McKinsey Report: Health System Leaders Need To Proactively Strategize for Growth During COVID-19
A recently published report by analysts at the New York-based firm McKinsey & Company have published a report looking at some of the strategic financial challenges, and some opportunities, facing senior executives at patient care organizations nationwide, in the wake of the strong impact of the COVID-19 pandemic on hospital and health system operations.
“The next normal now: How health systems can adopt a growth transformation in the COVID-19 world,” was published on August 21, and authored by analysts Rupal Malani, M.D., Louis Revenig, M.D. Thomas Santo, M.D., and Matt White. Rupal Malani, M.D. is a partner in the Cleveland office. Louis Revenig, M.D. is a consultant in the Atlanta office. Thomas Santo, M.D. is an associate partner in the New York office. Matt White is an associate partner in the Chicago office. It was edited by Elizabeth Newman, an executive editor in the Chicago office.
The authors state that “Health systems’ income statements are likely to see negative pressure as a result of the COVID-19 crisis. While health systems have ramped up capacity to handle COVID-19 cases and incurred additional costs to procure personal protective equipment and operationalize surge capacity plans, they also have had declines of up to 70 percent in surgical volume and 60 percent in emergency department traffic. In a recent McKinsey survey of health system CFOs, more than 90 percent of respondents reported that COVID-19 will have a negative financial impact, even after accounting for federal and state funding.”
As a result, they write, “For health systems, current financial challenges are likely to persist into the next normal. As many providers are seeing a recent upsurge in volume due to pent-up demand, the long-term financial outlook is less certain, as more than 20 percent of respondent patients in a recent McKinsey Consumer Healthcare Insights survey and reported they either do not know when they will plan future care or will delay care until fall 2020 or later.”
Among the key concerns that McKinsey experts believe will impact hospitals and health systems in the near future:
Ø Discontinuity in patient relationships. The report’s authors note that, “When patients resume care, they may be more likely to seek it at health systems that have demonstrated safe operations in their ability to treat patients while COVID-19 remains present.”
Ø Payer mix shifts and commercial coverage drops. Not surprisingly, because of massive new unemployment during the pandemic, millions have lost their employment-based health insurance coverage. Some will be covered through the Medicaid program, and obviously, that will have an impact on patient care organizations.
Ø Disruption to the physician group landscape. The physician practice world is going through a period of exceptional shifts, change, and instability. Physicians are seeking employment and pseudo-employment in large medical groups and large, integrated health systems.
The authors note that “Recent McKinsey research of approximately 2,000 companies across industries shows that those that outperformed in the last downturn were focused on through-cycle growth. Though major differences exist between the current crisis and the 2008–09 financial crisis, namely including the humanitarian toll and sources of financial stress and consumer demand declines, our research indicates the outperformers modulated spending in the near term. However, they spent to catalyze growth early in the recovery and maintained a commitment to long-term growth strategies. When applied to health systems, this strategy could mean pursuing a comprehensive growth plan that is adapted to the changing local market conditions post-COVID-19, while still aligning to future growth aspirations.”
The authors recommend that patient care organization leaders take several key steps:
Ø Create a growth transformation team. They state that “Focusing exclusively on executing the transformation means establishing a dedicated, central team that articulates aspirations, defines the direction of travel for the organization, coordinates activities, and measures success.”
Ø Define the approach. The authors note that “Growth transformations can employ a variety of levers that will likely be evaluated in the local market and health system context. The more levers pursued may mean a greater likelihood of success.”
Ø Choose the right multi-lever approach for an organization. The authors note that “Two groups of levers could be considered in growth transformation: capital-light operations levers that can augment COVID-19 recovery, and more capital-intensive levers that take advantage of expansion, acquisition, or partnership opportunities or position the system for a successful site of care transition.” That strategy could encompass expanding the scope of services, proactively shift where care is delivered, and/or expand along the continuum of care; investing in digital capabilities to ensure that new patients can be seen and existing patients have appropriate continuity of care; and consider strategically aligned acquisitions.
Ø Build execution discipline and muscle memory to deliver the growth program effectively.
Given the current stresses on the healthcare workforce, consider building the execution discipline plan among the core growth response team. Effective execution elements include prioritization and reprioritization of work efforts as new information arises, regular cadence of weekly meetings with set agenda and decisions made, clear action items with accountable owners, timely (but efficient) access to senior leaders when de-bottlenecking is required, and rigorous performance management.
As the authors note, “Prior to COVID-19, many health systems had to keep pace with an ever-changing business landscape, as nontraditional incumbents such as retail giants pushed quick evolution in consumer preferences, value-based care rose in prominence, and physician employment increased and referral networks tightened. The recent crisis has only accelerated the pace of change and dramatically heightened the level of uncertainty about the future. Thus, the ability to adapt quickly and successfully in the face of rapid change has become all the more important. Agile companies may weather the current crisis and emerge stronger if they are characterized by resilience, quick decision making, empowerment to act, and rigorous execution discipline.”
And, they add, “Although the next normal is yet to be defined, the headwinds, disruptions, and uncertainties from COVID-19 have likely heightened the need for growth. Emerging signs from McKinsey surveys point to a post-COVID-19 landscape characterized by significant margin pressure due, in part, to lower utilization and payer mix shifts. Competitive intensity will likely increase as health systems prioritize patients and the quality of care. The collective picture is one where planning for the multiple sources of uncertainty and disruption with a multi-lever growth plan is more critical.”
Health systems may consider a disciplined approach that is: 1) grounded in a shared aspiration and a data-backed understanding of the starting point; 2) characterized by a diverse set of initiatives that take into account market uncertainties and adapted to the local competitive environment; and 3) implemented with rigorous performance management to ensure that timelines and metrics are met, and that tactics are modified as the ‘next normal’ comes into sharper focus. These actions can help ensure continued access to quality care across patient populations and position health systems for growth.
