The pandemic has had an undeniable and powerful impact on the healthcare industry — from boosting innovation to shifting profit pools to exacerbating the burnout crisis. In order for providers to thrive in healthcare’s new landscape, they will have to prioritize agility and new business building, according to research released Tuesday by McKinsey & Co.
The healthcare industry’s EBITDA grew 5% between 2017 and 2019 and remained flat during 2020 and 2021. The report estimated healthcare’s EBITDA will grow 6% by 2025. If the industry reaches this rate of growth, it could add about $31 billion in profits during that time.
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The report noted that these estimates have not factored in the possible implications of macroeconomic forces, such as rising consumer inflation. It said that the industry’s profits could decline by more than $70 billion during the next four years if inflation continues to go unchecked.
With the uncertainty of the national economy in mind, there are four things health systems should be doing to be successful, according to Drew Ungerman, a senior partner at McKinsey.
Be more decisive
The first thing health systems must do is ensure their organizational decision making maintains the same level of speed and intentionality that it was forced to adopt during the pandemic. Times of uncertainty require agility, Ungerman pointed out. This means health systems should avoid excessive bureaucracy and “massive stage-gating” when rolling out new initiatives, he said.
Prioritize efficiency
Ungerman also said health systems also need to “double down on efficiency.” This means investing in new technology to automate administrative tasks, as well as analytics to optimize scheduling and reduce waste. The deployment of efficiency-improving technology should not be incremental — hospitals must come up with specific goals and metrics to measure the short, medium and long-term success of these tools, Ungerman advised.
Don’t be afraid to re-strategize
Additionally, it is important that health systems think about capital allocation differently. The fact that large national systems have posted multi-million dollar losses this year means that it is time for health systems to get serious about re-strategizing their capital efficiency, Ungerman said. This means divesting funds from projects that fail to demonstrate a clear or sizable ROI.
Pursue strategic growth
The final thing successful health systems must do is get serious about strategic growth and be more open to transformative business opportunities. When planning long-term growth efforts, health systems cannot focus solely on costs, Ungerman declared.
These strategic growth initiatives will vary from health system to health system. Some providers such as Mayo Clinic and UPMC, have launched venture funds to diversify their core business into attractive revenue pools like data and artificial intelligence. Some health systems like OSF HealthCare have rolled out startup incubators to develop new digital health products and services. Others, like Boston Children’s Hospital, are forming and expanding specialty pharmacies.
In addition to these potentially pursuing types of long-term growth initiatives, Ungerman said hospitals should not shy away from mergers and acquisitions. He thinks fragmentation among providers will be consolidated, saying that the recent mega-merger between Advocate Aurora Health and Atrium Health “will be one of many.”
This does not only mean acute hospitals will merge with other acute hospitals. Health systems will also begin to acquire different businesses, such as senior care providers and ambulatory care sites, Ungerman said.
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