As clinical organizations strive to enhance patient access and care quality, they are simultaneously grappling with a range of uncertainties and challenges. In the latest episode of the McKinsey on Healthcare podcast, Dr. Rupal Malani, McKinsey senior partner and leader of McKinsey’s work with health systems in North America, shares insights on how organizations are moving away from pulling the same set of levers harder and instead finding new solutions.
Dr. Malani sat down with Querida Anderson, McKinsey senior editor for healthcare, during first quarter 2025 to explore what’s top of mind for clinical-care leaders. The potential for tariffs and anticipated regulatory changes, particularly those related to Medicaid, have created new uncertainties. Organizations are, therefore, assessing where the opportunities might lie and preparing for a range of possible scenarios. More broadly, the focus continues to be on operational efficiencies and margin-accretive growth so that investments can be made in expanding access, enhancing patient care, and enabling technology. To this end, she points to revenue diversification through inorganic growth,1 noting that deal activity will play a critical role this year and moving forward.
Dr. Malani also delves into the pre- and post-acute care segment, which accounts for 60 percent of care delivery in the United States. Organizations that are the most successful with these initiatives are highly focused on strategy and execution, she notes. However, this segment and the broader care-delivery sector still face workforce deficits,2 and Dr. Malani discusses the solutions that leaders are implementing. One such solution is technology, whether it’s automation, digital enablement, or AI.3 She details where AI is advancing, where it’s still nascent, and how to succeed at AI transformations.
A lightly edited version of their conversation follows.
Top-of-mind issues for leaders of clinical-care organizations
Querida Anderson: Let’s talk about the year ahead and the next few years. What has been top of mind for you and your clients at the start of 2025?
Dr. Rupal Malani: Perennially, quality and access are top of mind. That’s been the case for the 15-plus years I’ve been at McKinsey and the nearly 20 years I’ve been in healthcare. Beyond patient care, this year, clients’ focus is coalescing around the near-term effects of regulatory changes—including reimbursements—site neutrality, tariffs and their effect on the supply chain, acceleration in value-based care, and drug pricing for both payers and providers.
More broadly, if I reflect on the past 18 months of conversations with provider CEOs, their focus has been growth and expanding access. The key is to grow in a margin-accretive way that enables investments in patient care. Health system economics are marked by cross-subsidization, meaning the business relies on segments that generate higher margins to ensure they can continue providing care for the segments that don’t. However, as the population ages and competition intensifies, that cross-subsidization model is at risk. So health systems are rightly focused on access and growth that’s margin accretive so they can continue to invest in high-quality patient outcomes.
At the same time, they’re equally focused on operating efficiency. If you look at the past ten years, EBITDA margins have been steadily declining. Around 2015, the median EBITDA margin for health systems was roughly 11.5 percent. The Healthcare Financial Management Association reported that for the first half of 2024, that same stat was roughly 6 percent. So operating efficiency has been a huge focus, frankly, for the majority of the last decade for health systems. Providers are continuing to find ways to fight input cost inflation by driving down supply costs, modernizing care models, and improving retention of their clinical and nonclinical staff.
Given that health systems have long focused on margin enhancement, they’re moving away from trying to pull harder on the same set of levers they’ve relied on for the past five to ten years. Instead, they are finding that technology offers new levers. Technology capabilities are accelerating at an unprecedented pace, and providers are taking advantage of this to drive consistency, accuracy, and speed.
Finally, inorganic growth and revenue diversification are other ways our clients are driving margins to enable investment in quality, outcomes, and access.
Querida Anderson: Let’s start where you left off: revenue diversification and M&A activity. What role do you see M&A activity having this year and over the next few years?
Dr. Rupal Malani: Over the past two years, there’s been an uptick in overall deal interest and activity even though the number of deals that closed declined. A few factors are driving deal activity. The first is the margin pressure we talked about; the second is the demand for multiple new capabilities from the industry and from key stakeholders, including payers, patients, and communities. Each of those requires substantial investment in new capabilities such as digital patient access and analytical capabilities, for example, to deliver effectively against value-based care models. The combined balance sheet of two health systems coming together can better enable investment behind these modern capabilities. The third driving factor is the continuing strong belief among providers in the benefits of scale to run core operations and shared services as efficiently as possible and to build balance sheet strength.
