Preparing for the next normal now: How health systems can adopt a growth transformation in the COVID-19 world

COVID-19’s unprecedented impact on health, economies, and daily life has created a humanitarian crisis. Health systems have been at the epicenter of the fight against COVID-19, and have had to balance the need to alleviate suffering and save lives with substantial financial pressures.

Health systems’ income statements are likely to see negative pressure as a result of the COVID-19 crisis. While health systems have ramped up capacity to handle COVID-19 cases and incurred additional costs to procure personal protective equipment and operationalize surge capacity plans, they also have had declines of up to 70 percent in surgical volume and 60 percent in emergency department traffic.1 In a recent McKinsey survey of health system CFOs, more than 90 percent of respondents reported that COVID-19 will have a negative financial impact, even after accounting for federal and state funding.2The financial impact of COVID-19 on health systems and how CFOs are responding,” June 3, 2020,

For health systems, current financial challenges are likely to persist into the next normal. As many providers are seeing a recent upsurge in volume due to pent-up demand, the long-term financial outlook is less certain, as more than 20 percent of respondent patients in a recent McKinsey Consumer Healthcare Insights survey and reported they either do not know when they will plan future care or will delay care until fall 2020 or later.3Helping US healthcare stakeholders understand the human side of the COVID-19 crisis: McKinsey Consumer Healthcare Insights,” May 20, 2020, This uncertainty about consumers’ timing and demand for services, combined with the possibility of a COVID-19 resurgence, will require health systems to adapt and respond to a myriad of pressures, including:

Financial pressure on independent physician groups could lead to a new wave of consolidation and new affiliations driven by health systems, payers, and private equity.

Would you like to learn more about our Healthcare Systems & Services Practice?

Potential approach for health system growth

This confluence of headwinds and disruptions due to COVID-19 may cause health systems to pursue cost reduction programs, but the pandemic also has created unique challenges, the solutions to which may reside within intentional growth. Proactively planning for growth and establishing a strong early trajectory in the next normal could catalyze long-term growth success, particularly as many of these pressures may intensify competition for market share across service types and patient segments. A transformation approach, grounded in a holistic and multi-lever effort combined with disciplined execution and performance management, could be a way to ensure success and deliver outsized returns. The appeal of this approach may hold extra value in a post-COVID-19 world.

Even before COVID-19, we observed the benefits of pursuing a focused approach to growth. Shortly before the COVID-19 crisis, the McKinsey Health System Executive Growth Survey asked 85 health system senior executives questions to understand attitudes, experiences, and outcomes of organic growth opportunities and challenges. A growth transformation is an intentional effort employing a range of strategic and operational levers to drive top line revenue growth from acquisition of new patients or greater capture of a patient’s care lifecycle. In this McKinsey survey, health systems reported being more likely to pursue cost transformations (61 percent) or inorganic growth initiatives (52 percent). Thirty-four percent of respondents that did pursue an organic growth transformation reported significantly better operating margin improvement (Exhibit 1).

Growth transformation was the least likely to be pursued, but produced strong operating margin outcomes.

COVID-19 has increased the challenges for health systems for a variety of reasons. These include reevaluating organic growth beyond what was originally envisioned in the growth survey due to the unprecedented disruption to overall demand and modes of care delivery.

Recent McKinsey research of approximately 2,000 companies across industries shows that those that outperformed in the last downturn were focused on through-cycle growth.8Rev up your growth engine: Lessons from through-cycle outperformers,” May 27, 2020, Though major differences exist between the current crisis and the 2008–09 financial crisis, namely including the humanitarian toll and sources of financial stress and consumer demand declines, our research indicates the outperformers modulated spending in the near term. However, they spent to catalyze growth early in the recovery and maintained a commitment to long-term growth strategies.

When applied to health systems, this strategy could mean pursuing a comprehensive growth plan that is adapted to the changing local market conditions post-COVID-19, while still aligning to future growth aspirations.

Critical elements to consider in developing a post-COVID-19 transformative growth plan

1. Create a growth transformation team

Focusing exclusively on executing the transformation means establishing a dedicated, central team that articulates aspirations, defines the direction of travel for the organization, coordinates activities, and measures success. McKinsey has recently discussed the importance of a plan-ahead team to move the organization to the next stage of the COVID-19 crisis. Health systems may wish to consider establishing a team strictly focused on the strategic action plan around growth.

This growth transformation team would likely require appropriate strategic, operational, and clinical representation to set organizational aspirations, make decisions on opportunities, and execute quickly. The immediate team mandate could focus on identifying and prioritizing growth opportunities and building execution plans to capture value as soon as feasibly possible. Stakeholders may seek a deeper understanding of the health system’s existing capabilities and sources of vulnerability. One asset can be a granular fact base that offers dimensions into micro-market demand (often by stitching together multiple data sources) in the present. This base could project forward scenarios based on likely market outcomes or disruptions. For example, what actions are most likely to attract patients returning in the near term? How might long-term preferences for services and sites of care change? In a COVID-19 era, a robust and flexible implementation plan may be useful.

