Healthcare Leadership Checkup: Are You Ready for the Changes Ahead?

Healthcare companies today face a dilemma. To maintain revenue, they need to maintain their traditional business model, but at the same time, they have to begin building the new model that will replace it in just a few years. Fortunately, healthcare isn’t the first industry to experience disruptive change.

In “Healthcare Leadership Check Up,” Oliver Wyman’s leadership and development experts identify what lessons healthcare can learn from companies that have already gone through the transformation experience. Among them: Create structures that give the new model room to move. Make sure you have the right skill set on board. Consciously create the new culture. And make sure the CEO personally leads the charge.

Two Models—One Big Problem

Both healthcare delivery systems and payers are finding themselves increasingly forced to work with what we call “dual model” approaches because what drives success in a value-based world does not under fee-for service.

The economic levers – volume vs value, for example – and the keys to success – a provider-centric vs patient-centric focus to name one – are completely different and therefore require you to operate two parallel organizations. For a delivery system, this may mean developing an accountable care organization or value-based delivery for a segment of its patient population, to run (at least temporarily) alongside an existing hospital or care network. For health plans, most are facing the likelihood that over the next few years their business may switch from being primarily wholesale (insurance sold to employers on behalf of employees) to retail (employees and other consumers making purchase decisions for themselves). In each of these cases, there is some variant on a theme: The organization must incubate, launch, and grow a new business or operating model while sustaining the legacy model for some period of time.
Dual model businesses present inherent tensions – if not conflicts –  that have to be managed. 

  • Top talent often sees the “latest” opportunity as more desirable and interesting than running the day-to-day.
  • The organization as a whole will be watching carefully to see how deeply invested senior leaders are in the new model. If the answer is “not much,” they’re likely to act accordingly.
  • Support and operations functions may have difficulty responding to the new, rapidly emerging requirements and prioritizing new versus legacy demands. 
  • And the “startup” organization or business is likely to be much less predictable and require a greater capacity for quick course-corrections.

Running parallel operations, at different levels of maturity and with different operating rules, calls for C-suite leaders to recalibrate their oversight approach and, often, to increase their level of involvement.

Healthcare Leadership Checkup: Are You Ready for the Changes Ahead?

Terry Stone, Managing Partner Answers 5 Questions
  • 1Why is today such a challenging time for healthcare organizations?

    Healthcare is moving from the old fee-for-service model, in which healthcare providers are rewarded for doing more stuff for patients, to a value-based system that will reward efficiency, low costs, and favorable outcomes. When the basic economics of the industry shift, business models have to shift. You can’t immediately abandon the old model—it’s keeping you alive. But you have to nurture a new one. That’s incredibly difficult.

  • 2What kinds of problems do companies in that situation encounter?

    They treat the new model like an ordinary initiative that can be handled within the existing structure. But the changes in healthcare demand more — you’re basically creating a new business with a new model that may eventually replace the legacy organization. It needs substantial dedicated resources, and it needs to function like an entrepreneurial startup. That means experimentation, fast decision making, and considerable autonomy — things established companies are not good at.

  • 3What is the answer for leaders facing disruptive change?

    The good news is that other industries have gone through similar periods of disruption, and we’ve learned a lot about how to manage change. The companies that did the best gave dedicated resources, leadership, and staffing to the new enterprise, and that created a way to fast-track decision making. They also identified new skills that the new business would need, hired the right people, and made sure their voices were heard.

  • 4What’s an example of a company that got it right?

    One great example is Nestlé. Their Nespresso coffee system was a huge change for the company, which had traditionally built brand around food products, not machines. They took the challenge seriously—they created a wholly owned subsidiary, moved it away from the rest of the company, brought in an outside leader, and let them figure out the business. Today, Nespresso is Nestlé’s fast-growing product.

  • 5What is the single most important lesson on leading through transformation?

    You can’t delegate strategic change. Yes, you need a team effort, but when the job is to reinvent the company, the CEO owns it. One simple question you can ask yourself is: How much time are you actually spending on the transformation versus the legacy model. If the past is taking all your time, your future is in jeopardy.