Executive Summary

In late 2023, we surveyed strategy leaders from 30 unique health systems (with at least $1.5B in net patient revenue) to get a better understanding of how they are pursuing long-term strategic growth. Here are the top insights we found from their survey responses.

• Most (59%) systems are spending 6-10% of their budget on “strategic growth”—a definition that varies broadly system to system, but generally covers non-traditional service growth.

  • Spend on “revenue diversification” is heavily bifurcated between those who spend little (<5%) and much more (11-15% of the total budget).

• A large majority have focused their strategies on improving the patient experience to sustain patient loyalty and grow share. Growth in new care areas, new markets, or by finding non-care delivery revenue streams are less popular.

• Only one-third of systems have an active dedicated venture capital arm and only half of those are actively investing (4+ investments per year).

• Systems are continuing to invest in outpatient and virtual care but pulling back from home care.

  • This is surprising given that 94% expect home-based volumes to grow in 2024, but reflects economic pressures with running home-based service lines.

• Most systems are prioritizing the same profitable service lines— cardiology, oncology, neurology and orthopedics.

  • We were surprised only half were prioritizing specialty pharmacy—which may reflect that past investments have delivered already, and systems are starting to see diminishing returns with additional investments.

• Inadequate staffing and funding are the most common barriers to strategic growth. Seventy-seven percent of leaders expect workforce shortages will slow their progress on goals.

What does this mean for my health system?

Overall, we saw similarities across health systems in how they are plotting strategic growth, from how budgets are allocated, to service lines and sites of care they are prioritizing, and the major barriers limiting success. The biggest divergence areas we saw were how bullish systems were about M&A, likely a reflection of different markets, and revenue diversification, such as spinning off internal IP or investing through a venture arm.

One clear takeaway is that most health systems are engaging in a combination of multiple growth strategies, with some strategies as table stakes. For example, given the broad and longstanding problems with reimbursement and cost trends in inpatient care, as well as site-of-care shifts, almost all health systems are now investing in expanding outpatient care. Likewise, most systems are prioritizing certain service lines with a clearer focus on supporting the services that contribute to the system’s bottom line.

Within the less popular strategies, we see a greater variation in whether health systems have the underlying competencies and assets they need for success. For instance, given that it’s often prohibitively difficult to launch a provider-sponsored plan from scratch, those without one have fewer options for getting risk-based lives. Similarly, systems can only expand alternative revenue streams or spinoff valuable assets if they have those assets to begin with. In some cases, leaders reject strategies like venture capital investing because they judge that they don’t have the talent they need to staff these teams (and know that recruiting this kind of talent falls outside their core competencies).

Ultimately, strategy leaders need to tailor their approach to their system’s strengths and weaknesses, as well as their markets. Strategy is often really what systems aren’t doing. With that said, the fact that certain strategies are almost ubiquitous suggests that there’s actually a high degree of similarities of “no-fail” strategies for nonprofit leading health systems.

For a full readout of these strategic planning trends, download the PDF (found at the top of the page). To learn more about Strategy Catalyst and our strategic planning resources, click here.