The Impact of Regulatory Changes on Healthcare Business Strategies
Regulatory changes in the healthcare industry are frequent and unpredictable.
This creates a unique challenge for healthcare providers and businesses like yours.
You must adapt quickly or risk falling behind.
Luckily, this article is tailored to help you understand and adapt to these changes effectively.
You will discover:
The main drivers of regulatory change in healthcare
Key ways regulatory changes impact healthcare business strategies
How healthcare businesses can adapt to these changes
Real-world examples of healthcare organizations adapting to regulatory change
Follow along as we explore these critical aspects.
What Drives Regulatory Change in Healthcare?
Healthcare regulatory changes are driven by a number of factors. In this section, we’ll examine the key forces that shape these changes and why they matter.
Technological advancements
As medical technology evolves, regulations need to adapt to new treatments, medical devices, and digital health tools like telemedicine and artificial intelligence-driven diagnostics.
For instance, the rise of wearable health devices has prompted discussions about data accuracy and privacy regulations. A survey revealed that 40% of smartwatch or fitness tracker owners are concerned about the privacy of data these devices collect.
Public health emergencies
Situations like the COVID-19 pandemic necessitate rapid regulatory changes to address public health needs, including vaccine approvals, treatment protocols, and health safety measures.
These scenarios may involve emergency use authorizations and temporary guidelines to manage unprecedented health crises. There are also public health consultants that play a critical role in advising on regulatory compliance during crises like pandemics.
Healthcare costs
Rising healthcare costs prompt regulatory changes to control expenses, improve efficiency, and make healthcare more affordable and accessible. Examples include initiatives to regulate drug prices and policies to reduce unnecessary medical procedures. In 2022, the United States spent $4.5 trillion on healthcare, representing about 17% of the nation's Gross Domestic Product (GDP)
Patient safety and quality care
Enhancements in patient safety standards and quality of care lead to regulatory updates driven by patient outcomes research and healthcare quality assessments.
Regulators may introduce new accreditation requirements for healthcare facilities and mandates for adopting best practices. In fact, a study by the Agency for Healthcare Research and Quality found that improvements in patient safety measures from 2016 to 2021 were associated with positive impacts for millions of patients and substantial cost savings.
Healthcare accessibility is another point here. Regulatory changes often focus on improving access to healthcare, especially for underserved populations, through policies like insurance reforms and coverage expansions. This factor can involve expanding Medicaid or introducing subsidies for private insurance.
Changing demographics matter, too.
As populations age and new health trends emerge, regulations may shift to address these changes, such as by focusing on geriatric care or chronic disease management. A good example is adapting healthcare systems to cater to an aging population with a higher prevalence of chronic conditions.
Data privacy and security
With the increasing digitization of health records, healthcare compliance and federal regulations around data privacy and security (like HIPAA in the U.S.) are continually evolving. Consequences include stricter controls on patient data sharing and breach notification requirements.
Stakeholder engagement and advocacy
Patient advocacy groups, healthcare professionals, and industry stakeholders can influence regulatory changes through lobbying, research, and public campaigns. This engagement shapes policy debates and prioritizes certain health issues.
Evolving legal and ethical standards, such as end-of-life care, reproductive rights, and genetic testing, also drive regulatory changes in healthcare. These changes involve balancing individual rights with broader societal and ethical concerns.
Global health trends
International health trends and collaborations, including disease outbreaks and global health initiatives, can influence domestic healthcare regulations. This is evident in adopting international health standards and collaborative disease control and prevention efforts.
It's important to remember that these drivers are interdependent and often overlap, reflecting the complexity of the healthcare regulatory landscape.
7 Key Ways Regulatory Changes Impact Healthcare Business Strategies
Healthcare organizations must continually adapt to regulatory changes and address the impact they have.
Let’s take a closer look at the key ways these changes influence the planning, execution, and evolution of healthcare businesses.
