Why hospitals need workforce and risk management earlier to protect margins 

Hospitals and health systems are under pressure from multiple directions at once: margin compression, workforce shortages, rising benefit costs, cyber exposure, and rapid AI adoption. Yet these issues are often managed separately. Strategy sets direction, Finance focuses on overall costs, IT drives deployment, and HR and Risk are brought in later to address workforce implications, governance, and control gaps.

That sequence can create avoidable costs. When workforce and risk considerations are introduced after key decisions are already in motion, organizations may face rework, slower adoption, higher turnover, weaker controls, and greater pressure on margin.

The healthcare organizations managing this environment most effectively are taking a different approach. They are bringing HR and Risk into planning earlier, using workforce and operating data to identify where risks are compounding, and making decisions about people, safety, technology, and finance as part of one strategy.

Healthcare margin pressure is no longer driven by a single issue, or even a discrete set of issues.  It results from several forces converging at the same time.

Financial pressure remains intense. Nearly 65% of US hospitals are operating with margins below 3%, while policy changes could reduce margins further without early mitigation. At the same time, hospital expenses continue to rise faster than reimbursement and inflation.

Workforce strain remains structural. Labor shortages continue to rank among the most significant people risks. Many organizations are also struggling to attract talent with digital skills, while burnout and long-term sick leave remain persistent concerns.

Benefit cost pressure has become a broader business issue. Health benefit costs are increasingly influencing wage growth, hiring decisions, and investment timing.

AI and digital acceleration are moving faster than workforce readiness and governance in many organizations. While executives expect major organizational change over the next two years, only about half believe their organizations are prepared for the human-machine era.

Cyber and safety exposure are also becoming more people-dependent. Weak cyber literacy, third-party incidents, and poorly paced AI adoption are creating new operational and safety risks.

These issues are connected. Margin, workforce, safety, technology, and risk can no longer be managed as separate agendas.

Many health systems still follow a familiar pattern: Strategy, Finance, Operations, or Technology define the direction first. Labor model changes, AI pilots, restructuring decisions, and benefit redesigns move ahead. HR and Risk are then asked to support implementation, change management, controls, or remediation.

The delaying of HR and Risk involvement can create avoidable cost in several ways.

Work gets redesigned too late. Transformation often moves ahead before work design is fully integrated.

Managers absorb too much change. Frontline leaders are expected to carry significant change without enough support.

Adoption slows. Employees are more likely to resist change when they are brought in late.

Control gaps widen. Technology and operating decisions can outpace workforce and risk planning.

Workforce strain shows up in the numbers. Burnout, absenteeism, and long-term sick leave signal execution strain, retention risk, and rising labor costs.

In healthcare, those consequences do not stay inside one function. They affect operating stability, patient safety, workforce performance, and financial results at the same time.

This is not about adding more process. It is about making better decisions before capital, workforce, and operating commitments are locked in. We know that organizations with high collaboration across Human Resource and Risk outperform those with weak collaboration on mitigation effectiveness by 39%.

Earlier HR involvement improves execution. When HR helps shape strategy early, organizations are more likely to have the skills, manager capability, and workforce readiness needed to implement change successfully.

Earlier Risk involvement improves resilience. Risk, HR, technology, and operations should assess workforce, cyber, safety, vendor, and governance exposure together — before rollout begins.

The result is better decision-making and fewer expensive course corrections later. HR and Risk should not be treated only as downstream support functions. They should help shape decisions earlier, when the organization still has room to reduce avoidable cost.

Early partnership means assessing major strategic initiatives for workforce and risk implications before implementation begins.

For HR, that means asking:

• Do we have the right skills and manager capacity to execute this well?
• How will this affect retention, absence, engagement, and workforce experience?
• Are employees likely to see this as valuable, fair, and workable?
• What support will managers need to make this successful?

