Health systems begin 2025 emerging from a half-decade of crisis management. Now is the time for executive teams to lift their heads from quarterly survival and make bets on their long-term future.
When they lift their heads, CEOs, executive teams and boards will see a landscape more crowded than ever with challenges and opportunities: demographic shifts, 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. These 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.
This 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 shift. The 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 afterwards – that is a good metaphor for what is happening here," explains Mr. Willis. "There 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
This 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. They 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. Their successors may be the ones to see the rewards.
The 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. The 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, often 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.
This 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 health systems to bridge the gap between their aspirational visions and their operational realities. For most health systems, improving the health of the communities they serve has long been the vision. To get a sense of how they are operationally stacking up to align with that vision, Mr. Willis proposes a rigorous three-part diagnostic to test strategic authenticity. First, look at the system's top five revenue-producing service lines. Second, review the five largest capital investments made in the past three years. Finally, analyze the components of variable compensation for the executive team.
Mr. Willis says this test is somewhat a showstopping conversation as most people start to do the math in their head and answer bigger questions for themselves. "The answer to those three questions tends not to support that the organization is as focused on improving the health of the individuals in the communities that they serve as they would like to believe that it does," he says.
This misalignment becomes particularly evident in brand positioning. Take the common shift from "Healthcare" to "Health" in system names. While this signals laudable aspirations toward population health management, the operational and financial infrastructure of most organizations remains anchored in traditional acute care delivery models.
"Most healthcare today still focuses on diagnosis and treatment as opposed to prevention categories that we might associate with consumer wellness, whether it's diet or nutrition or exercise, sleep, self-care," Mr. Willis observes. "Those all tend to be dominated by non-health system brands. And I think that's a problem because there's also often a lack of scientific rigor behind some of those products and services. Whereas if a health system were doing that, I think they would bring more science and more evidence to bear."
A truly health-focused organization, Mr. Willis argues, would demonstrate three key characteristics largely absent in today's market: omnipresence in consumers' daily health decisions beyond appointment reminders, ease of use that encourages repeated engagement, and scientific rigor in wellness and prevention services. The gap between these characteristics and current operational models represents both a strategic vulnerability and an opportunity.
"There's a gap in my mind between what many organizations are saying they are about and what a true health brand would look like," Mr. Willis says. "I think that gap can be closed, but I also think it's an imperative that we close it. It's a real risk for an industry and an organization if what we promise to the market, but what we're actually delivering are if not divergent, not very well aligned. So this is one where I often challenge organizations to do some hard thinking and hold up a mirror."
The strategy litmus test
As health systems enter 2025, Mr. Willis poses a crucial question: "If I went into your market, if I looked at your current strategic plan and I went to your two biggest competitors and did the same thing and compared them, what would I truly see from you that was unique, bold, differentiating, sustainable?"
For many organizations, the last four years have focused on survival rather than differentiation, leaving this question difficult to answer. Now, systems will likely face even greater pressure and urgency in answering it, marking a welcomed and needed change: the return of long-term strategy.
Find more thought leadership about strategic resets from Mr. Willis, colleagues and ECG Management in this whitepaper: Deriving More Value from the Role of Strategy in Healthcare