Adapting for the inevitable: the Great Reassembly has been saved
Perspectives
Adapting for the inevitable: the Great Reassembly
Gain clarity into health care’s radically evolving ecosystem
Health care is currently undergoing a series of specific, rapid, sector-level transformations that will fundamentally change the basis of competition—and drive the continued “Great Reassembly” of the industry. Position your company for change by learning about five industry evolutions that are demanding new mindsets, capabilities, and investments to ensure long term sustainability and relevance.
An industry in flux: Unraveling complexity around health care transformation
After a series of widespread, debilitating financial losses from the COVID-19 pandemic and the restructuring of supply and demand in its aftermath, the health care industry has undergone major change. Three years later, hospital margins are down 52% since 2019, and approximately half of hospitals finished 2022 with negative margins, with a 2022 average operating margin of approximately -1.3%. Meanwhile, national hospital expenses are up as much as 19% since 2019. Labor expenses make up the bulk of this increase in costs, experiencing an increase of 23% over this three-year period, with contract labor expenses remaining nearly 500% higher than pre-pandemic levels.1
Stepping back to view these changes over a 10-to-20-year time horizon, one sees a Future of Health™ characterized by industry convergence, an empowered consumer and tailored, personalized interventions focused on maintaining and restoring health and wellness—a future fueled by unprecedented access to data and the insights this data delivers. But when viewed on a short time horizon in which health care organizations are under extreme earnings, workforce, and investment pressures, it can be difficult to plot a course and invest in a future that culminates in a portfolio of modernizing transformations that address affordability, experience, quality, and equity imperatives.
We’re witnessing five radical health care industry transformations in progress today. The actions taken over the next one to three years will determine how well positioned both industry incumbents and new market players are for this inevitable industry reassembly. In our, we discuss the transformation portfolio in detail and articulate a set of imperatives for health care executives in the near term.
Looking for a deeper dive into the Great Reassembly and how health care is evolving? Download our full report for all the valuable insights.
1 Kaufman Hall, National hospital flash report, November 2022; Kaufman Hall, The current state of hospital finances: Fall 2022 update, September 2022.
Examine five health care transformations to chart your path forward
Five shifts in progress today—and rapidly accelerating—are providing the momentum for the Great Reassembly. Organizations should contemplate the impact and seize opportunities now to strategize a plan of action. Securing key foundational capabilities in the next few years and orchestrating a well-designed road map of initiatives and investments can create opportunities for accelerated growth and market relevance.
Health care leaders face difficult choices on where to prioritize efforts across the care delivery spectrum. Unit cost reduction at the hospital level as the single-largest profit center is no longer adequate to meet cost, quality, capacity, workforce wellness, and patient health objectives. Innovation in health care delivery and use of alternative delivery models has accelerated to address this gap.
Health care providers and payers must begin to build foundational capabilities to compete in this new digital world and not over-invest in legacy technology systems that don’t enable new care models. The 21st century technology organization must be agile, interoperable, and not laden with technical debt. The emerging care delivery ecosystem is an opportunity to convene, curate, and incubate new models that may include non-native health care companies playing critical roles, and health care players must embrace and prepare for these new relationships.
The ability to translate data from inside and outside the health care system into insights and actions will be the cornerstone of industry transformation. Leveraging data for the development of new products and services has the potential to unleash growth for many organizations.
Many health care organizations are investing in technology to drive the efficiency of administrative and operational teams (e.g., finance, HR, supply chain) and alleviate administrative burden. Applying advanced analytics, including artificial intelligence (AI), to solve operational problems can demonstrate quicker returns and present less risk, making it easier to put new solutions into full-scale production. Focusing on these use cases can help an organization build muscle and justify investments in foundational systems.
Across many industries, consumers have become accustomed to convenience and near-immediate responsiveness, demanding greater engagement and ability to curate their experiences. Health care is no exception. Providers are being met with more informed patients immersed in their care journey. Within this rapidly shifting landscape, leading organizations are harnessing digital tools to delight customers, reinvent their operations, and spark differentiated businesses.
The consumer empowerment transformation requires both a shift in mindset and the development of new competencies. Both legacy and new entrants should prepare for patient ownership of their own data. As consumers pursue their own wellness agendas, they will begin to demand ownership and control over their health information and in turn will give consent to those best positioned to satisfy their specific health needs.
Consumers are developing a greater proclivity toward sharing their health data to receive insights on their own wellness, although opinions vary. Beyond consumer interest, other forces will propel the wellness revolution such as unsustainable health care costs and employer demand if they feel these types of benefits make their employees more productive and if it helps with recruitment and retention. Look for a rise in health and wellness offerings as new entrants to the health care market capitalize on this “white space.”
Each area of investment within an organization’s transformation portfolio will benefit from applying a health equity lens. These considerations should not be treated as an add-on, but rather integrated into transformation programs and core business operations to deepen impact. Continuing to quantify the impact of health inequities is an important step to building coalitions and driving lasting change; cross-sector opportunities to collaborate and share learnings should be encouraged.
Consider these steps to move forward confidently
The portfolio of transformations currently underway are mere enablers of this new health care system, and yet the importance of a thoughtful and deliberate set of near-term investments and initiatives will be a significant differentiator for years to come. As a starting point, leaders should consider the following:
- Plan for large scale organizational change. Engage in leadership conversations about the Future of Health, how it will impact the organization, and areas of focus going forward. Create a transformation ambition unique to your organization.
- Build a 21st century technology organization. Assess legacy systems and technology and understand how they can or can’t support the Future of Health vision. Take action to prepare for and embrace a transition to cloud. Consider how to best optimize application portfolios and reduce technical debt.
- Become a data-fueled, insights-driven organization. Plot a course for future investments in foundational capabilities, including digital and data and insight platforms.
- Embrace the paradigm shift to a consumer-driven organization focused on health and wellness. Reimagine products and services from the consumer’s vantage point and develop capabilities to understand and engage consumers in their health journey.
- Reimagine the care delivery ecosystem. Embrace innovation and new care models being developed both inside and outside your core business. Find opportunities to integrate new models and build on your organization’s existing loyalty and brand equity. Begin to develop your organization’s platform business strategy to enable this integration and new business models.
- Embed health equity into core business operations. Rather than treat health equity as a stand-alone strategy, embed health equity into all aspects of care delivery and core operations. Develop tools and capabilities to measure, monitor and respond to health equity imperatives.
- Manage and execute the transformation portfolio. Develop a structure and process for driving and managing transformational initiatives, taking a portfolio approach to ensure use cases ladder up to meet Future of Health ambitions. Upskill the leadership team in areas such as AI and cloud to better identify the application to transformation execution.
How could incrementalism be key in transforming health care? Find out in the Health Forward blog.
Proceed with clarity and conviction amid the Great Reassembly
If you’d like to talk about any of the insights on this page, or how your company can better elevate its health care transformation, let’s set up a conversation.
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