For Risk, that means asking:

• What governance, cyber, safety, or compliance exposure could this create?
• What vendor or data dependencies does this introduce?
• Are controls clear enough to manage the change safely?
• What could go wrong operationally, and how would we respond?

Before a major workforce, technology, or operating change moves forward, leadership teams should be able to answer five questions:

1. Do we have the skills and manager capacity to execute this well?
2. How will this affect retention, absence, and workforce experience?
3. What new governance, cyber, and safety exposure could this create?
4. Which vendor, data, and control dependencies does it introduce?
5. How will success be measured beyond short-term savings?

The goal is not to slow decisions down. It is to reduce the cost of making them in isolation.

A stronger approach starts with a better baseline.

Leadership teams need a consolidated view of total rewards, labor cost, absence, turnover, safety, benefits affordability, technology readiness, and competitor positioning. They need to understand where the organization is most exposed, which risks are compounding, and which issues are most likely to affect performance over the next one to three years.

That work typically follows four steps:

1. Gather the right inputs across rewards, workforce, safety, claims, and operating data
2. Diagnose areas of highest workforce, financial, and safety exposure
3. Prioritize the interdependencies across cost, rewards, safety, and technology
4. Sequence actions into a practical multiyear roadmap

The value is earlier visibility, before decisions become harder and more expensive to reverse.

At Marsh, we’ve developed a Strategic Risk and Rewards Insights approach that can help leadership teams connect business strategy with workforce, rewards, safety, and risk realities.

Done well, it helps leaders:

• Create a clear baseline using their own data rather than assumptions
• Connect issues that are often managed separately, including labor cost, turnover, benefits pressure, safety exposure, and change readiness
• Identify where risk and costs are rising before those issues escalate
• Move from isolated interventions to a coordinated action plan

For finance leaders, that means a clearer view of where workforce and risk issues are affecting margins and investment capacity. For HR leaders, it provides a stronger basis for linking employee experience and total rewards decisions to business outcomes. For Risk leaders, it improves visibility into how governance, safety, cyber, and resilience issues are compounding across the enterprise.

In one example involving a rural healthcare provider, the system faced budget constraints but leadership recognized that workforce issues, rewards decisions, and people risks were interconnected. Leaders remained committed to investing in their people despite these challenges. We worked with the organization’s data to create an integrated roadmap that combined employee feedback, pay benchmarking, benefits analysis, cyber assessment, and claims review. This helped identify actions across attraction, retention, trust, transparency, and cost. Instead of pursuing disconnected program changes, the organization moved forward with one coordinated strategy to manage costs while investing in the programs that mattered most to its people.

In another example involving a large, urban academic health system, our team worked with leaders to create a consolidated view of people-related and risk spending across compensation, health and benefits, retirement, and worker safety. Our analysis surfaced  exposures relevant to margins and identified opportunities across medical plan design, labor expense trends, and retirement governance. Just as important, the work translated those findings into a coordinated action agenda spanning pay benchmarking, workforce optimization, benefits modernization, retirement governance, and accident prevention. These initiatives had the potential to improve spend by over $200 million over three years.

Healthcare organizations do not need more disconnected initiatives. They need a more disciplined way to make decisions earlier. 

Five actions stand out:

• Bring HR and Risk into strategic planning and investment decisions earlier
• Use workforce, safety, claims, and financial data together
• Test major initiatives for workforce, governance, and safety impacts before rollout
• Track adoption, retention, resilience, and control indicators alongside savings
• Build a multi-year action plan, not a one-year reaction plan

Healthcare leaders are being asked to protect margin, sustain workforce performance, manage risk, and adopt new technology at the same time. Those priorities are now tightly connected.

The healthcare organizations most likely to protect both margin and mission will be those that stop treating HR and Risk as late-stage support functions. They will bring those perspectives in earlier, create a clearer baseline across total rewards, risk, and safety, and act before hidden costs becomes visible in the income statement, the workforce, or the patient environment.