Beyond cost-cutting: A new era in healthcare performance improvement

Healthcare organizations are under intense margin pressure. Traditional cost-cutting strategies have been exhausted, while financial headwinds—rising labor costs, reimbursement reductions, and a growing uninsured population—continue to mount. Incremental savings are no longer enough. To stabilize margins and build resilience, health systems must adopt a new mindset: one focused on operational redesign, technology-enabled transformation, and workforce empowerment. 

Guidehouse’s work with health systems illustrates what this shift looks like. For example, a regional health system implemented more than 100 initiatives across its enterprise, from revenue cycle automation to care delivery redesign, achieving a $91 million cumulative benefit in 18 months. These results underscore a critical truth: sustainable margin improvement does not come from one-time cuts but from broad-based transformation focused on revenue optimization, purposeful growth, and cost reduction. 

Redesigning the workforce and processes 

Simply reducing headcount or freezing hiring is not a viable long-term strategy. Health systems need to rethink how work gets done so clinicians and staff can focus on patient care.  

Workforce optimization 
Analytics-driven staffing models help align resources with patient demand and acuity. For example, analyzing peak times in the emergency department or operating rooms and adjusting schedules accordingly can reduce overtime and reliance on costly contract labor. At the aforementioned regional health system, Garnet Health, targeted interventions and data-driven decisions reduced temporary labor use to nearly zero, cutting costs while improving stability. 

Technology-enabled process redesign 
Temporary fixes do not solve structural inefficiencies. Embedding efficiency into core operations is essential. Hospitals can maximize daily huddles and bed management meetings by using real-time dashboards and automated work queues within their electronic health record systems. These tools streamline patient progression and discharge planning, improving throughput and reducing delays. 

Automation and AI 
Advanced tools amplify these gains. Process mining software can identify where automation will have the greatest impact by analyzing workflows and pinpointing bottlenecks. Robotic process automation can eliminate repetitive tasks, such as faxing referrals, freeing staff for higher-value work. AI-driven modeling allows leaders to simulate operational changes—such as new triage protocols or staffing mixes—and predict their impact on wait times, length of stay, and cost. This approach increases the likelihood of success by getting changes right the first time. 

Rewiring operations and structures 

Beyond internal processes, health systems must rewire their broader operations to adapt to this new era. Years of mergers and acquisitions have created multi-hospital networks that often lack true integration. To realize the intended benefits of consolidation, organizations need robust governance and operational alignment. 

Post-M&A integration 
Standardizing core functions and service lines across facilities is critical. Too often, merged entities continue using separate supply chain contracts, fragmented HR policies, or disparate IT systems, missing out on economies of scale. Integration efforts should include unified purchasing, aligned clinical protocols, and system-wide service line councils to drive consistency in care and cost. 

Strategic partnerships and managed services 
Outsourcing complex, non-core functions such as revenue cycle or IT is increasingly viewed as a smart way to access expertise and economies of scale. Managed services allow health systems to convert fixed costs into variable costs and redeploy internal talent to strategic priorities. For example, partnering with an experienced third party for utilization management can improve revenue capture while reducing administrative burden. 

Ecosystem collaboration 
Health systems do not operate in isolation. Success increasingly depends on external partnerships. Collaborating with retail clinics for ambulatory care, academic centers for specialized procedures, or telehealth providers for virtual coverage can expand access and share resources. These ecosystem strategies improve patient experience, drive growth, and distribute costs and risks among partners. 

Reinvesting in access and growth

Performance improvement is not solely about reducing expenses. It is also about enhancing revenue and growth in ways that align with mission and community needs. 

• Expand access and coordination: Simplify referral processes and strengthen connections between primary and specialty care to keep patients within the network. 
• Leverage existing assets: Extend service hours or open new sites of care, such as urgent care centers or evening clinics, to meet demand and reduce unnecessary emergency visits. 
• Align with community priorities: Engage with local organizations to identify unmet needs, such as behavioral health services or mobile clinics. These initiatives can improve population health while creating new revenue streams. 

Growth strategies succeed when they are mission-driven. Linking financial goals to the organization’s purpose builds trust and unites stakeholders. For example, framing operational improvements as essential to sustaining community care helps secure buy-in from staff and board members. 

Sustaining the transformation 

Gains often erode when attention shifts or old habits return. To prevent backsliding, treat performance improvement as a continuous journey rather than a one-time project. 

Governance and accountability 
Establish permanent oversight structures, such as executive steering committees, to maintain focus. Tie improvements to management objectives and incentives to ensure accountability across the organization. 

Cultural engagement 
Frontline staff ultimately determine whether new processes succeed. Engage them early and often. Communicate the “why” behind changes, provide access to performance data, and create channels for feedback and ideas. Recognizing and implementing staff suggestions fosters a culture of continuous improvement. 

Change management 
Major operational changes require rigorous planning and communication. Invest in training, designate change champions, and celebrate quick wins to maintain momentum. Treat transformation with the same discipline as an IT go-live, including structured communication strategies and feedback loops 

The bottom line 

The next evolution of performance improvement is not about quick fixes. It is about a fundamental shift in how health systems operate. By redesigning workflows, rewiring structures, and reinvesting in growth, organizations can achieve sustainable margin improvement and build the agility needed to thrive in an era of constant change. Moving beyond cost-cutting is challenging, but it is the path to a smarter, stronger health system—one that delivers efficient, high-quality care for years to come.