Digital transformation: Health systems’ investment priorities (2024)

Health systems around the world are facing a host of challenges, including rising costs, clinical-workforce shortages, aging populations requiring more care (for example, to treat chronic conditions), and increasing competition from nontraditional players.1Rupal Malani, “2024 health systems outlook: A host of challenges ahead,” McKinsey, December 19, 2023. At the same time, consumers are expecting new capabilities (such as digital scheduling and telemedicine) and better experiences from health systems across their end-to-end care journeys.2Rupal Malani, “2024 health systems outlook: A host of challenges ahead,” McKinsey, December 19, 2023. In response, health systems are increasing their focus on digital and AI transformation to meet consumer demands, address workforce challenges, reduce costs, and enhance the overall quality of care.3Shubham Singhal and Drew Ungerman, “Healthcare’s next chapter: What’s ahead for the US healthcare industry,” McKinsey, December 19, 2023. However, despite acknowledging the importance of these efforts to future sustainability, many health system executives say their organizations are still not investing enough.

AI, traditional machine learning, and deep learning are projected to result in net savings of $200 billion to $360 billion in healthcare spending.4David M. Cutler et al., The potential impact of artificial intelligence on healthcare spending, National Bureau of Economic Research working paper, number 30857, January 2023. But are health systems investing to capture these opportunities? We recently surveyed 200 global health system executives about their digital investment priorities and progress.5The survey was conducted from July 24 to August 7, 2023, with 200 respondents who currently work as executives at healthcare delivery organizations. Fifty percent of respondents hold technical executive roles (for example, IT, digital, or analytics), while respondents in nontechnical positions represent all other executive roles (such as strategy, operations, administration, finance, marketing, and medical). Approximately 60 percent are based in the United States; 40 percent are based in 26 other countries across Africa, Asia, Europe, and South America; 40 percent have academic affiliations; 20 percent are from public institutions; and one-third represent not-for-profits. Seventy-five percent of respondents reported their organizations place a high priority on digital and analytics transformation but lack sufficient resources or planning in this area.

Increasing prioritization

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In line with other industries, the majority (nearly 90 percent) of health system executives surveyed, in both technical roles (such as chief information officer or chief technology officer) and nontechnical roles (for example, CEO or CFO), reported that a digital and AI transformation is a high or top priority for their organization. At the same time, 75 percent of respondents reported their organizations are not yet able to deliver on that priority because they have not sufficiently planned or allocated the necessary resources.

Health system digital investment priority areas and anticipated impact

For health system executives, current investment priorities do not always align with areas they believe could have the most impact. There is alignment in some areas, including virtual health and digital front doors, where about 70 percent of respondents expect the highest impact.1Virtual health and digital front door include consumer-facing platforms providing a range of access points for patients to manage their health (for example, scheduling care, navigating care, managing episodic care, paying bills, supporting education, and managing long-term care). In other areas, such as AI, 88 percent of respondents reported a high potential impact,2Top three selected. yet about 20 percent of respondents do not plan to invest in the next two years. The absence of investment in a robust, modern data and analytics platform could delay value creation in areas that depend on these capabilities—such as efforts to close gaps in care, improve timely access for referrals, and optimize operating room throughput.

Major headwinds and slow progress

Given the current macroeconomic climate and increasing cost pressures on health systems, most respondents identified budget constraints as a key obstacle to investing at scale across all digital and AI categories of interest (51 percent of respondents ranked this obstacle among the top three). For example, a health system that is building a digital front door may lack the resources to simultaneously invest in the latest generative AI (gen AI) capabilities.

Respondents called out challenges with legacy systems as the second-greatest concern (after budget constraints). Core tech modernization is key to delivering on the digital promise,1Eric Lamarre, Kate Smaje, and Rodney W. Zemmel, Rewired, Hoboken, NJ: John Wiley & Sons, 2023, chapter 8. but health systems have typically relied on a smaller set of monolithic systems that have become a challenge to untangle.

