February 10, 2025

By Wylie Butler, Capstone Healthcare Analyst

Every great healthcare analyst starts their origin journey as pre-med student. Based on the latest healthcare workforce projections, it might have been better if a few of us had stuck to the path. More and more often, a key part of Capstone’s healthcare diligence and work around provider practices for our clients includes analysis of the expected impacts of labor supply shortages. Across the healthcare industry, the challenge of supply and demand is much more often a question of if supply can match demand than if there is sufficient demand.

The Health Resources and Services Administration (HRSA)—a subagency of Health and Human Services (HHS)—projects physician and nurse workforce demand and consequent shortages for the broader US population. Across physician groups, the agency generally expects a 15%-20% shortfall relative to demand. However, this shortage is heightened among select physician groups (e.g., ophthalmology), and shortfalls are greater in non-metro areas.

Figure One: Projected Workforce Shortages, 2037, % of Demand

Sources: HHS Projections, November 2024, BLS Occupational Wage Statistics, 2021-2023

The US healthcare system faces tension on both ends of the shortage projections – the rapid growth of the Medicare population from the Boomer generation (continuing through 2029) and frozen congressional funding to support residency positions. Outside of physician practices, shortages become heightened among the long-term care services and supports (LTSS) workforce. While the total demand for physicians is expected to increase by 7% between 2027 and 2037, the increase in demand for direct care workers (e.g., home health aides) is closer to 25%. HRSA does not provide projected supply trends for this sector, given significantly lower barriers to entry, though we can assume shortfalls are similar to worse.

Figure Two: US Residency Match Offered Positions, 2019-2024

For its part, Congress is aware of and working to resolve these issues. National residency matching positions have steadily risen over the last five years (~2.4% CAGR). Congress recently included additional expansions in the number of Medicare-supported residency positions in year-end spending bills in 2021 and 2023 (1,200 new positions). To meet actual demand, Congress is considering a much larger package led by Senator Bill Cassidy (R-LA) to fund 5,000 new physician residency slots nationwide and include specific incentives for rural hospitals (AHA Letter in Support).

Capstone believes 2025 will feature a broadly positive policy backdrop for healthcare providers. However, we think the shortage and the subsequent policy response will have notable implications for investors and industry alike that will play out in the years to come.

Capstone will continue to monitor all Congressional action surrounding physicians, including ‘doc fixes’ in more ways than one, and will continue to track the impact of physician shortages on both Medicare and commercial insurance price negotiations.

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