L.E.K. Consulting Annual Survey of Hospital Decision-makers Uncovers How Hospitals Are Navigating Out of the Pandemic Amid Challenging Economic Conditions

BOSTON, MA (March 9, 2023) — The cascading effects of the pandemic will continue to shape hospital and health system priorities for at least the next several years – and providers said they will look to their outsourced service providers and strategic suppliers for greater support, according to global strategy consultancy L.E.K. Consulting’s annual survey of hospital decision-makers.

Among the other key priorities for hospitals to address are staffing issues related to turnover and burnout, supply chain disruptions, digital health investments, input cost increases due to inflation and renewed interest in strategic acquisitions. 

In fact, according to L.E.K.’s 2022 Annual U.S. Hospital Study, which is based on a survey of nearly 250 hospital and health system executives: 86% of respondents said attracting and retaining nurses is a very important strategic priority, 50% either currently operate a consolidated care center or plan to in the next three years, 80% said they’re interested in pursuing pharmacy as a revenue opportunity.

“At the start of the decade, hospitals and health systems expected to continue investing in value-based care. But COVID-19’s impact on nearly every aspect of care delivery has dramatically impacted their long-term trajectory and short-term priorities,” says Ilya Trakhtenberg, Managing Director at L.E.K. Consulting and leader of the firm’s Healthcare Supply Chain practice, as well as lead author of the report. “The struggle to recruit and retain staff, supply chain issues causing unreliable access to critical medical-surgical products and infection control challenges in hospitals during the pandemic all raised questions around patient access and the quality and cost of care.”

“Hospitals now face added challenges as they navigate the uncertainties of today’s inflationary environment, the potential of an economic downturn and continued global supply chain issues,” adds Monish Rajpal, L.E.K. Managing Director, Head of the Medtech subsector and report co-author. “The rapid pace of change within the U.S. healthcare system is forcing hospitals and health systems to reorient their supply chains to achieve better resiliency and enterprise risk management.”

Among the study’s key findings (see also brief video of report co-authors discussing the study):

  • Hospitals continue to focus on key operational needs – specifically on staffing and the repercussions of inflation, which have become predominant new priorities. Staff turnover and burnout-related retention were already a problem pre-COVID, but it has only become more pronounced since 2020 – 86% of this year’s survey respondents said attracting and retaining nurses is a very important strategic priority, 80% said the same for physicians and 76% said this for nonclinical staff. Hospitals are also trying to navigate the uncertainties of input cost increases due to inflation and the margin pressures this is creating. 

  • Supply chain cost containment continues to be an area of focus, with renewed emphasis on the strategic importance of the supply chain function. Many hospitals are increasingly looking to bring in-house greater portions of supply chain operations, both to control costs and to increase their level of control of inventory availability and scheduling. While only around 45% of the hospitals that currently own or lease warehousing – as reported by 50% of respondents – engage in self-distribution, more are planning to develop this capability for acute and non-acute sites in the next three years. Hospitals are also investing in consolidated service centers (CSCs), with more than 25% of respondents currently operating a CSC and another 25% intending to develop this capability in the next three years. Close to 75% of respondents said that resiliency programs are important for their distribution partners and around 65% state that the programs are a priority for individual medtech suppliers.

  • Hospitals continue to invest in digital health (particularly telehealth and remote care) to support the changing patient engagement models and to enhance operational efficiency. Over the past three years, the majority of hospitals have made at least basic investments in a wide range of digital health tools, but more significant recent investments have been concentrated in telehealth, interoperability and engagement tools – at least 30% of hospital executives indicated significant investment in each of these areas. These investments help support both the operational efficiency and strategic priorities of hospitals, such as staff shortages, increasing volumes of patient data from electronic medical records, medical devices and personal health devices, and higher levels of patient digital savviness.

  • Consolidation continues, albeit at a slower pace as hospitals shift focus back to optimizing their current operations rather than pursuing acquisitions. There has been a slowdown in deal volume by nearly 60% since 2017 as hospitals and health systems adjust their strategic focus to address staffing and supply chain challenges due to the pandemic. Both progressive hospitals and health systems and traditionalists report that they continue to be interested in pursuing acquisitions of both non-acute care sites and acute care sites, but interest is lower than its peak in 2018.

  • The emphasis on leveraging support from supplier partners increases as hospitals navigate the challenges listed above. In the aftermath of the pandemic, progressive hospitals and health systems have retained their propensity to work with third-party service providers – on average nearly 60% reporting moderate to high likelihood to work with outsourced partners – and traditionalist hospitals have increased their willingness to do so, from around 45% in 2019 to around 50% in 2022 reporting moderate to high likelihood on average. Hospitals are also viewing their suppliers as strategic partners more than ever. A greater proportion of respondents agree that medtechs provide valuable services, solutions and support beyond their products now than in 2019.

“The shift in hospitals’ strategic priorities reflects the need to continue traditional revenue-maximizing activities while also addressing immediate concerns around staffing shortages and inflation,” says Jonas Funk, L.E.K Managing Director. “To support all of their needs in a more cost-effective manner, hospitals are increasing their utilization of outsourced service providers and strategic suppliers.”

“Despite the high-cost and inflationary environment, hospitals with strong balance sheets are continuing inorganic growth endeavors and anticipate acquisitions in both acute and non-acute care settings,” says Sheila Shah, L.E.K. Managing Director, leader of the firm’s Digital Health practice and report co-author. “With digital health a growing part of the care continuum, hospitals also anticipate increased spending on new IT infrastructure and wraparound services for the next three years.”

About L.E.K. Consulting
We’re L.E.K. Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients’ businesses, uncovering opportunities and empowering them to master their moments of truth. Since 1983, our worldwide practice — spanning the Americas, Asia-Pacific and Europe — has guided leaders across all industries, from global corporations to emerging entrepreneurial businesses and private equity investors. Looking for more? Visit www.lek.com.