1) Increased Compliance Costs
Regulatory changes in the healthcare sector frquently introduce new standards for patient care, data handling, billing practices, and more. Compliance with these regulations can involve significant costs, including staff training, system upgrades, legal consultations, and process overhaul expenses.
These costs can strain your financial resources if not planned properly. Just take a look at what an average-sized hospital spends annually.
For instance, introducing Electronic Health Records (EHR) mandates led healthcare organizations to invest in digital systems, train staff, and upgrade IT infrastructure. This change, albeit costly at first, met compliance requirements and improved operational efficiency.
Why you should care:
High compliance costs can impact your bottom line, requiring careful financial planning and resource allocation.
Efficient compliance strategies can minimize disruptions to healthcare services.
Organizations that manage compliance in healthcare efficiently can gain a competitive edge over those struggling with these changes.
Non-compliance can lead to legal actions and damage to reputation, while effective compliance can enhance the organization’s standing.
How you can adapt:
Automate compliance tasks to ensure adherence and reduce manual errors.
Add regular training programs for staff to stay updated with regulatory changes.
Incorporate compliance costs into long-term financial planning.
Use third-party experts for specialized compliance areas.
Share best practices and resources with other healthcare entities.
Engage in dialogue with regulatory bodies and healthcare leaders to shape feasible regulations.
2) Modification or Expansion of Healthcare Services
Regulatory changes can directly impact what services healthcare organizations are allowed to offer or create new needs for services. These new regulations may mandate additional types of screenings, treatments, or preventive care. Alternatively, they might restrict certain practices or require specific certifications to offer particular services.
For example, regulations that emerged during the COVID-19 pandemic facilitated a massive growth in telehealth services. Many healthcare providers quickly adapted by offering virtual consultations, which continued to be popular post-pandemic.
Opioid prescription regulations also determined a huge shift.
Stricter regulations on opioid prescriptions led to healthcare providers altering their pain management services. As such, they started offering alternative pain treatments, coupled with increased monitoring and counseling for opioid use.
According to the CDC,
“The annual opioid prescribing rate in the United States peaked at 81.3 prescriptions per 100 persons in 2012 and declined to 43.3 per 100 persons by 2020.”
Why you should care:
Regulations often reflect evolving healthcare standards and patient needs.
The ability to offer certain services can differentiate your organization in a competitive market.
Expanding service offerings can open new revenue opportunities, while restrictions might close existing ones.
Adapting swiftly to these regulations will improve the overall quality and safety of your healthcare services.
How you can adapt:
Add new services that align with regulatory changes.
Ensure staff are qualified to offer new or modified services.
Acquire or upgrade equipment and facilities to meet new service requirements.
Form alliances with other organizations to offer a broader range of services.
Understand patient demand in light of regulatory changes.
Effectively communicate new healthcare choices to the public.
3) Changes in Market Access
Regulatory changes can impact healthcare organizations' access to certain markets or patient demographics. This can happen through new licensing requirements, restrictions on providing services in certain areas, or regulations that open up new markets (like rural areas or specific patient groups). These changes can dictate where and to whom healthcare services can be offered.
In some regions, regulatory changes have encouraged healthcare providers to serve rural communities, leading to the establishment of remote clinics and the use of telehealth to reach patients in these areas. For instance, the repeal of Certificate-of-Need (CON) laws in certain states has resulted in a 44–47% increase in ambulatory surgical centers (ASCs) per capita statewide and a 92–112% increase in rural areas, enhancing access to medical services in underserved regions.
Also, changes in Medicare and Medicaid regulations can significantly impact market access. For example, expanded coverage under these programs can open up new patient demographics for healthcare providers, as the following data suggests.
Why you should care:
Access to new markets can bring in new patients, while restrictions can limit the existing patient base.
Market access directly affects potential revenue sources.
You may need to reallocate resources, including staff and equipment, based on market accessibility.
Long-term strategic planning depends on potential market expansions or restrictions.
How you can adapt:
Expand services to new areas that regulations now permit.
