Health systems must strategically align partnerships to address key challenges

Health systems have been facing severe financial strains since the onset of the pandemic due to the end of the public health emergency that cut off funding. To make matters worse, health plans continue to rule the roost by negotiating onerous provider contracts, creating artificial barriers to care such as pre-authorization approvals, and leveraging technologies to drive higher denial rates. With up to 60% of health systems operating in the red (see Exhibit 1), re-evaluating partnership strategies to address financial, patient experience, and technology adoption challenges is crucial.

Exhibit 1: Health system financials reflect endemic challenges in the way their business is managed

Source: Becker Hospital Review, HFS Research, 2024
*Results for the first six months ending Dec. 31
**Results for the 12 months ending Sept. 30
***Results for the nine months ending Sept. 30

Healthcare providers are not effectively addressing strategic challenges

The care delivery landscape—from primary, ambulatory, and acute care to rehab—faces various challenges. These are of particular significance, given their direct impact on the lives of the communities the industry serves.

Financial vulnerability: Health systems grapple with persistent financial pressures from reduced reimbursement rates by commercial insurers, Medicare, and Medicaid. Value-based care, while promising, adds administrative and clinical burdens, exposing providers to financial risk without adequate compensation. Additionally, private equity-driven consolidation intensifies operational challenges by aggressively cutting costs, often disregarding long-term sustainability.

Patient experience: Healthcare, by nature of its construct, is not aligned with ensuring a good experience. For example, visiting a proctologist or a dentist doesn’t conjure images of people skipping down the sidewalk. Hence, every aspect—from appointment scheduling to clinician interactions and post-care support—matters significantly. Given the pressure to do more with less, the patient experience has deteriorated, necessitating a renewed focus on bringing humanity back into healthcare.

Workforce shortage: There will be many clinician shortages—estimated in the tens of thousands over the next decade. This may be an underestimate, given the US will have more older people than younger individuals by 2034, and there hasn’t been any discussion or planning to address this issue. Workforce shortages extend beyond clinicians and include other experts in the field.

Technology-driven risks: Health systems have been technology laggards, enabling them to maintain a relatively low technical debt. However, it has also married them to manual processes instead of digital. Cybersecurity is a critical area where this lag is evident, with ransomware attacks and data breaches becoming commonplace.

External support is misaligned with the strategic challenges

The challenges that providers face will require external help—be it from consultants, technology providers, and business service providers. However, there is an expectation that health systems and hospitals identify the right challenges to solve the problem and frame it accurately at the correct level. This may not be the case based on the feedback from healthcare enterprises, as highlighted in Exhibit 2, where the top three reasons for external help are not aligned with their challenges.

Exhibit 2: Healthcare providers seek greater expertise to improve their business, develop skills to stand out, and keep their costs lean

Sample: 50 healthcare providers
Source: HFS Research, 2024

Health systems’ highest external support priority is obtaining nonclinical domain expertise to improve their ability to navigate the complexities of managing value-based contracts, regulatory compliance, and exploring new markets. However, these don’t really address their financial vulnerabilities.

The second priority is to seek talent and critical skills. These skills are mostly nonclinical and aim to improve operations and explore innovation with emerging technologies. While the need for talent and skills can never be underappreciated, it does not address any of their key challenges.

The third priority for external support is to reduce costs. While costs are a huge drag on health systems and hospitals—making their financials perennially vulnerable—they are only one part of the challenge. They also have revenue challenges (reimbursement cuts, value-based care burdens, etc.) that are not listed among areas for external support.

Health systems and hospitals are addressing near-term tactical challenges while allowing the strategic challenges to fester, exacerbating problems over time.

The Bottom Line: Healthcare providers must improve aligning their partners with the strategic challenges they are attempting to address.

Health systems must strategically align their partnerships to address core challenges such as financial vulnerability, patient experience, and technological adoption. Balancing immediate tactical needs with long-term strategic goals is crucial for sustained success. Enterprise leaders should prioritize partnerships that offer comprehensive solutions, ensuring resilience and growth in a post-pandemic landscape.