2022 is a challenging year for health systems. For many, the path to growth faces greater headwinds—labor, supply costs, and rising costs of capital seemingly curtailing our options for profitability and growth.
Using in year survey data of VPs from health systems across the US, we find that four different postures to health system growth emerge. In this digestible briefing we unpack the various archetypes of health growth, show their relative size, recommend hidden growth opportunities, and provide external stakeholder guidance on how to be a better partner with these health systems.
The summary results in this brief were captured through our annual strategic planners survey. It was conducted in May 2022.
We asked health system strategy executives a series of questions related to their growth outlook—with detailed questions about their current and future plans.
Cumulatively we had 57 respondents answer the survey. We took a narrower cut of the data selecting respondents who were “VP level of above” ending with a sample size of 45.
From their aggregate responses, clusters of expressed behavior emerged and formed the basis for this piece. To add additional detail to these responses, a smaller cohort of respondents participated in qualitative interviews.
Our annual strategic planner survey of health systems across the United States shows a mixed outlook for growth—with all health systems facing headwinds.
From this 2022 snapshot of responses from VPs and above across 45 health systems, we find that they fall into four camps when it comes to their approach to growth (see table below).
Cumulatively, despite rising labor costs and inconsistent demand, most health systems (59%) are trying to attract and treat more patients through existing provider businesses (organic growth) in addition to buying new businesses (inorganic growth).
To augment this quantitative analysis, we interviewed respondents, and two clear conclusions bear out:
1. A focus on attracting and treating is mission critical for 100% of hospitals—with most focusing heavily on maximizing referrals.
2. The risk appetite for acquisitions by health systems is lower than previous years, likely leading to a slowdown in M&A activity—or at least big-ticket deals.
Health systems in survival mode are not growing. They are trying to stave off decline. They are likely to have negative operating margins, limited non-operating investments, and negligible cash reserves.
Health systems in survival mode were likely struggling financially before the pandemic. The drop in volume, shocks to the labor market, and spikes in cost of goods pushed their financial situation from bad to worse. Many of these systems rely heavily on federal emergency funding to prop up their finances. And when those programs end, hospitals in survival mode will face several difficult choices.
In terms of operations, hospitals in survival mode are likely to be reducing FTE count (mostly on the non-clinical side), reexamining all capital expenditures, and shutting down services.
The number one up-at-night issue for survivalist mode is staffing—particularly nursing staff. Because hospitals in this group lack cash reserves to pay for premium labor, they struggle to staff critical hospital functions. This creates a vicious cycle whereby they lack the staff to operate, which dampens their revenue. That, in turn hampers, their ability to pay competitive wages, which leads to understaffed units.
Capital investment for hospitals in this growth archetype was likely modest before the pandemic. All of these health systems are re-evaluating their capital priorities today—likely pulling them back even further. Our survey results point to growth through referrals and maximizing productivity instead of acquisition of complementary provider businesses.
Health systems in regimented focus are concentrating on growth through their existing business operations. They ideally are only temporarily in this growth posture. Among health systems, this group is most likely to be changing the size and timing of capital investments.
Health systems in the regimented focus category are maintaining laser focus on organic growth fundamentals. This encompasses everything from increasing screenings, to network integrity, to direct contracting.
Like many other organizations, health systems in this growth category are struggling to alleviate margin pressure—particularly caused by the war for talent. Health systems in this group likely have the means to pay for premium labor. Our interviews found that many systems in this category have been successful at increasing their employed ranks—even if the costs to do so have been higher than in the past.
The dividing line between health systems in survival mode and regimented focus is that regimented focus health systems are choosing this posture to mitigate risk and encourage operational focus. Survivalist health systems are forced to their posture because of their organization’s financial health (lower cash reserves, diminishing non-operating income from investments, etc.).
Health systems in cautious expansion are focused on growth through their existing business operations and through acquisitions. The balance of their efforts skew to current business operations because of market uncertainty, rising cost of capital, and increasing competition for target acquisition.
Health systems in the cautious expansion category have a growth posture very similar to the past but with added caution because of market uncertainty and an increase in cash-rich competitors.
Cautious expanders are not immune to margin pressures. The main difference here is that their cash on hand, and access to capital, make them more resilient, than health systems in survival mode or regimented focus to weather economic and financial challenges.
Health systems in this growth cohort are focusing on organic growth fundamentals—network integrity, staffing etc.—in addition to acquisitions. As one VP put it during the interview process, “we are absolutely still looking at potential acquisitions, but right now I can’t dilute the balance sheet.”
Cumulatively, this points to a health system that is far more judicious about acquisitions.
Health systems in the new pasture growth cohort are continuing to grow by operating their existing businesses plus adding to their portfolio through acquisition. Additionally, health systems in this cohort are investing in start-ups and other technologies to grow—operating as business incubators and venture funders.
Health systems in this cohort are trying to compete both within the traditional provider landscape and with investors who are identifying and bringing new health care businesses to market.
These systems frequently have very robust market intelligence functions plus prior experience with incubating and selling off intellectual property, businesses, or services.
Not all health systems that self-identified in this category boast national or international brands. But they all indicated that their future growth trajectory was contingent on non-traditional revenue sources.
Create your free account to access 2 resources each month, including the latest research and webinars.
You have 2 free members-only resources remaining this month remaining this month.
Never miss out on the latest innovative health care content tailored to you.