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Joaquim Cardoso MSc.
Servant Leader, CRSO (Chief Research & Strategy Officer), Editor in Chief and
Senior Advisor
January 3, 2024
This is an Executive Summary of the paper “2024 health systems outlook: A host of challenges ahead”, published by Mckinsey, on December 2023, and authored by by Rupal Malani.
Summary:
The healthcare industry is anticipated to encounter several challenges in the upcoming year, including heightened competition from nontraditional players, workforce shortages, and evolving demands for enhanced capabilities.
These challenges offer an opportunity for healthcare leaders to emphasize resilience, streamline operations, and pursue diverse avenues for growth.
As health systems transition away from the immediate impacts of the COVID-19 pandemic, they face long-term consequences such as rising expenses surpassing revenues due to various industry trends.
These include
- reduced inpatient utilization,
- growing labor costs, and
- the need to acquire new capabilities.
Health systems are also closely monitoring regulatory issues, including price transparency requirements and the direction of initiatives such as the US government’s 340B drug program.
Key Points:
Industry Trends:
Nontraditional competitors, particularly digital natives, are challenging traditional healthcare players by focusing on cost reduction and attractive patient segments.
Clinical workforce shortages, estimated to reach 200,000 to 450,000 nurses by 2025, and wage inflation are putting pressure on health systems.
Stakeholders demand new capabilities, from omnichannel experiences to value-based care arrangements, prompting upgrades in risk-bearing capabilities.
Healthcare Providers’ Response:
High-performing health systems emphasize resilience by finding efficiencies and diversifying revenue streams.
They focus on cost management, deploying capital intentionally due to pressure on balance sheets and rising costs of capital.
Efforts include extensive cost transformation programs, technology deployment, and enhancing processes to drive patient value.
Mergers and Acquisitions (M&A):
The industry is experiencing a significant M&A wave, marked by cross-geography deals aimed at shared investments for enhanced capabilities.
Examples and Statistics:
- Health system revenue rose by 12.5 percent from 2021 to 2022, while operating expenses increased by 17.2 percent in the same period (S&P Global analysis).
- Median days of cash on hand for nonprofit systems dropped from 250 days in 2021 to 209 in 2022 (S&P Global analysis).
- Value-based care lives are estimated to grow from 80 million to 100 million in 2022 to 130 million to 160 million in 2027.
- Predictions suggest a shortage of 200,000 to 450,000 nurses available for direct patient care in the United States by 2025.
Conclusions and Recommendations:
Healthcare leaders should:
- Focus on resilience and efficiency to navigate challenges.
- Strategically invest in capabilities that align with evolving industry demands.
- Embrace technology for improved patient experience and operational efficiency.
- Consider collaborations and M&A as potential strategies for growth and capability enhancement.
In conclusion, the healthcare industry faces a range of challenges that necessitate a strategic and multifaceted approach to adapt to evolving demands and ensure sustainability amidst
- increasing competition,
- workforce shortages, and
- changing healthcare paradigms.
