Hospitals are expected to see financial recovery in 2025

In 2024, hospitals and health systems saw higher patient volumes, wider operating margins, and more favorable financial markets that helped with returns on investments. In 2025, hospitals and health systems are expected to see further financial recovery.

According to Erik Swanson, SVP of data and analytics at Kaufman Hall, hospitals and health systems will likely see their operating margins improve in 2025, but they will probably not reach pre-pandemic levels.

To achieve better operating margins, Swanson said that providers will continue to diversify their portfolios in different areas, including pharmacy, imaging, and urgent care. Providers will also assess whether certain services, such as emergency or maternity care, should be cut to improve their bottom lines.

At the same time, providers will still have to deal with higher labor costs, as well as ongoing staffing shortages and burnout among workers. Several major health systems, including Mayo Clinic, Advent Health, and Intermountain Health reported year-over-year increases in salaries and benefits in 2024. According to a Deloitte survey, almost 60% of health system executives said they expect workforce challenges to influence their organizational strategies in 2025.

Providers must also deal with higher costs from supplies and purchased services, namely pharmaceutical costs, which will continue to be an area of tension for providers, with some reporting double-digit increases in 2024.

"There are no signs in any of the data that we're seeing that expenses will diminish," Swanson said. He also noted that expense burdens are increasing the gap between the industry's best and worst financial performers, which could lead to more mergers and acquisitions over time.

Hospitals and health systems' finances will also be affected by supplemental payment programs. State-directed and other supplemental payment programs helped boost providers' bottom lines in 2024 and are expected to do the same in 2025. Although some people have raised concerns about the future of government-led programs under the new Trump administration, analysts say they don't expect any major shifts in the near term.

Increased investments in cybersecurity will also affect providers' capital spending plans in 2025, especially since there were multiple large data breaches in the healthcare industry in 2024. In Deloitte's survey, 60% of health system executives said they will prioritize cybersecurity enhancements. 

What retailers have planned for healthcare in 2025

"This past year was a defining year for retailers and not necessarily in a good way, as there were multiple failed attempts at offering more healthcare services," Hudson writes. In 2025, retailers are taking a variety of approaches to healthcare, with some scaling back their services and others choosing to expand them.

CVS Health

Currently, CVS is conducting a strategic review and may consider a potential breakup of its businesses as it continues to face financial difficulties.

The company has also seen changes in its executive leadership. In August, Brian Kane, president of Aetna, left the company after less than a year in the role. CEO Karen Lynch was also removed from the company, with David Joyner, who headed CVS' pharmacy benefit manager Caremark, replacing her.

In November, Oak Street Health cofounder Mike Pykosz stepped down from his role as CVS' president of healthcare. Company CMO Sreekanth Chaguturu replaced Pykosz in the role. So far, it's not clear how CVS' larger issues will affect Oak Street, which it bought for $10.6 billion.

According to a spokesperson, CVS is pleased with Oak Street's performance and is committed to growing its footprint. Currently, Oak Street has 230 locations, and leaders plan to increase that number to over 300 by 2026.

Walgreens

According to Walgreens, it is refocusing on its core pharmacy business and plans to close 1,200 retail stores, including 500 in 2025.

The company has also significantly scaled its expansion plans for VillageMD, a primary and multispecialty care provider. In 2024, VillageMD closed more than 150 primary care clinics. The company's co-founder Tim Barry also stepped down as CEO in December. COO Jim Murray is currently acting as interim CEO.

According to Walgreens executives, VillageMD is no longer a key part of the company's growth strategy. The company is also looking to sell at least part of its ownership stake.

"Maybe they thought it was going to be a lot more profitable a lot more quickly, but obviously that hasn't turned out to be the case," said Keonhee Kim, an equity analyst at Morningstar. "I think a lot of retailers are realizing that it's more difficult than maybe it looked." 

Amazon

In 2023, Amazon acquired primary care provider One Medical for almost $4 billion and has continued to grow the business since then.

In October, One Medical announced a partnership with Cleveland Clinic to open a co-branded primary care office in Ohio in 2025. There are also plans to open additional locations over the next few years. One Medical also has a similar collaboration with Hackensack Meridian Health for primary care locations in New Jersey.

In November, Amazon One Medical announced that it will provide upfront monthly pricing for Prime customers looking for consultations and medications for certain health conditions. Customers also have the option to choose pay-per-visit telehealth services, including one-time virtual visits for a flat rate.

According to an Amazon spokesperson, One Medical continues to "grow sustainably and intentionally" in new and existing markets.

"Amazon has not been without its missteps, but to their credit, they've been willing to fail fast and really shut down experiments that aren't meeting their business cases," said Kate Festle, partner for healthcare mergers and acquisitions at West Monroe.

Walmart

In June, Walmart Health closed all 51 of its health clinics and shut down its virtual care platform, saying that the business model was unsustainable due to reimbursement challenges and rising operating costs. The company is leasing the former clinic space to other providers, such as Humana's CenterWell, Mercy Primary Care, and Access Medical. "We're reaching the end of the big headlines here, and maybe it's perhaps just been a forcing function of these things reaching the outer limits of their life cycles," Festle said.

Walmart continues to maintain a health and wellness division in its company. It also continues to operate pharmacies and vision centers.