However, deals are much easier talked about than done. We see many more conversations than consummated deals. In the deal journey—from the idea to the discussions and finally closing the deal and ensuring integration—we see multiple missteps. If you don’t do the hard work after the deal closes to create the new organization, realize the synergies, extract the value, and invest in the new capabilities, it is difficult, if not impossible, to deliver value to patients and to employees.
Querida Anderson: That’s a great point: The acquisition deal doesn’t stop with signing the papers. Going back to your top-of-mind list, let’s talk about tariffs next. That’s a big factor not only because of the potential ramifications but also because of the uncertainty.
Dr. Rupal Malani: Yes, absolutely. This is for most providers an unbudgeted cost. And health systems are managing this situation by doing some scenario planning.
Health systems are trying to investigate and understand the specific impact of tariffs.4 Often, when they reach out to their group purchasing organization partners and, in some cases, major suppliers, they’re told that costs are simply going to be passed on. They’re comparing the different permutations of how tariffs could play out in relation to the budgeted improvements they already had in place for 2025 to understand the real size of the gap that they need to close. Some are considering options such as stockpiling. Some are starting to consider whether they can switch to onshore production of items such as personal protective equipment—a lot of which comes from China—so they can revert to what they were doing during the COVID-19 pandemic and onshore some high-volume products.
The importance of pre- and post-acute patient care
Querida Anderson: Turning to patient care, I wanted to ask you about an important area: pre- and post-acute care. What is working in this segment, what’s not, and what needs to be done?
Dr. Rupal Malani: That’s an enormous area of healthcare. Most folks are surprised to hear that it accounts for 60 percent of care delivery in the United States. Health systems are eyeing pre-acute segments as a way to engage patients earlier in their care journeys at lower-cost, more-accessible sites of care. The EBITDA margins in these segments vary by segment but are roughly 10 to 12 percent on average—so much higher than core in-person care delivery.
To be sure, the space does have challenges, which vary by segment. There are labor shortages similar to those faced by health systems more broadly. Turnover rates in some areas can be as high as 65 percent. Despite the challenges in this space, it’s an area of interest for stakeholders across the board.
Querida Anderson: How would you advise health systems on accelerating their pre- and post-acute care initiatives?
Dr. Rupal Malani: In our experience, the providers who are the most successful are incredibly focused on their strategy as well as execution. For strategy, they’re specific about the segments they want to play in and what they want to deliver, whether that’s the number of ambulatory surgery centers they want to build, the types of specialties they provide, or the amount of margin headroom they want to create to return that investment to core patient care. They’re also focused on execution, acknowledging that the capabilities required for success are fundamentally different.
Often, providers recognize that a partnership is the fastest way to deliver these capabilities. Partners can help them decide where to put the facility, how to lay it out, what specialty should go in it, and how to run it efficiently to deliver on patients’ digital expectations and allow them to put patients first. That acknowledgment, self-reflection, and willingness to partner on something that is close to patient care and their core competency is different than what I’ve seen in the past ten years.
Pressing workforce shortages in healthcare
Querida Anderson: You also mentioned the concern with workforce deficits among physicians and nurses. What are healthcare leaders doing to address that challenge?
Dr. Rupal Malani: Let me start with physicians. The United States is expected to face a shortage of up to 64,000 physicians this year and up to 86,000 by 2036.5 We’ve conducted a physician survey every year for the past several years, and in a recent report, we found that one-third suggested they were likely to leave their current role, and 60 percent of those are leaving clinical practice altogether.6
We’re seeing health systems take this very seriously and continue to modernize care teams, moving away from traditional one-on-one, in-person doctor–patient visits and toward care models that incorporate a diverse set of clinicians, advanced practice providers, nurses, and pharmacists working collaboratively to ensure that patients are getting the care they need when they need it and, frankly, where they need it. Health systems are also redesigning and rethinking their compensation and incentive structures while also investing directly and indirectly in well-being programs—for example, programs that enhance and promote balance through flexibility in scheduling.
The nurse shortage is also very real. The United States could have a nurse shortage, by our estimates, of up to 400,000 by 2030.7 The specifics and nature of that shortage of course varies by geography. And while the more acute challenges from the COVID-19 pandemic are largely behind us, the long-term shortage is still on providers’ minds, and they’re pursuing a number of strategies, including bolstering the talent pipeline and creating programs to fill targeted skill gaps. They’re also strengthening internal onboarding and training, including support for nurse managers, and creating professional development pathways and programs in that regard.
