Digital transformation: Health systems’ investment priorities

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Health systems around the world are facing a host of challenges, including rising costs, clinical-workforce shortages, aging populations requiring more care (for example, to treat chronic conditions), and increasing competition from nontraditional players.12024 health systems outlook: A host of challenges ahead,” McKinsey, December 19, 2023. At the same time, consumers are expecting new capabilities (such as digital scheduling and telemedicine) and better experiences from health systems across their end-to-end care journeys.22024 health systems outlook: A host of challenges ahead,” McKinsey, December 19, 2023. In response, health systems are increasing their focus on digital and AI transformation to meet consumer demands, address workforce challenges, reduce costs, and enhance the overall quality of care.3Healthcare’s next chapter: What’s ahead for the US healthcare industry,” McKinsey, December 19, 2023. However, despite acknowledging the importance of these efforts to future sustainability, many health system executives say their organizations are still not investing enough.

AI, traditional machine learning, and deep learning are projected to result in net savings of up to $360 billion in healthcare spending.

AI, traditional machine learning, and deep learning are projected to result in net savings of $200 billion to $360 billion in healthcare spending.4 But are health systems investing to capture these opportunities? We recently surveyed 200 global health system executives about their digital investment priorities and progress.5 Seventy-five percent of respondents reported their organizations place a high priority on digital and analytics transformation but lack sufficient resources or planning in this area.

Increasing prioritization

Seventy-five percent of surveyed executives listed digital transformation as a high priority with insufficient planning or resources.

Health system digital investment priority areas and anticipated impact

For health system executives, organizational investments do not align with the digital priorities that could have the most impact.

Major headwinds and slow progress

Survey respondents identified a host of challenges to executing digital and AI transformation in the next two years.

Satisfaction with digital investment

Among health systems that invest in digital, most respondents reported satisfaction across digital investment areas.

What health systems can do and how they can learn from other industries

The goal of digital and AI transformation is to fundamentally rewire how an organization operates, building capabilities to drive tangible business value (such as patient acquisition and experience, clinical outcomes, operational efficiency, and workforce experience and retention) through continuous innovation. Delivering digital value for health systems requires investment and new ways of working.

Building partnerships. Scale is crucial to value creation. But the definition of at-scale systems has changed in the past few years; today, it takes more than $13 billion to be a top 20 system by revenue, and many have reached their current position through inorganic growth.6Healthcare’s next chapter: What’s ahead for the US healthcare industry,” McKinsey, December 19, 2023. Partnerships (joint ventures and alliances) may offer a promising avenue to access new capabilities, increase speed to market, and achieve capital, scale, and operational efficiencies.7Overcoming the cost of healthcare transformation through partnerships,” McKinsey, August 11, 2022.

Moving beyond off-the-shelf solutions. History shows that deploying technology—such as electronic health records (EHRs)—on top of broken processes and clinical workflows does not lead to value. Realizing value from healthcare technology will require a reimagination (and standardization) of clinical workflows and care models across organizations. For example, optimizing workflows to enable more appropriate delegation, with technical enablement, could yield a potential 15 to 30 percent net time savings over a 12-hour shift. This could help close the nursing workforce gap by up to 300,000 inpatient nurses.8Reimagining the nursing workload: Finding time to close the workforce gap,” McKinsey, May 26, 2023.

Using the cloud for modernization. Health systems are increasingly building cloud-based data environments with defined data products to increase data availability and quality. Health systems can also use cloud-hosted, end-user-focused platforms (such as patient or clinician apps) that integrate multiple other applications and experiences to simplify stakeholders’ interactions with the system.

Operating differently. Operating differently entails fundamental changes in structure (flatter, empowered, cross-functional teams), talent (new skill sets and fully dedicated teams), ways of working (outcome orientation, agile funding, and managing products, not projects), and technology (modular architecture, cloud-based data systems, and reduced reliance on the monolithic EHR). With these changes, some health systems have begun to see real value within six months. Building a digital culture helps the transformation succeed over time.9How innovative companies leverage tech to outperform,” McKinsey, December 14, 2023.

Cautiously embracing gen AI. Gen AI has the potential to affect everything from continuity of care and clinical operations to contracting and corporate functions. Health system executives and patients have concerns about the risks of AI, particularly in relation to patient care and privacy. Managing these risks entails placing business-minded legal and risk-management teams alongside AI and data science teams.10Derisking AI by design: How to build risk management into AI development,” McKinsey, August 13, 2020. Organizations could also implement a well-informed risk-prioritization strategy.

Digital and AI investments provide health systems with opportunities to address the many challenges they face. Successful health systems will invest in areas with the greatest potential impact while removing barriers—for example, by upgrading legacy infrastructure. Health systems that make successful investments in digital and analytics capabilities could see substantial benefits and position themselves to benefit from the $200 billion to $360 billion opportunity.11

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