Strategic Insights to Tackle Challenges and Drive Innovation in a Changing Industry
As the healthcare industry heads into 2025, it faces a complex mix of challenges and opportunities. From navigating workforce shortages to leveraging groundbreaking technologies, leaders must adopt innovative strategies to drive growth, efficiency, and patient-centric care.
Here are five critical areas of focus that healthcare organizations need to prioritize in the coming year.
Focus Area 1: Transforming Care Delivery Amid Industry Challenges
The industry has faced hurdles such as the COVID-19 pandemic, supply cost inflation, workforce shortages, accelerating utilization, changes in risk adjustment regulation, and tightening government reimbursement.3, 4 Despite these obstacles, there are significant opportunities for reshaping care delivery, adopting patient-centered approaches, and utilizing digital technologies, including AI-powered capabilities.2 There is a $1 trillion potential improvement opportunity in care delivery transformation, administrative simplification, clinical productivity, and technology enablement that needs to be paid attention to.2
Focus Area 2: Strengthening Provider Performance and Exploring Growth Areas
Providers were among the first to experience challenges during the COVID-19 pandemic.3 Going forward they need to prioritize performance improvement, especially as pressure on their balance sheets is expected to persist.5 Providers should consider next-generation transformation enabled by emerging technologies like generative AI.6 Growth opportunities for the healthcare industry lie in areas like ambulatory surgery centers (ASCs) and home health, each projected to see a 7 percent annual revenue growth through 2028.7 Understanding the competitive landscape, including new entrants and changes in physician compensation, is crucial for providers.8
Focus Area 3: Adapting Payer Strategies to Meet Market Demands
Payers have experienced challenges such as accelerating utilization, inflationary pressures, and changes in government reimbursement. 4 They need to focus on margin recovery, explore new opportunities for growth and efficiencies in core segments like Medicare Advantage and Managed Medicaid, and manage medical and administrative costs. 4 Offering innovative product designs to employees, such as ICHRAs, can be a key strategy for attracting businesses and navigating the changing market. 9,10
Focus Area 4: Innovating Within the Pharmacy Sector
The growth of specialty drugs, especially cell and gene therapy, presents opportunities, but their high costs create tension in the system. 11,12 Biosimilars are gaining traction and offer potential cost savings, while innovative care delivery models are emerging.13 Transparency, innovative partnerships, and integrated care delivery capabilities will likely become increasingly important in the pharmacy sector. 14,15
Focus Area 5: Capitalizing on Growth in Healthcare Services and Technology (HST) Sector
This sector has seen steady growth, fueled by the demand for data, analytics, and software, with continued growth expected through 2028. 15 However, the HST landscape is fragmented, with many specialized vendors and limited interoperability.16 Opportunities exist for vendors to leverage technology advances, build vertical expertise, and support technology integration to address industry needs. 17
Positioning for Success in 2025 and Beyond
To thrive in this evolving landscape, healthcare organizations and partners must stay attuned to industry trends, emerging technologies, and regulatory changes. Collaboration across stakeholders—providers, payers, and pharmacies—is essential for addressing challenges and capitalizing on growth opportunities. By aligning strategies with these priorities, healthcare leaders can reshape the industry and drive meaningful impact in the years ahead.
Bibliography
1 National Health Expenditure Data, Centers for Medicare and Medicaid Services, accessed October 2024.
2 “Status of State Medicaid expansion decisions: Interactive map,” KFF, November 12, 2024; Mary Kate Barnauskas, “Six states are considering Medicaid expansion bills so far this year,” MultiState, February 12, 2024.
3 “U.S. not-for-profit health care system median financial ratios—2023,” S&P Global, August 7, 2024.
4 Nikhil Sahni, George Stein, Rodney Zemmel, and David M. Cutler, “The potential impact of artificial intelligence on healthcare spending,” NBER Working Paper 30857, rev. October 2023.
5 Ibid. We used the net savings opportunity ranges, and the percent of net savings opportunity focused on administrative costs to calculate the annual run rate savings from administrative costs.
6 Nikhil R. Sahni, Crosbie Marine, David M. Cutler, et al., “Potential US health care savings based on clinician views of feasible site-of care shifts,” JAMA Network Open, Volume 7, Number 8, August 14, 2024.
7 “2025 Medicare Advantage and Part D star ratings,” Centers for Medicare and Medicaid Services (CMS), October 10, 2024. Historical data from CMS database.
8 McKinsey modeling based on Star Ratings information from CMS and where RY 2024 Star Ratings are based on 2024 enrollment data.
9 McKinsey analysis based on sources including Medicaid CMS data for adult Medicaid and CHIP, as well as Medicare-Medicaid dual enrollment.
10 Earnings calls from major payers.
11 McKinsey Employer Health Benefits Survey, in the field March–April 2024 (n = 1,657).
12“Reimagining US employer health benefits with innovative plan designs,” McKinsey, October 15, 2024.
13 Growth trends: ICHRA & QSEHRA, Volume 3, 2023–24, HRA Council.
14 Biosimilars in the United States, 2023–2027: Competition, savings, and sustainability, IQVIA Institute, January 2023.
15 Loren Lidsky, Shawn Hallinan, Josh Benner, and Stephen Jones, “Impact of a pharmacy care management service on health spending, resource use, and medication adherence for medically complex Medicare Advantage members,” preprint, April 2023 (available on ResearchGate).
16 Colin Young, Casey Quinn & Mark Trusheim, “Durable cell and gene therapy potential patient and Financial impact: US projections of product approvals, patients treated, and product revenues”, Drug Discovery Today, January 2022, Volume 27, Issue 1
17 Respondents include 40 payers, 40 providers, and 20 healthcare services and technology groups; ~30% are C-level executives and ~30% are from organizations with revenue > $10 billion. Source: McKinsey US survey on gen AI in healthcare, Mar 11–13, 2024; McKinsey analysis
