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Daily Briefing

Why health systems need to adopt a 'shrink to grow' strategy


Radio Advisory's Rachel Woods sat down with Advisory Board experts Vidal Seegobin and Larry Watts to discuss why health systems might have to shrink in order to grow.

Below is a summary of key takeaways from the interview. Download the Radio Advisory episode for the full conversation.

Where the health industry stands

Financial situations have improved for more than half of health systems, Seegobin and Watts said.

However, operational challenges remain, including increased volume in EDs and bottlenecks in post-acute discharge. In addition, patient volumes have not met expectations.

According to Seegobin and Watts, there are a variety of factors affecting the outlook for the healthcare industry, including more care being provided in outpatient settings, which impacts traditional profit drivers like inpatient services.

In addition, a lack of measurable decline in average length of stay has increased patient volumes, and operating room time and turnaround continues to be a concern, which affects revenue generation.

Currently, projections indicate a decrease in inpatient care and a need to focus on outpatient services for growth. Services like joint replacements and spine care are shifting to outpatient settings, which will impact profitability.

Adopting a 'shrink to grow' strategy

According to Seegobin and Watts, health systems need to adopt a "shrink to grow" strategy, focusing on cost structure optimization and service rationalization. Health systems should consider reducing administrative staff while maintaining clinical expertise.

"Health systems need to shrink in order to grow … figure out who your dominant payer is and index your cost structure based on that," Seegobin said.

They should also develop accurate cost accounting to identify unprofitable services and make informed decisions, as well as define the health system's identity and role within the wider health ecosystem.

Adopting this strategy comes with some challenges to consider, Seegobin and Watts noted. For example, shrinking costs may require a gradual process and change management.

Meanwhile, patient flow, operations, and efficiency should be prioritized in order to alleviate pressure on staff and improve overall performance.

"Every health system leader needs to be thinking about patient flow, operations, and efficiency … to get the pieces to work more holistically with each other," Seegobin said.

In addition, technology can help play a role in augmenting healthcare delivery and improving overall efficiency.

Ultimately, Seegobin said, "the growth story has to include a deeper focus on margin … making the pieces of your system work more synergistically or in harmony with each other."


Survey insights: 6 priorities for health system strategists in 2024

Health systems are recovering from the worst financial year in recent history. We surveyed strategic planners to find out their top priorities for 2024 and where they are focusing their energy to achieve growth and sustainability. Read on to explore the top six findings from this year's survey.


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