Unlocking Growth: How HealthEco Supports Health Systems in Diversifying Revenue Streams

In a rapidly evolving healthcare landscape, the need for health systems to diversify their revenue streams has become paramount. As reimbursements decline, cost pressures increase, and value-based care models remain a key transformative strategy, health systems actively seek opportunities beyond traditional hospital operations to generate sustainable financial impact. 

A 2022 article by McKinsey highlighted the growing trend of US health systems diversifying their business strategies to support core hospital operations and unlock sustainable growth. At HealthEco, we have been at the forefront of this movement since our inception. In this blog, we will dissect the McKinsey research and survey findings to showcase how the HealthEco mission aligns with the objectives of health systems seeking to strengthen their core business, diversify their revenue, and drive long-term success.

Understanding the McKinsey Research: 

The McKinsey research and survey highlight the strategic imperative for health systems to venture into adjacent markets, a move that allows them to achieve operational and financial performance while mitigating risk profiles. Adjacent markets are closely related to the core market, sharing similarities in customer needs, technologies, or distribution channels. This expansion strategy empowers health systems to leverage their existing capabilities while diversifying their revenue streams, reducing reliance on a single market, and ensuring long-term sustainability.

The survey revealed that health systems are carefully choosing investment areas that align with their strategic objectives and growth ambitions and are typically aligned with the following growth strategies:

• Monetizing Existing Capabilities: By transforming cost centers into profit centers (e.g., revenue cycle or supply chain function), health systems optimize operations, reduce inefficiencies, and generate additional revenue. This strengthens their core business model and improves financial performance. Extending internally developed care models to other providers diversifies service offerings, reaching patients in different care settings, and establishing a presence in adjacent markets.
• Expanding Beyond Acute Care: Investing in high-growth segments like telehealth, remote patient monitoring, ancillary outreach services, and ambulatory surgical centers allows health systems to adapt to changing patient demands and market dynamics. This aligns with core patient needs, ensuring relevance and competitiveness while capturing new revenue streams outside the traditional market.
• Building Internal Innovation Capabilities: Embracing innovation makes health systems more agile, efficient, and patient-centric in core services. Investing in internal innovation modernizes operations, adopts new technologies, and improves patient care. Investing in start-ups and innovation supports core hospital operations and drives adjacent business model transformation by launching disruptive products for new customer segments.
• Investing in Corporate Venture Capital (CVC) Strategies: Utilizing Special Purpose Vehicles (SPVs) in corporate investing allows health systems to focus on specific opportunities with flexibility. Collaborating with strategic venture platforms grants access to insights, resources, and expertise, accelerating growth and reaching untapped markets.

To achieve any number of the growth strategies mentioned above, executives understand the critical value of partnerships for health systems as they embark on a diversified revenue strategy. According to McKinsey’s findings, a significant majority (82%) of health systems intend to partner with other organizations to achieve their diversification objectives. These partnerships can take various forms, with 47% considering strategic venture investments, 36% planning to build new businesses, and 34% aiming to monetize existing capabilities. 

As an experienced, highly-specialized business model innovation and venture firm partnered with leading US health systems, we are uniquely poised to assist health system executives in making informed decisions, avoiding common pitfalls, and achieving successful partnerships that align with their strategic objectives and growth ambitions. HealthEco knows that successful diversification efforts should align with the core hospital business, serve the community, and support the overall mission and vision of the health system. By embracing business models in adjacent markets, healthcare providers can diversify their revenue streams, address the changing needs of patients beyond the traditional hospital setting, and make strategic moves that accelerate growth while supporting the long-term financial health of their organization.

Our Comprehensive Service Offerings:

Growth Strategy Assessment & Roadmap: We offer specialized services to enable healthcare organizations to comprehensively evaluate the preparedness and potential for pursuing growth opportunities. Through a thorough analysis of resources, market positioning, organizational structure, technological readiness, and financial strength, we provide valuable insights to help businesses make informed decisions, overcome challenges, and maximize their chances of successful and sustainable growth in the market.

Ecosystem Collaboration and Alignment: We work closely with senior executives and industry stakeholders, prioritizing critical business themes to drive positive change and capitalize on opportunities. Our integrated approach tailors solutions for each health system, and we actively engage with the broader healthcare ecosystem, fostering innovation and achieving impactful outcomes.

Platforms for Business Model Innovation: Our platform serves as a powerful tool to capitalize on strategic collaborations and form strong partnerships with other healthcare providers, technology companies, device companies, pharmaceutical firms, payers, and more. By leveraging this asset, health systems can identify and prioritize critical opportunities and align with strategic themes that allows health systems to tap into external expertise, access innovative solutions, and expand their services, ultimately enhancing patient care, optimizing operations, and achieving sustainable growth in the competitive healthcare market.

• Deal Sourcing and Evaluation: We actively identify investment opportunities that align with a health system’s growth objectives and are accretive to strategic themes, conducting thorough due diligence to evaluate their viability and financial impact, while optimizing provider involvement. This proactive approach ensures informed and successful investment decisions, contributing to the health system’s long-term growth and strategic success.
• Strategic Investments in Targeted Ventures: We facilitate collaboration with existing investment teams to support health systems in achieving preferred terms by syndicating together. Through our expertise in strategic and investment advisory, we empower health systems to make informed decisions, fostering successful partnerships that drive sustainable growth and innovation in the healthcare industry.
• Venture Studio & Commercialization Accelerator: We offer comprehensive support to healthcare organizations and portfolio companies, helping them foster innovation and turn ideas into successful commercial ventures. Through our venture studio, we collaborate with entrepreneurs and startups, providing access to expertise, resources, and infrastructure to develop and validate innovative healthcare solutions. Our commercialization accelerator then guides selected ventures through a structured program, offering mentorship, funding, market validation, and regulatory support for rapid commercialization and entry into the healthcare market. These services empower healthcare entrepreneurs, leverage cutting-edge technologies, and bring novel products and services to the market, ultimately enhancing patient care and driving sustainable growth in the dynamic healthcare industry
• Ongoing Strategic Advisory: Our partnership extends beyond the diversification strategy. We continue to provide critical insights and strategic guidance to health systems and portfolio companies, helping them navigate challenges, optimize performance, and capitalize on emerging opportunities.

The HealthEco Difference: 

The HealthEco team is comprised of experienced professionals with a deep understanding of the healthcare industry and a proven track record of success. We have worked alongside the nation’s top health system executives to build an unparalleled platform that facilitates effective growth strategies tailored to each of our health system partners’ unique needs. By offering comprehensive support and leveraging our knowledge of the healthcare industry, we aid health systems in building sustainable and successful ventures that deliver tangible financial impact. 

The McKinsey research and survey findings confirm the growing trend of health systems diversifying their businesses to unlock growth and support core hospital operations. At HealthEco, we are proud to be aligned with this strategic imperative. We empower health systems to navigate the evolving healthcare landscape and build and invest in businesses that deliver growth. It is our commitment to driving tangible financial health that sets us apart. We understand that diversification is not just about expanding revenue streams—it’s about creating sustainable, long-term value. As health systems work towards sustainable growth and value creation, our role as a strategic ally becomes increasingly critical to shaping a thriving healthcare ecosystem for the benefit of all stakeholders.

If you are a health system executive seeking to diversify revenue streams and drive long-term success, we invite you to explore our comprehensive services at HealthEco. Together, we can unlock new opportunities and shape the future of healthcare.

[Disclaimer: This blog is for informational purposes only and does not constitute financial or investment advice.]

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