Incumbents in healthcare must find new growth pathways

As disruptors in healthcare increase, incumbents must compete with innovative advantages. The critical requirements are a growth mindset and investment in areas where profit pools relocate.

Strategic growth areas are like oxygen chambers; in a downturn, they help resilient companies achieve optimum saturation compared to competitors. With profit pools rapidly moving away from core segments in healthcare, incumbents must look at swift reinvention to keep ahead of disruptors.

Many healthcare organizations look for incremental improvements to increase efficiency, but it is no longer a payoff. To survive the coming cost escalation storm in healthcare, leaders must adopt loftier aspirations to boost productivity, and it will improve costs, quality, accessibility, and patient experience.

Incumbent vs disruptors: the face-off

The competition to get a more significant share of the profit pools is intensifying among healthcare incumbents as disruptors change the rules of the game. Well-capitalized disruptors are expanding into faster-growing and higher-margin segments, rapidly deploying new business models. Unlike traditional businesses, these disruptors are often free of legacy constraints, bureaucracy, or the need to manage a separate core business. Several disruptors have venture capital or private equity backing, so they often reach the market faster. 

However, it does not mean incumbents have no opportunities. Disruptors might have speed, but incumbents have natural advantages. So, they can quickly scale up what works across markets, develop time-honed operational discipline per scale, and, in some cases, explore options for diversified growth to strengthen core business. 

Several incumbents have already experienced success through diversification. For example, large payers have diversified business units with various services, including care delivery, data and analytics, pharmacy services, and utilization management.

Providers, too, have created highly profitable units through a diversified portfolio to manage revenue cycles and enable value-based care. Diversification can also be beneficial for not-for-profit healthcare organizations and publicly traded companies.

Growth areas for healthcare leaders

There is a continued shift away from core acute care segments and facilities to higher-value, lower-cost ambulatory, virtual, and home care sites. It results from patients’ and physicians’ preferences and sectoral shifts, such as adopting value-based care models. Many health systems have developed a robust ambulatory footprint; even so, buying, building, or partnering with innovators, such as primary-care disruptors, risk-bearing management service organizations (MSOs), and virtual-care companies, are essential to providers.

Payers also must diversify and reinvent their business models. It is estimated that Medicaid, Medicare Advantage, and Medicare supplements will grow at more than a compound annual growth rate (CAGR) of over 10 percent between now and 2025 as profit pools shift away from individual, small-group, and administrative-services-only insurance plans.

As a result, the most successful managed-care models increasingly focus on value-based care. These involve calculated risk, orchestration (and sometimes ownership) of nonacute care (through risk-bearing MSOs), pharmacy services integration, and engagement of members throughout the care journey. In addition to improving members’ cost, quality, and experience, these models expand the total profit pool for payers. According to research, payers who implement next-generation managed-care models provide better value to the healthcare system and achieve higher financial returns.

For businesses to achieve diversified growth, new competencies may be required, which include programmatic mergers and acquisitions, partnerships, effective integration, and rapid business growth.

Programmatic mergers, acquisitions, and partnerships

According to McKinsey research, programmatic mergers and acquisitions (M&A) produce higher total shareholder returns at lower risks than large deals.

Most innovative healthcare companies are small or midsize, and programmatic mergers and acquisitions (M&A) are often the best way to diversify or acquire the capabilities to reinvent business models. The high demand for these assets and the high multiples they command may put them beyond the reach of most but not all players. However, even when an acquisition isn’t feasible, a range of partnership models could provide value equivalent to mergers and acquisitions (M&A). For these models to succeed, they must avoid the pitfalls that derail negotiations and the long-term capture of value.

Effective integration

In addition to unlocking value in everyday business, transforming the business model through M&A integrations ensures the anticipated value of the deal is achieved.

A programmatic acquirer should also develop integration competency, which enables them to quickly scale up and integrate the acquired company’s core operations. 

Rapid business building

Healthcare is no exception to the norm that business building is an essential component of growth across sectors. When large incumbents buy innovative small to midsize companies and want to enlarge them to fit their scale of operations, the skills, and experience required to scale up differ from the typical capabilities.

Even without acquisition targets or potential partners, developing a solid business-building capability is essential to maintain ground.


When the old gives way to the new, the ground is set for the survival of the fittest. In the era of the disruptors, incumbents must nourish their deep roots through renewed strategy, transition speed and innovation, which will fortify their legacy. Disruptors are legacy novices altering the status quo, and incumbents are legacy experts equipped to go beyond the status quo. When both work to their best, they create a win-win for the healthcare consumer.

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