Once they’ve created this pipeline and supported onboarding and training, they can also improve retention through strategies that are focused on deploying clinical resources to the right place at the right time and staff doing the work that only they can do. Examples of this include enhancing scheduling flexibility and piloting technology tools such as AI to reduce administrative burden and increase patient-facing time. By our estimates, during a 12-hour shift, roughly 10 to 20 percent of a nurse’s time is spent on activities that could be optimized with technology that helps with documentation, searching for supplies, medicine administration, and patient handoffs.8 In a recent survey of nurses, which we do in partnership with the American Nurses Foundation, we found that roughly two-thirds of nurses would like to see more AI tools, but they’re also keenly sensitive to the perception that there may be trade-offs between lessening workloads and possibly compromising medical quality and care.9 And so they’ve expressed a desire to be part of the solution and provide input on where technology can best be applied in clinical settings.
AI’s power to improve operations and patient experience
Querida Anderson: A running theme in many of your responses has been the role that AI and technology could have in easing some of the hurdles we face. Talk more about that.
Dr. Rupal Malani: There’s enormous potential for technology, whether it's automation, digital enablement, or AI. We’ve seen providers start with administrative tasks. Most examples I see are in revenue cycle, such as using AI to better understand and respond to denials patterns; in supply chain, using machine learning to clean supply chain data and make better purchasing decisions; and in documentation, using ambient listening to take clinical notes. I’m also starting to see AI used in surgical scheduling: AI can optimize schedules by predicting cases that will cancel, predicting how long cases are going to take, and identifying opportunities to reallocate time slots that might go unused or become unexpectedly available.
There are some high-value use cases that we’re not yet seeing as much activity in but that we expect to see moving forward. Two are worth noting. One is in clinical labor management. AI can make how we deploy and manage labor far more efficient, but it does require more complicated data inputs and tremendous change management. We’ve only seen a few health systems effectively pursue this, but those that have done so have seen improved clinician experience and meaningfully reduced labor costs.
The second is the outpatient experience. I would argue that technology today is largely riding sidecar, in that technology is applied to that traditional workflow where it makes sense and is easiest to incorporate. Another approach would be to redesign clinical pathways to take full advantage of technology at every stage—for example, virtual triage with AI support or omnichannel interactions to seamlessly support a patient through the full life cycle of a medical event. There are a lot of opportunities.
Querida Anderson: With anything that has such strong potential for good, there’s always a certain amount of risk, and integrating AI is not going to be easy. From your point of view, what are the main obstacles in the way of the broader adoption of AI?
Dr. Rupal Malani: A few factors separate those that are successful from the rest. First, it’s critical to take the function and transform it end to end, whether that’s in supply chain, operating rooms, or another area. This is because outsize value comes from multiple solutions working in tandem. All too often, we see point solutions that end up creating an experience with more friction for the end user.
Second, the transformation needs to be owned equally by business leaders and the CEO. Successful tech transformations solve a core business problem, and they’re not nearly as successful—and often we’d describe it as having failed in a meaningful way—if they’re done to the business instead of for the business. That means we also need dedicated teams that include business leaders, data scientists, data engineers, and designers working together to translate the business problem into the potential technological solution and then put the technological solution back into the operational workflow.
Third, the data and technology foundation is critical, but sometimes we see organizations try to completely perfect that foundation before they get going with use cases. We find that if you fix those data gaps in parallel to pursuing valuable use cases, you start to get that flywheel of impact.
Last, building a scaling engine is both an operations and a funding problem. If this seems costly, it’s because it is. Adoption and scaling take about $1 to $2 for every dollar of development. But without that investment, you’ll never capture the full value of a tech transformation. Having that understanding would help mitigate some of the risks of stopping midway through the journey.
Querida Anderson: You have covered a lot of ground today, and clearly there are a lot of considerations at play, some disparate, some overlapping. Any final thoughts before we close out?
Dr. Rupal Malani: There are indeed multiple fronts that executives need to effectively manage in healthcare. I think we can all agree that the degree of uncertainty and the pace of change at this moment is truly unprecedented. Moreover, the cross-functional nature of addressing those fronts also feels meaningfully different. I just finished reading a book that I really enjoyed, From Strength to Strength. One of the key lessons is in the vein of “what got you here won’t get you there.” For healthcare CEOs, it’s not simply about getting the best talent; it’s about how you get that team to work together and make expeditious decisions to manage these fronts—because that uncertainty and pace of change is likely to continue moving forward. I’m excited to see what our industry executives will do to rise to meet the challenge.
