked.

At AdventHealth, Shaw takes a pragmatic approach to AI investments, telling Healthcare Dive that his system invests in tools that benefit the most patients. AdventHealth is currently advancing ambient listening tools and "smart" hospital rooms where providers can meet with patients via Microsoft Teams on the TV. Regardless of how providers prioritize projects, Southerlan advises them to streamline. "I think the healthcare industry needs to slow down a bit, stop always trying to produce more faster, and start thinking about the efficiency and effectiveness of the tools we use," Southerlan said.