By Annette Kenney, Principal, Lumina Health Partners
Entering 2025, many healthcare systems continue to struggle with slim to negative margins.
Unrelenting cost pressures, increases in uncompensated care, and disproportionate growth
in Medicare and Medicaid volumes have thwarted a significant and widespread post-
pandemic return to profitability. The continued progression of Medicare Advantage and
value-based payment models have added further complexity to margin improvement
strategies.
Understandably, health systems have focused on cost management and operational
improvement in turning the proverbial ship around. Growth strategies have proceeded more
cautiously, with capital constraints limiting the level of strategic investment within reach.
However, health systems need a reasonable balance of operational improvement and
revenue growth strategies to ensure long term financial viability, and they are starting to
challenge this more conservative approach to growth.
While a new administration always brings some level of uncertainty about the direction of
healthcare policy, a few things are clear:
- Government reimbursement is unlikely to increase.
- Medicare Advantage and value-based reimbursement models will continue to grow
(although likely tweaked).
- Capital constraints—coupled in many markets with capacity constraints—will challenge traditional growth strategies.
The focus on operational improvement must remain a priority—and in fact, it must become
an organizational competency. However, this does not have to come at the cost of a careful
and disciplined approach to strategic growth.
Growth Levers
The good news is that growth levers do exist--but how we think about them may change given
the current mix of challenges. While there is no single prescription for growth and every
market is faced with different opportunities, we can expect a greater focus on primary care,
access and throughput, care management, AI and digital transformation and less focus on
building new beds, operating rooms and buildings—particularly in more mature and
consolidated markets.
There are five key levers that heath systems can pull to activate s successful growth strategy:
- Acute Environment: Focus on patient safety, outcomes, and experience will
continue to be essential. However, “smart growth” in the acute environment will
require attracting more revenue-producing procedural cases—ideally without
expensive facility expansion. Investments in care management and patient flow tools
that reduce avoidable inpatient admissions and length of stay will increase bed
capacity for higher revenue procedural cases. Similarly, investment in artificial
intelligence (AI) and digital tools that optimize operating room (OR) scheduling and
patient flow will improve throughput, effectively increasing the capacity of operating
and procedure rooms. These improvements result in more efficient and timely care—
a real competitive differentiator for surgeons and patients alike.
- Physician Enterprise: Physicians continue to be key to health system growth and
performance. “Smart growth” strategies go beyond increasing the number of
employed physicians and focus on right-sizing the network to meet demand while
consciously balancing the mix of primary care and specialists to ensure access goals
are met. In many systems this will mean growing the primary care base through
aggressive recruitment and retention efforts, fully integrating Advanced Practice
Clinicians (APCs) and reducing the administrative burden on providers.
Beyond these strategies, alignment of both employed and independent--around
growth and performance goals is critical. Engaging physicians in strategic planning
and medical group governance, developing opportunities for active involvement in
Clinically Integrated Networks, and pursuing mutually beneficial joint ventures and
partnerships are all effective alignment vehicles. Additionally, investing in AI and
digital tools that can streamline physician workflows and bring back time in the day
can go a long way in demonstrating commitment and engendering trust,
differentiating the organization as the place where physicians want to practice.
- Ambulatory Network: Care will continue to migrate to lower cost settings, whether
that be ambulatory care centers or the home. The goal is to keep volume in the
system even as it shifts out of the hospital. Health systems need to provide the right
geographic distribution of ambulatory sites and services to support access while
considering new opportunities in home-based care. At the same time, they need to
leverage virtual care and remote patient monitoring along with digital tools that keep
patients engaged and connected as they move from one setting to the next.
- Clinical service lines: Health systems have traditionally developed “centers of
excellence” as a strategy to differentiate its strongest and most important clinical
service lines. Unfortunately, these efforts have often failed to achieve their ambitious
growth goals. Clinical service line development can still be a highly effective growth
strategy if organizations build a trusted brand—which can only be achieved by
consistently demonstrating the highest level of performance in both clinical
outcomes and patient experience. This goes beyond marketing campaigns and tag
lines and requires an honest assessment of capabilities and performance.
Developing clinical service lines that consistently deliver on a differentiated brand
promise will attract more patients from the local market, expand regional draw, and
ensure the organization is valued as a “must have” in Medicare Advantage and other
managed care networks.
- Patient Experience: Retaining a patient is significantly less expensive than acquiring
a new one—yet 20-30% of revenue from existing patients is typically leaked to other
systems. Capturing even a portion of this leakage by improving the patient’s
experience represents an enormous growth opportunity. Health systems often
measure patient experience based on a single encounter. The patient, however,
assesses experience through an entire journey - an endless number of frustrating
steps starting with searching for care and proceeding through scheduling, arrival,
waiting, billing, and follow up. Each step introduces multiple sources of
dissatisfaction - “off ramps” that can influence patients to seek other providers.
“Smart growth” requires a strategy that connects the dots seamlessly for patients,
creating a journey-wide experience that is so great there is no reason to seek care
elsewhere.
Positioning for Success
It is not easy, but growth opportunities do exist, even in the most competitive markets. No
organization can do it all, but a thoughtful approach to strategic planning can prioritize areas
of focus that will generate the greatest short- and long-term results. Strategies that optimize
existing assets, attribute new patients while reducing total cost of care, align physicians
around growth and performance, and radically improve the patient experience are sure bets
for most organizations. Fortunately, we have a golden opportunity to leverage AI and digital
tools to accelerate these strategies, turning challenges into opportunities.
Discipline Around Strategy & Execution
Prioritizing, planning, and executing growth strategies is hard work and requires
commitment and discipline. Organizations need to resist a scatter-shot approach, reacting
to many good but siloed ideas, in favor of a unified strategic growth plan.
Given the plethora of distractions, the multitude of stakeholders and the complexity of
interrelated strategies, it can be hard to know where to begin. A structured approach to
strategy development will preempt the potential for organizational paralysis. This requires
the following:
- An objective assessment of challenges and opportunities across each of the five
growth levers (as noted above).
- Prioritization or strategies and investments that will generate the greatest short- and
long-term results.
- Discipline around execution, including establishment and communication of clear
goals, the development and tracking of relevant “smart growth” key performance
indicators (KPIs), and a coordinated approach to business planning and project
management.
Stakeholder alignment and commitment is critical to successful strategy execution. This
requires frequent and widespread education and communication to board, leadership,
physicians and other stakeholders—including employees--about the “why” behind
prioritized strategies as well progress (or lack thereof) against established goals. Continued
leadership discipline around strategic planning will ultimately create the organizational
muscle that is required to remain focused on growth, make sound decisions, and achieve
outsized results.
For more information, visit Lumina Health Partners at www.luminahp.com