How children’s hospitals can navigate financial and workforce challenges 

Rising healthcare expenses, shifting reimbursement models, and the need for specialized pediatric technology can further strain financial sustainability. At the same time, these hospitals face fierce competition for highly trained pediatric professionals, making talent recruitment and retention a critical challenge—especially amid rising burnout concerns. Ensuring financial viability while maintaining top-tier, family-centered care requires strategic efficiency, innovative workforce solutions, and sustainable investment in the future of pediatric medicine. 

With margins under pressure, children's hospitals must take a strategic approach to investment management to maintain liquidity and fund ongoing needs. By optimizing portfolios and aligning investments with operational needs, they can strengthen financial resilience and promote long-term sustainability in an increasingly complex healthcare landscape. 

Managing investments in an uncertain economic landscape

Children's hospitals must balance short-term liquidity needs with long-term portfolio growth, especially amid economic uncertainty and evolving healthcare dynamics. Many organizations are prioritizing liquidity management, ensuring capital is readily available for near-term needs through short-term liquidity pools or allocations to cash and short-duration assets. At the same time, enhancing long-term returns remains a critical focus, with growing interest in alternative asset classes that can capture the illiquidity premium while balancing risk. Private debt, in particular, has gained traction for its ability to provide steady yield, limited mark-to-market volatility, and strong balance sheet alignment. 

Aligning investments with financial strategy and risk management

Children's hospitals are taking a more strategic approach to portfolio stress testing and enterprise risk management (ERM) to ensure investment decisions align with financial health. Organizations are utilizing scenario modeling to assess how economic shifts—such as fluctuating margins, changes in patient volume, interest rate movements, and rising labor and supply costs—impact their overall financial stability. This data-driven approach is particularly relevant for hospitals undergoing M&A activity, helping them manage financial integration while maintaining operational resilience. 

Bridging operations and investments: A distinctive approach

Unlike traditional healthcare systems that structure investment portfolios around cost-of-capital or budget-driven return targets, many children's hospitals adopt an inflation-plus investment strategy, mirroring endowments and foundations. This historically higher allocation to alternatives, particularly private capital, has been a hallmark of their investment philosophy. However, with declining margins and rising expenses, many are now reevaluating return targets and exploring new ways to optimize performance without compromising financial stability. 

Working under intense pressure to cut costs, children's hospitals must maximize existing investments without relying on new funding streams. As many CFOs put it: "You can't spend your way out of these challenges." Instead, success demands fresh thinking—rethinking resource allocation, optimizing operations, and investing in sustainable strategies that drive long-term impact. 

Rethinking talent investments: The future of Children's Hospitals

Children's hospitals are competing for the same top-tier healthcare talent as every other provider—at a time when shortages are growing and competition is fierce. Traditional recruitment and retention strategies are no longer enough. 

While their mission-driven work has always been a draw, today's workforce expects more than purpose alone. To attract and retain the best talent, children's hospitals must go beyond the mission and rethink the work itself. This means redesigning roles, enhancing career pathways, prioritizing well-being, and offering competitive compensation and flexibility to meet the evolving expectations of healthcare professionals. 

Healthcare systems are increasingly using advanced data and analytics to drive efficiency and accomplish more with fewer resources. Cutting-edge analytics provide deeper insights into the internal dynamics that influence productivity, empowering organizations to make data-driven decisions. 

For example, by integrating data from HR, finance, operations, and patient systems, healthcare leaders can determine the optimal mix of roles within patient care teams—maximizing efficiency without compromising outcomes. Additionally, predictive analytics can offer more precise forecasts of future turnover, enabling proactive workforce planning or even interventions to retain key employees before they leave. 

This strategic use of data can strengthen performance. In an era of labor shortages, wage inflation, and increased competition among healthcare systems, innovative workforce strategies fueled by data can help overcome traditional talent management limitations. Future success will depend on bold, strategic talent investments that set children's hospitals apart—not just as places of care but as employers of choice in a tightening labor market. With Mercer's unparalleled experience in working with nearly all of the leading children’s hospitals in the US (as classified by US News & World Report), our expertise is deep and wide to help you best manage your investments to address the challenges of today and tomorrow. Let's connect.