Additional highly ranked challenges include data quality (33 percent), tech talent and recruiting (30 percent), and readiness to adopt and scale new technology (34 percent).

Satisfaction with digital investment

Most executives of health systems that have invested in digital priorities (72 percent) reported satisfaction across all investment areas. Among the comparatively fewer respondents who reported investing in robotics and advanced analytics, satisfaction was even higher, at 82 percent and 81 percent, respectively. Given that investments result in a high level of satisfaction and that 75 percent of executives reported they are not yet able to deliver on their digital transformation ambitions (as noted above), health systems may be facing a failure to scale their digital programs.

What health systems can do and how they can learn from other industries

The goal of digital and AI transformation is to fundamentally rewire how an organization operates, building capabilities to drive tangible business value (such as patient acquisition and experience, clinical outcomes, operational efficiency, and workforce experience and retention) through continuous innovation. Delivering digital value for health systems requires investment and new ways of working.

Building partnerships. Scale is crucial to value creation. But the definition of at-scale systems has changed in the past few years; today, it takes more than $13 billion to be a top 20 system by revenue, and many have reached their current position through inorganic growth.6Shubham Singhal and Drew Ungerman, “Healthcare’s next chapter: What’s ahead for the US healthcare industry,” McKinsey, December 19, 2023. Partnerships (joint ventures and alliances) may offer a promising avenue to access new capabilities, increase speed to market, and achieve capital, scale, and operational efficiencies.7“Overcoming the cost of healthcare transformation through partnerships,” McKinsey, August 11, 2022.

Moving beyond off-the-shelf solutions. History shows that deploying technology—such as electronic health records (EHRs)—on top of broken processes and clinical workflows does not lead to value. Realizing value from healthcare technology will require a reimagination (and standardization) of clinical workflows and care models across organizations. For example, optimizing workflows to enable more appropriate delegation, with technical enablement, could yield a potential 15 to 30 percent net time savings over a 12-hour shift. This could help close the nursing workforce gap by up to 300,000 inpatient nurses.8Gretchen Berlin, Ani Bilazarian, Joyce Chang, and Stephanie Hammer, “Reimagining the nursing workload: Finding time to close the workforce gap,” McKinsey, May 26, 2023.

Using the cloud for modernization. Health systems are increasingly building cloud-based data environments with defined data products to increase data availability and quality. Health systems can also use cloud-hosted, end-user-focused platforms (such as patient or clinician apps) that integrate multiple other applications and experiences to simplify stakeholders’ interactions with the system.

Operating differently. Operating differently entails fundamental changes in structure (flatter, empowered, cross-functional teams), talent (new skill sets and fully dedicated teams), ways of working (outcome orientation, agile funding, and managing products, not projects), and technology (modular architecture, cloud-based data systems, and reduced reliance on the monolithic EHR). With these changes, some health systems have begun to see real value within six months. Building a digital culture helps the transformation succeed over time.9Matt Banholzer, Laura LaBerge, Andy West, and Evan Williams, “How innovative companies leverage tech to outperform,” McKinsey, December 14, 2023.

Cautiously embracing gen AI. Gen AI has the potential to affect everything from continuity of care and clinical operations to contracting and corporate functions. Health system executives and patients have concerns about the risks of AI, particularly in relation to patient care and privacy. Managing these risks entails placing business-minded legal and risk-management teams alongside AI and data science teams.10Juan Aristi Baquero, Roger Burkhardt, Arvind Govindarajan, and Thomas Wallace, “Derisking AI by design: How to build risk management into AI development,” McKinsey, August 13, 2020. Organizations could also implement a well-informed risk-prioritization strategy.

Digital and AI investments provide health systems with opportunities to address the many challenges they face. Successful health systems will invest in areas with the greatest potential impact while removing barriers—for example, by upgrading legacy infrastructure. Health systems that make successful investments in digital and analytics capabilities could see substantial benefits and position themselves to benefit from the $200 billion to $360 billion opportunity.11The potential impact of artificial intelligence, January 2023.