Adjust marketing strategies to focus on newly accessible patient demographics.
Develop service models (like mobile clinics) to serve restricted or newly accessible areas.
Partner with local healthcare providers in newly accessible markets.
Use telehealth to bypass geographical limitations.
Engage in advocacy to shape favorable market access regulations.
4) Revisions in Pricing Strategies
Regulatory changes can influence how healthcare organizations structure pricing. This can include regulations that cap prices for certain services, require transparency in pricing, or set reimbursement rates for government-funded programs like Medicare and Medicaid.
These changes require you to reassess your healthcare services pricing and may affect the financial viability of certain services.
The examples abound.
When Medicare changes its reimbursement rates, healthcare providers must also adjust their service mix or find efficiencies to remain profitable. This is the case, particularly for services with a high proportion of Medicare patients.
For instance, in November 2023, the Centers for Medicare & Medicaid Services (CMS) finalized a 3.4% decrease in the physician fee schedule conversion factor, resulting in an overall payment reduction of 1.25%, varying by specialty. Providers must reassess their pricing structures and operational efficiencies to maintain financial viability.
Additionally, regulations requiring price transparency led to hospitals publishing their service prices online. This change complied with legal requirements and helped patients make more informed healthcare decisions. However, compliance has been inconsistent, as shown below.
“As of 2023, 70% of hospitals were in compliance with both parts of the Hospital Price Transparency Rule, up from 27% in 2021.” – CMS
And in some countries, regulations that cap drug prices have forced pharmaceutical companies and healthcare providers to adjust their pricing strategies. Sometimes, this led to increased focus on higher-volume sales or more cost-effective production methods.
Why you should care:
Appropriate pricing is crucial for the financial health of healthcare organizations and patient trust.
Pricing affects how your organization is positioned relative to competitors.
Regulations often aim to make healthcare more affordable and accessible, impacting who can access services based on price.
Non-compliance with pricing regulations can lead to legal issues, administrative burdens, and damage your organization’s reputation.
How you can adapt:
Analyze and restructure costs to maintain profitability within regulatory constraints.
Explore alternative revenue models, like value-based care or bundled payments.
Diversify service offerings to balance lower-profit and higher-profit services.
Negotiate costs with suppliers to reduce overhead.
Implement tools and systems to provide price transparency, as regulations require.
Offer financial assistance or slide scale pricing to maintain patient accessibility.
5) Enhanced Focus on Technology
Healthcare regulations evolve to include requirements for using certain technologies. This can be for enhancing patient data security (like HIPAA in the U.S.), improving the quality of care through electronic health records (EHRs), or enabling new healthcare delivery models such as telemedicine.
Healthcare organizations must adapt by integrating these technologies into their operations.
For example, COVID-19 regulations accelerated the adoption of telehealth, leading many organizations to integrate this technology into their service offerings rapidly. This enabled continued patient care during lockdowns and has persisted due to its convenience and efficiency.
For example, 93% of respondents agree that telemedicine improves patients’ access to care. 77% of respondents showcase time efficiency as a solid benefit.
Here are a few other benefits of this trend.
Moreover, with the increasing focus on data privacy, healthcare providers have invested in secure data storage and encryption technologies to protect patient information. All of this aligns with regulatory compliance requirements like HIPAA in the U.S.
Why you should care:
Non-compliance with technology requirements can lead to legal penalties and loss of licenses.
Proper technology can streamline operations, reduce errors, and improve patient care.
Early adoption of technology can give healthcare organizations a competitive edge.
Patients increasingly expect modern, tech-enabled healthcare services.
How you can adapt:
Allocate budget for necessary technology updates or acquisitions.
Ensure that staff are proficient in using new technologies.
Implement and enhance data security measures to comply with regulations.
Collaborate with technology companies for customized solutions and enhanced functionality.
Use technology for innovative service delivery, such as telehealth or mobile health applications.