From wartime to peacetime: Five stages for healthcare institutions in the battle against COVID-19

From “wartime” to “peacetime”: Five stages for healthcare institutions in the battle against COVID-19

2. Define the approach

Assess a comprehensive set of levers

Growth transformations can employ a variety of levers that will likely be evaluated in the local market and health system context. The more levers pursued may mean a greater likelihood of success. The McKinsey Health System Executive Growth Survey shows that when respondents pursued five-plus growth levers simultaneously, they achieved significantly better outcomes in volume, revenue, and operating margin than respondents who pursued three levers or fewer (Exhibit 2).

Respondents reported consistently better outcomes when more levers were pursued in their growth transformations.

The dedicated growth team may be charged with systematically evaluating the full suite of potentially available levers. Healthcare systems’ top priority will remain their patients and access to care. However, they also may evaluate opportunities for augmenting their near-term recovery, fulfilling long-term strategic aspirations, and enhancing access across patient populations. An assessment in light of the drastic disruptions and sources of uncertainty facing health systems may prompt a new strategy. This assessment could include a range of capital intensive actions such as adjusting inpatient or outpatient services, increasing the scope of clinical programs or service line distinctiveness, building new physician relationships, and adopting a constellation of more capital-light growth operations levers such as improved patient acquisition and access, referral network management, agile marketing, physician productivity improvements, and clinical operations optimizations across the footprint. Exhibit 3 describes the comprehensive approach to different growth levers; each requires an objective assessment on potential impact and feasibility for the organization.

A holistic set of growth levers for evaluation to set the strategy.

Choose the right multi-lever approach for an organization

Two groups of levers could be considered in growth transformation: capital-light operations levers that can augment COVID-19 recovery, and more capital-intensive levers that take advantage of expansion, acquisition, or partnership opportunities or position the system for a successful site of care transition. In our growth survey, health system corporate executives cited lack of resources (55 percent) and a lack of necessary skills and capabilities (41 percent) as the most common reasons for not pursuing a growth transformation.

However, two observations are apparent from the McKinsey Health System Executive Growth Survey. First, primarily capital-light operations levers were the most commonly pursued and still showed successful outcomes. Second, executives reported capital-intensive levers, such as service or site expansions, at the top of the list of opportunities to create even greater impact (Exhibit 4).

Most common growth levers were capital light, while levers that would have maximized impact are more capital intensive.

The CDC considers clinical operations dimensions, including rigorous infection control and sanitization protocols, an intentional approach to operating room capacity allocations, and COVID-19 testing protocols integrated with procedural and inpatient care, as essential elements to augment the post-COVID-19 recovery.9 In addition to pursuing such ‘capital-light’ levers focused on ensuring safe and efficient clinical operations, health systems may consider several additional levers that could have high impact. While these levers are more capital intensive, for health systems with strong balance sheets, they could present opportunities for returns.

3. Build execution discipline and muscle memory to deliver the growth program effectively

Given the current stresses on the healthcare workforce, consider building the execution discipline plan among the core growth response team. Effective execution elements include prioritization and reprioritization of work efforts as new information arises, regular cadence of weekly meetings with set agenda and decisions made, clear action items with accountable owners, timely (but efficient) access to senior leaders when de-bottlenecking is required, and rigorous performance management.

Prior to COVID-19, many health systems had to keep pace with an ever-changing business landscape, as nontraditional incumbents such as retail giants pushed quick evolution in consumer preferences, value-based care rose in prominence, and physician employment increased and referral networks tightened. The recent crisis has only accelerated the pace of change and dramatically heightened the level of uncertainty about the future. Thus, the ability to adapt quickly and successfully in the face of rapid change has become all the more important. Agile companies may weather the current crisis and emerge stronger if they are characterized by resilience, quick decision making, empowerment to act, and rigorous execution discipline.

Although the next normal is yet to be defined, the headwinds, disruptions, and uncertainties from COVID-19 have likely heightened the need for growth. Emerging signs from McKinsey surveys point to a post-COVID-19 landscape characterized by significant margin pressure due, in part, to lower utilization and payer mix shifts. Competitive intensity will likely increase as health systems prioritize patients and the quality of care. The collective picture is one where planning for the multiple sources of uncertainty and disruption with a multi-lever growth plan is more critical.

Health systems may consider a disciplined approach that is: 1) grounded in a shared aspiration and a data-backed understanding of the starting point; 2) characterized by a diverse set of initiatives that take into account market uncertainties and adapted to the local competitive environment; and 3) implemented with rigorous performance management to ensure that timelines and metrics are met, and that tactics are modified as the ‘next normal’ comes into sharper focus. These actions can help ensure continued access to quality care across patient populations and position health systems for growth.

Explore a career with us