Becker's Hospital Review

12 THOUGHT LEADERSHIP Health systems: It's time to break up with short-termism By Molly Gamble H ealth systems begin 2025 emerging from a half-decade of crisis management. Now is the time for executive teams to li their heads from quarterly survival and make bets on their long-term future. When they li their heads, CEOs, executive teams and boards will see a landscape more crowded than ever with challenges and opportunities: demographic shis, workforce instability, dramatic increases in vertical and horizontal consolidation, a disgruntled consumer base frequently subjected to misinformation, looming policy questions under a new administration, and healthcare spending that continues to rise — particularly in hospital settings. ese variables demand a more sophisticated approach to strategy with bigger bets than might have worked in the past, according to David Willis, principal in the strategy practice at ECG Management Consultants. "For the first time in a long time, there is some stability back in the financial game for most health systems," Mr. Willis notes. "Organizations are really starting to think strategically again about where the market is going, where they want to be, and how they get there." In recent years, a number of leaders, including those within health systems, openly declared their departure from 10-year strategic plans. Even five-year outlooks are considered ambitious, some argued. Agility and short-term performance is sometimes hailed as the hallmark of savvy leaders, while long-term vision risks being dismissed as impractical or naive. is mindset may have served its purpose during the stop-and-go nature of the pandemic, but risks leaving organizations flat-footed and without a defined strategy for what could come next. Teams may feel the shi. e return of competitive, distinct and long-term plans will require systems' executive teams and boards to revive organizational muscles that may have lain dormant through years of crisis response. "If we imagine those of us who occasionally go a few weeks without being in the gym and then when you go back in the gym how much it hurts the first day aerwards – that is a good metaphor for what is happening here," explains Mr. Willis. "ere are a lot of organizations that have spent the past five years, they might have entire leadership teams whose whole tenure at the organization to this point has really been about the survival mode of getting through the pandemic." Beyond survival mode is strategic reset doesn't mean calmer waters ahead. An aging U.S. population is straining traditional reimbursement models, with 11,000 Americans turning 65 daily and transitioning from commercial insurance to Medicare. Workforce instability continues to challenge operational continuity, with many organizations seeing turnover rates between 20-25%, meaning many struggle with loss of institutional knowledge and large numbers of new staff members since the pandemic. Meanwhile, rising costs and evolving consumer expectations continue to test traditional care delivery models. As health systems navigate these challenges, Mr. Willis identifies a critical distinction emerging between "market players" and "market makers." Market players remain focused on survival through common operational priorities: cost reduction, ambulatory growth, physician partnerships, market consolidation opportunities, and sustainable revenue models. While necessary, these tactics alone don't constitute strategy. Market makers, by contrast, transcend basic operational requirements to create genuine competitive advantages amid market turbulence. ey differentiate themselves through at least one of four key dimensions: new channels and markets, innovation and change management, brand expansion and redefinition, or cost transformation. Of these, innovation and change management present perhaps the greatest challenge, particularly given current workforce dynamics. "Healthcare has historically been a very conservative industry, slow to change, hesitant to disrupt," Mr. Willis explains. High turnover can further compound the difficulty, with leaders hesitating to initiate long-term changes they won't be present to see through. eir successors may be the ones to see the rewards. e urgency of cost transformation While all four dimensions matter for market makers, cost transformation may be the most critical priority for health systems entering 2025. e convergence of demographic trends and evolving care needs presents a stark financial challenge. As Baby Boomers age, they increasingly present with multiple chronic conditions requiring costly acute care, oen under lower-reimbursing payment arrangements. Health systems are getting a taste of this today. When Kevin Mahoney, CEO of University of Pennsylvania Health System, began his tenure with the academic health enterprise in 1996, its payer mix was approximately 60% commercial and 40% governmental reimbursement. It has completely flipped today, Mr. Mahoney told Becker's earlier this year. Six-hospital University of Pennsylvania Health System is now nearly 63% government paid. is switch is in line with demographic trendlines. In 2000, the U.S. was home to about 35 million Medicare-eligible people; by 2030, that number is expected to reach nearly 70 million when all baby boomers will be 65 or older. "Play those dynamics out to 2030 or 2035," Mr. Willis cautions. "If you're a health system, you're going to be running an enterprise with a very, very different revenue profile than today. A couple of incremental percentage point improvements a year in your cost base between now and then is not going to be enough. We're going to have to think radically differently about this." Mr. Willis frequently poses a challenging scenario to the executive teams and boards he consults with: "'What if I flip that switch on you today? What if I jumped that 10 year gap today? What would that do to your margin?'" he asks. "It would typically take an organization from say, plus 2% operating margin to -8%, -9%, -10%. And that sort of gives us a baseline when we say 'cost transformation.' Do you have the ability to absorb that?" Aligning strategy with market realities Beyond cost transformation, strategic differentiation will require

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