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Enhanced transaction strategy and asset coordination is necessary to build a high-value, high-quality, connected health care system.
In brief
The health care system of the future must move beyond the hospital to connect ambulatory, post-acute and home care.
Formal partnerships offer capital and operational efficiencies that can be an alternative to traditional mergers and acquisitions (M&A).
Health care systems need a strategy to create, connect and optimize their integrated delivery models.
Connected health care system of the future
This animation shows the contrast between traditional, unconnected health system and a connected health system represented in the center as a blue circle with four connected areas that further break down into kinds of facilities. These are ambulatory (including urgent care, pharmacy, primary care, behavioral, specialists and ASC/Imaging), acute (including hospital and emergency), post-acute (including home health, long-term care, hospital, skilled nursing and PT/Rehab, and at home (which includes community, care at home and virtual).
The primary tool for health care systems seeking to own assets across the continuum of care historically has been M&A. Today, a less capital-intensive alternative of stitching together a network of partnerships and owned assets may be more effective. EY-Parthenon case studies show this strategy unlocks opportunities for growth while also not compromising operational excellence of the individual component parts.
An EY-Parthenon analysis of nonprofit health system deals between 2018 and 2023 shows that regional and national integrated delivery networks (IDNs) are increasingly relying on partnerships and joint ventures (JVs) to build their connected health systems of the future (Figure 1).
This tactic creates a new set of access, care coordination and interoperability challenges. But there also are significant opportunities for operators to create strategies, connect operating models and invest in technology with the goal of better patient outcomes.
Figure 1: Non-acute care (e.g., home health, urgent care, post-acute care) excluding telehealth deal volume for a representative sample of US health systems by year¹
Figure 1 is a chart with six bars, each representing a year from 2018 to 2023 showing deal volume in non-acute health care for a sample of US health systems. The chart breaks down three kinds of deals for each year: mergers and acquisitions (M&A), joint ventures (JVs), and partnerships.
From left to right: In 2018, 1 partnership, 3 JVs, 3 M&A. In 2019, 3 JVs, 8 M&A deals. In 2020, 1 partnership, 2 JVs, 6 M&A. In 2021, 5 JVs and 18 M&A. In 2022, 2 partnerships, 7 JVs, 1 M&A. In 2023, 7 partnerships, 2 JVs, 7 M&A.
EY-Parthenon Health and Wellness Strategy Consulting teams help develop and deliver growth, transaction, digital and value creation strategies. We help health and life sciences organizations build greater financial and operational resilience and technical agility, supporting their future growth within an ever-changing landscape.
Why building a connected health care system is critically important
Health systems are under unprecedented pressure to meet rising patient expectations, respond to declining hospital volumes and stem financial losses. The most forward-thinking health systems are focused on adding non-acute assets to their networks over further investment in traditional acute care hospitals. However, many of today’s health systems still offer ambulatory, post-acute and home care to patients through informal partnerships and affiliations with third parties. This leaves many systems struggling with how to connect the dots across the care continuum to capture value for the system and deliver a more seamless experience for patients.
The connected health system of the future will require greater connectivity and coordination of services delivered to patients outside of the hospital, including in-person and virtual care provided across home, ambulatory and post-acute settings. This will require health systems to optimize their relationships with a variety of different third parties as the convener of patient health and wellness services. Stitching together a more integrated network should be a priority for any system looking to differentiate in the market, grow its patient base, manage risk and unlock the true value of an integrated delivery network.
Figure 2: Health care system pressures and opportunities
Pressures
Opportunities
Patient expectations have changed as other industries (e.g., retail, financial services) have transformed and are delivering a more personal, digital and omnichannel experience for consumers.
A seamless patient experience across the system and settings of care (e.g., primary care, home health, rehab) will help maintain consumer relationships and enable investment in value-based care (VBC) initiatives.
Declines in hospital volumes accelerated during the pandemic, and the long-term trend continues as patients and payers shift to lower cost, more convenient settings of care, enabled by new technologies and investment from new entrants into health care.
Revenue growth and diversification will come from entering new geographies, expanding services and revenue streams, and partnering with new players in the market to capture patients and growth outside the hospital.
Financial pressures resulting from low volume growth, declining reimbursement, rising labor costs, increasing regulatory requirements and a shift to value-based care are driving low (if not negative) operating margins for many providers.
Resource optimization that reduces overall costs through the elimination of access barriers, as well as capacity planning and expansion of services beyond the hospital, can help right size health systems’ cost structure and prioritize future investments.
The challenges of building connected health care systems
Health system operators are accustomed to integrating acquired hospitals under a single technology platform, governance structure and operating model. However, expansion into new settings of care, including urgent, primary, specialist, at-home and long-term care facilities, comes with many new operating challenges and requires a new playbook. Health systems today struggle to effectively operate and realize the value of their ambulatory, digital and post-acute assets due to a combination of factors.
Many health systems are building a more comprehensive network of assets but may need to build a better “front door” to the system. Navigating available care options and scheduling appointments remain major pain points for patients, and these are fundamental problems that disproportionately affect patients in underserved rural and urban markets. Systems are just scratching the surface when it comes to realizing the benefit of their community health care access points. For example, many systems have opened urgent care clinics hoping to shift patient volume from the emergency department and offer low-acuity care in the community. However, few systems are creating a coordinated, seamless network of assets to determine that patients are accessing the right level of care at the right time. As hospital volumes continue to decline, expanding and improving non-acute patient access points will be even more critical.
To maintain patient contact and relationships across the continuum of care, patients must be able to see and feel the benefits of staying within a single system. Otherwise, they will shop elsewhere — and patients have lots of options, such as telehealth, worksite health clinics and independent physician groups. For example, a patient may visit a system’s primary care physician but get an MRI done at a separate imaging center, travel to a well-known physician-owned ambulatory surgery center (ASC) for orthopedic surgery and stay close to home for physical therapy at a facility owned by a national chain. Competing in these areas requires a health system to extend its brand beyond the hospital and create a consistent, seamless and exceptional experience across the patient’s various touch points with the system. The lack of coordination today precludes systems from capturing a patient upstream, maintaining the relationship, and retaining visits and value in a dynamic environment.
A lack of a central technology infrastructure to stitch together multiple electronic medical records (EMRs), data sources and other technology platforms often prevents systems from capturing the information necessary to make informed decisions and take patient-level action. A recent study concluded that while hospitals collect and maintain an enormous amount of data, 97% of that data goes unused.² This challenge is confounded by the many vendors and partners that health systems work with. Often, these third parties have different technology platforms or house data themselves. Further, many health systems lack the internal resources and capabilities to analyze big data and generate useful insights that can be applied across the system. This will become a greater challenge with the adoption of generative AI, another area where engaging with a technology partner will be necessary.
The path forward for connected health care systems
Health systems need a thoughtful approach and strategic partnerships to address these challenges and create a more effective integrated delivery model. EY-Parthenon teams can help organizations develop their own connected health care system of the future.
How EY-Parthenon helps build a connected health system
The EY-Parthenon approach to building a connected health system is shown as a three-part process that forms a forward arrow in shades of blue. The first section is create: design a strategy to buy/build/partner. Next is Connect through the operating model, care coordination. Finally, Optimize. This involves technology investment and the patient experience.
The move beyond traditional health system models is imperative in the face of margin and regulatory pressure, as well as patient demand for greater connectivity and coordination of services. To achieve the connected health care system of the future, health leaders can use JVs, partnerships and M&A in combination with a concrete and thoughtful framework for their delivery models.