Conduct a comprehensive review of current technologies to ensure alignment with regulations.
6) Heightened Risk Management
Regulatory changes can introduce new risks or increase existing ones in the healthcare sector. These risks might include compliance risks (failing to meet new standards), financial risks (due to increased costs of compliance or penalties), and operational risks (arising from changes in how services are delivered).
For example, the introduction of GDPR brought significant changes for healthcare organizations operating in or handling data from the European Union. These organizations had to adapt by implementing stricter data protection measures, revising patient consent procedures, and ensuring data portability.
Failure to comply could result in substantial fines. As shown below, the average fine in the healthcare sector for violating GDPR rules is 87,475 (EUR).
And in countries like the United States, the shift towards value-based care models, incentivized by regulatory changes, required healthcare providers to manage risks differently. Instead of focusing solely on service volume, organizations had to strategize around delivering cost-effective quality care.
This shift entailed reorganizing care delivery models, investing in preventive care, and using data analytics to track and improve patient outcomes. In fact, The global value-based care market, valued at $12.2 billion in 2023, is projected to reach $43.4 billion by 2031, indicating a significant transformation in healthcare delivery.
Why you should care:
Adhere to regulations to avoid legal actions and sanctions.
Mitigate financial risks associated with non-compliance costs and fines.
Maintain a strong reputation by demonstrating compliance and ethical practices.
Ensure smooth operations without disruptions due to regulatory issues.
How to adapt:
Regularly conduct risk assessments to identify and address new regulatory risks.
Strengthen the compliance function within your organization to keep up with regulatory changes.
Seek expert legal advice to understand and navigate new regulations.
Review and adjust insurance coverage to protect against regulatory risks.
Encourage a culture of compliance that prioritizes adherence to regulations.
7) Alterations to Partnerships and Collaborations
Regulatory changes can prompt healthcare organizations to reevaluate and potentially alter their partnerships and collaborations. These changes might necessitate partnerships with specialized entities to meet new compliance standards, joint ventures to share the burden of regulatory costs, or collaborations with technology providers to implement required digital solutions.
The nature of these partnerships is dictated by the specific regulatory requirements.
For example, many healthcare providers have partnered with IT firms specializing in Electronic Health Records to comply with regulatory mandates for digital record-keeping and improve patient data management and care coordination.
In fact, as of 2021, nearly 4 in 5 office-based physicians (78%) and nearly all non-federal acute care hospitals (96%) adopted a certified EHR, as shown below.
Additionally, pharmaceutical companies typically collaborate with biotech firms and research institutions to ensure their products meet rigorous safety and efficacy standards as per regulatory bodies like the FDA.
Why you should care:
Collaborations can help you share the financial and operational burdens of meeting new regulations.
Partnerships can provide access to specialized expertise that your organization may lack internally.
Strategic collaborations can offer a competitive edge in adapting to regulatory changes more efficiently.
Partnerships can facilitate entry into new markets or patient demographics made accessible by regulatory changes.
How you can adapt:
Create alliances with other healthcare entities to tackle regulatory challenges jointly.
Collaborate with tech companies for solutions like electronic health records, telehealth platforms, or cybersecurity measures.
Work with academic institutions or research organizations to stay at the forefront of regulatory requirements in the healthcare landscape.
Outsource activities like billing or data management to companies specialized in handling these functions.
Engage in partnerships with government entities, especially in areas like public health and emergency preparedness.
Work with organizations from different sectors (IT, legal, or logistics) for a more integrated approach to regulatory compliance.
Thriving Amidst Healthcare Regulatory Changes
In this article, we've examined how regulatory changes reshape the strategies of healthcare businesses.
We've also looked at the direct effects of these changes on operational and strategic planning within the sector.
These changes require health systems to quickly adjust their business models and strategies to stay compliant and competitive.
Use our strategies to navigate this field. And always remember the importance of proper planning, staying informed, and adapting to healthcare regulatory changes to stay competitive.
