Health care executives around the world are struggling with the same challenge: how to manage the growing gap between human needs and financial resources. Aging populations in Europe and North America are demanding more and better care, and the cost of that care is surging. Though health care systems differ in every country, current trends in the U.S. and Europe suggest that all systems will require exceptional managerial discipline to survive the turmoil ahead.

After years of financial losses, commercial insurers have priced their way back to profitability, thanks to average premium increases of 15 percent in 2003. Now providers are struggling to manage the costs and the quality of care. (A 2003 study found that medical errors in U.S. hospitals cost $9.3 billion – and more than 32,000 lives – each year.) Yet healthcare executives often overlook an issue that affects both cost and quality – improving operational effectiveness across the system. Payors are encumbered by inefficient claims processing, provider contracting, call centers, and other work processes. And providers neglect essential processes such as patient throughput, procurement, and clinical resource management.

“Increasingly, savvy health care executives recognize that the answers won't come from within the sector,” says Paul Mango, a partner in the Pittsburgh office. “Rather, the answers can be found in lean manufacturing techniques – things like scheduling and queuing theory, and just-in-time processes.”

And while incumbents grapple with long-term challenges, innovative competitors are posing new threats. “Insurers' most profitable market segment – young, healthy consumers – are finding lower-cost, high deductible policies from niche players,” notes Mango. “On the provider side, more efficient facilities specializing in dialysis, medical imaging, and other outpatient care are taking revenue from hospitals. Incumbents must take an integrated view of these challenges - strategic, operational, and organizational.”

Across Europe, where state-owned or -regulated sickness funds cover 90 percent or more of health care costs in most countries, the prospect of a social and financial train wreck looms larger every year. “The pressure to reform is enormous,” says Jürgen Wettke, a director in the Dusseldorf office and leader of the European Payor/Provider practice. “In Germany, for instance, employees pay on average more than 7 percent of their salaries to the state health care fund, which is matched by an average of more than 7 percent payment by the employer. And it's still not enough. With an aging population, medical improvements, and high unemployment, there is enormous pressure on companies to pay these contribution rates.”

That reality, long denied by many European health policymakers, has led to an exchange of ideas across the Atlantic. For instance, Europeans have borrowed diagnostic related groups (DRGs) for hospital reimbursement, and are allowing more private providers to enter their markets. U.S. health care executives, in turn, are adapting European techniques to better manage hospital utilization, IT systems, and integrated provider networks. “One lesson is clear,” says Wettke. “Health care is ripe for innovation, but you cannot let others innovate for you. If you wait to jump on the bandwagon, you may be too late.”