New Business Models

Radical Reinvention: Business Model Transformation

Health systems are navigating a period of significant disruption, driven by a confluence of trends that challenge and potentially erode the core business model. This dramatic shift demands innovative responses from health system leaders as they work to ensure sustainability while advancing their mission of delivering high-quality care.

Market Forces Reshaping Healthcare

The healthcare landscape is experiencing unprecedented change driven by several pivotal forces:

• Financial Uncertainty: Rising costs of healthcare labor, coupled with uncertainty in reimbursement rates and declining payer mix, are creating financial instability. Health systems must actively explore new revenue streams and more efficient care models to ensure long-term sustainability.
• Divesting Non-core Assets: In response to financial pressures, health systems are strategically realigning their portfolios. While health systems have traditionally played broad roles in their communities, they are now focusing resources on core competencies and patient care services to improve operational efficiency.
• Rise of Vertically Integrated Businesses: The emergence of vertically integrated organizations like CVS Health and Optum is reshaping healthcare delivery. These entities control multiple parts of the healthcare value chain, from insurance and provider networks to pharmacies and care delivery, challenging traditional health systems to adapt their models.
• Threats from Disruptors: Non-traditional players–including tech giants, retail companies, private equity firms, and specialized startups–are leveraging capital, advanced technology, and consumer-centric models to deliver more accessible and cost-effective healthcare services.

“What is needed is the relinquishing of some of the skeletons, just the acknowledgement of the things that we shouldn’t be doing anymore. The things that we might not be good at, but we still keep doing either because of legacy–or worse, because we actually think we’re doing a good job.” - David Sylvan , Chief Strategy and Innovation Officer, University Hospitals?

A Vision for Relevant & Resilient Business Models

Partnerships as the New Competitive Currency

Health systems are increasingly turning to strategic partnerships to drive innovation, expand service delivery, and ensure sustainability. Key partnership areas include:

• Co-Development: Collaborating with technology companies allows health systems to couple their clinical knowledge with technical expertise. These partnerships facilitate the integration of innovative technologies into clinical workflows, creating groundbreaking solutions and potential new revenue streams.
• Onramp Partnerships: Alliances with Direct-to-Consumer (DTC) healthcare players–from retail chains to wellness services–create new entry points for health systems. Success stories include Orlando Health's partnership with Walmart and Hartford Healthcare's collaboration with Hims & Hers.
• Primary Care Reinvention: Strategic alliances with digital-first primary care solutions help health systems reinvent access and recapture patients shopping for low-acuity care. For example, Cedars-Sinai's partnership with K Health enables quick access to personalized, digitally enabled primary care services.
• Care Extension: Collaboration with digital care extenders fills gaps in specialty care and post-acute care access. Intermountain's partnership with Story Health demonstrates how digital support can improve condition management and reduce readmission risks.

Embracing the Platform Model

Healthcare is naturally suited for platform business models due to information asymmetry and disconnected services. Health systems can become orchestrators of services and information across multiple suppliers, unlocking new value propositions while improving patient outcomes. This can be done by:

• Partner Ecosystem: Foster a network of complementary service providers to expand care options
• Interoperability and Data Integration: Enable seamless integration of health data sources
• Consumer Engagement: Provide orchestrated access to health information and services
• Innovation and Scalability: Create foundation for rapid experimentation and market expansion

Innovative Care Delivery Models

Health systems are pioneering new models of organizing and delivering care that leverage digital capabilities and strategic partnerships. Examples include:

• Centers of Excellence (CoE) 2.0: The evolution of CoEs into a virtual model represents a strategic shift toward super-powering expertise with digital capabilities. These centers leverage digital platforms for remote consultations, data sharing, and remote patient management, driving access across broader geographic areas.
• Hub and Spoke Models: This model re-imagines healthcare delivery through a central 'hub' of comprehensive services, supported by digitally connected 'spoke' facilities. These micro-facilities extend services to rural areas and can be used to educate and train local providers, enhancing accessibility while reducing patient travel burdens.
• Specialty Care Franchising: National clinical powerhouses can package and deliver their clinical model for specialty services at local health systems. This model enables remote consultations and quality oversight from leading institutions while local providers manage day-to-day care under established guidelines.
• Shared Networks: These networks leverage collective resources through shared data platforms, virtual provider networks, and joint purchasing agreements. This approach facilitates coordinated care delivery, particularly for complex or chronic conditions.

Strategic Revenue Diversification

Health system leaders are actively re-evaluating financial strategies to secure long-term sustainability and growth as traditional revenue sources face increasing pressures. These strategies include:

• Direct-to-Consumer Services: Development of cash-pay businesses including low acuity care, wellness services, and concierge/subscription models that meet growing consumer demand for convenient care options.
• Digital Health Solutions: Creation of digital formularies that provide curated lists of approved digital health tools and applications, offering new revenue streams while ensuring quality and safety.
• Technology Commercialization: Leveraging internal innovations and expertise to develop and market technological solutions to other healthcare organizations.
• Data Monetization: Strategic use of health system data assets to create value through analytics, research partnerships, and population health insights.
• Enterprise Solutions: Development of comprehensive healthcare service packages for employers and other large organizations, creating new B2B revenue streams.

"The reality is, we can't sustain the current trajectory with rising costs and declining margins... You have got to think of clever ways to diversify your revenue." - Paul Casey , Chief Medical Officer, RUSH

Key Questions for Health System Leaders to Consider:

1. What should our position and strategy be on vertical integration vs competing in certain parts of the value chain?
2. How should we prepare for an era of novel ecosystem partnerships? How do we build the internal muscle for embracing partnerships?
3. How should we organize our product portfolio and business models to ensure financial sustainability while furthering our mission?

To learn additional key tenets to radically reinvent your business model, download Radical Reinvention: Future Proofing Your Health System.

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