Disruption in the healthcare industry: Reshaped by the pandemic but looking to the future

Five years since the start of the pandemic, disruption continues to present unique and complicated difficulties for healthcare executives and is driving significant change within the industry. Labor shortages, an aging population with increasing healthcare needs, cost inflation, and the integration of new technologies are among the sets of challenges with which these companies are grappling. 

However, a large number of business leaders say their organizations remain largely in a wait-and-see mode. 

In our 6th annual AlixPartners Disruption Index, 32% of healthcare executives report that their companies primarily react to, rather than drive, disruption in their industry. Over half (53%) say they prioritize risk aversion when faced with disruption (the highest of any industry). At the same time, though, 89% say that their boards and investors are supportive of them taking proactive steps to confront the challenges they face. 

What are these challenges and what is holding them back? Two of the biggest issues center around labor and technology. 

Labor shortages lead to liquidity pressures 

The healthcare industry faces significant workforce shortages, exacerbated by the pandemic. Many healthcare workers left the profession due to burnout and other factors, and the demand for healthcare services continues to rise. Shortages of clinical professionals increase competition across care providers and services organizations for the same talent pool. 

As a result, labor costs are outpacing increases in reimbursement. Rising labor costs and liquidity pressures were cited as the greatest operational threat to healthcare providers in this year’s Disruption Index. 

Companies have a number of paths to address these labor concerns and keep costs under control: 

• Care team size optimization: Balancing staffing ratios to ensure appropriate wRVUs for clinical staff helps to maximize efficiency. Leading organizations engrain data analytics to assess provider productivity, patient volumes, and outcomes to make informed staffing decisions. 
• Workforce flexibility models: Adaptable hiring and utilization models to expand the available resource pool supports optimal resource needs.  Solutions such as a national resource pool, flexible work arrangements, gig-economy staffing models, and virtual care delivery are helping organizations fill staffing gaps more efficiently and maximize output. 
• Nearshore and offshore solutions: A continued pursuit to move shared services functions to locations with cheaper labor can materially reduce cost.  These solutions can be developed internally or in partnership with a third-party agency, with a focus on maintaining service levels and quality outcomes. 

Keeping a laser-focus on driving greater efficiencies is the only path to alleviating pressures in an environment of continued labor scarcity. 

Technology is part of the answer, but comes at a cost 

The integration of new technologies is interwoven through all strategic priorities across the healthcare industry. However, aging legacy technologies present interoperability concerns and further increase labor costs. Patient expectations for price transparency and self-service access to care options require additional tech investments. Upgrades to best-in-class products require significant capital investment and risk business disruption, delaying adoption across the industry. 

Healthcare organizations that have successfully navigated these challenges are taking strategic steps such as: 

• Interoperability investments: Systems like Epic, Cerner, and other EHR vendors are now building advanced interoperability features to reduce data silos, improving both care coordination and financial visibility.  However, these advancements are generally not yet available for smaller organizations who leverage point solutions.  In these cases, developing a clear technology strategy with interoperability considerations is critical to minimizing cost.  
• AI adoption: Forward-thinking providers are rapidly deploying AI to automate administrative and clinical tasks to streamline operations and optimize care outcomes. For example, Northwell Health deployed AI-driven tools to streamline clinical documentation and reduce physician burden across its 17 hospitals.  However, industry offerings are fragmented, particularly in the middle market, requiring strategic development to identify organizational needs and execution parameters (including build vs. buy, point vs. integrated solutions, etc.) 
• Cybersecurity enhancements: Cyber threats targeting healthcare systems increased dramatically post-pandemic, as increased reliance on digital health solutions have made the industry a prime target for attacks. Leading organizations have invested heavily in next-generation firewalls, zero-trust architecture, and robust staff training programs to mitigate these risks and maintain patient trust. 

Digital transformation is the area where healthcare executives said they expected the most change over the next year due to disruption. In an environment of increasing cost pressures, finding the resources and the managerial will to make these investments remains a challenge but is critical to the future competitiveness of every company in this industry. 

Meeting disruption head on 

Now is not the time for healthcare executives to sit on their hands. Best-in-class organizations are moving quickly to embrace transformation. For example: 

• Mayo Clinic's "Bold. Forward. Unbound" initiative has reimagined care delivery through digital investments, patient engagement tools, and AI-driven diagnostics. 
• Cleveland Clinic's “Care Priorities” focused on its patients, employees, communities, and organization has driven improvements in operating margin while supporting enhanced patient and employee experience. 

Transformational change is never easy, and the size and scale will vary based on an organization’s size, purpose, ownership, and strategic priorities. But delay is not a strategy and, in a disrupted world, can prove fatal. 

One positive sign is the fact that M&A activity is expected to pick up. Healthcare M&A was down 9% in 2024 driven by high capital costs and regulatory scrutiny. With a new U.S. administration and a growing list of aging PE portfolio companies in the space looking for exits, the M&A environment seems ripe for an upswing. Fifty-four percent of healthcare executives said that they expect their organizations to pursue transformational M&A in the next 12 months. 

Beyond M&A, best-in-class companies will be looking to their tech investments, especially AI, operating model design, and other cost optimization efforts to confront the disruptive forces buffeting this industry. These challenges are not going away in the near-term. 

Tomorrow’s winners will be those making bold decisions today.