McDermott HealthEx takeaways: Operational capabilities hold the key to capital

From the conference, here are six factors to watch:

Margin squeeze reshapes strategic priorities

Hospital and health system margins are stretched thin, as they face rising labor costs, inflationary operating expenses, and growing uncertainty surrounding government funding programs. Medicaid policy has become an enterprise-level strategic consideration, while Medicare Advantage reimbursement dynamics continue to influence growth strategies, transaction evaluations, and long-term capital planning.

In reaction to these challenges, the traditional healthcare value-creation playbook is evolving. Revenue growth, acquisition activity, and multiple expansion only tell part of the growth-potential story. Markers like margin expansion, workforce productivity, physician alignment, payor strategy, and revenue cycle optimization are becoming increasingly important as organizations seek to demonstrate value via a strong set of operational capabilities.

Operational capabilities create value

Scale, density, and market position are no longer sufficient measures to support premium valuations or drive sustainable returns. As reimbursement pressures, labor challenges, regulatory complexity, and longer hold periods reshape the market, platform operators are being asked to demonstrate a deeper set of capabilities that strengthen health system positioning and support performance both before and after a transaction.

Those same capabilities have become central to investor underwriting and diligence efforts, with buyers placing greater emphasis on:

• Physician alignment
• Revenue cycle effectiveness
• Workforce management
• Technology infrastructure
• Compliance maturity
• Ability to successfully integrate acquisitions

As financial engineering and acquisition-driven growth become less reliable sources of value creation, organizations that have a deep bench of proven operational and technical capabilities will be best positioned to differentiate themselves in a competitive market.

Outpatient capabilities drive massive growth

The continued care migration into outpatient settings is one of today’s biggest investment opportunities. Hospital outpatient revenue is growing at roughly double the rate of inpatient revenue, reinforcing long-term tailwinds for ambulatory surgery centers (ASCs), physician practice management (PPM) platforms, and other outpatient care models.

Access to the system is also a growing strategic differentiator. Organizations are rethinking how patients enter and navigate the healthcare system, with an emphasis on primary care, ambulatory networks, and consumer-centered access models.

The implications of this shift extend beyond site-of-care migration alone, with outpatient capabilities becoming increasingly important to establish market relevance and long-term enterprise resilience for health systems, physician groups, ASCs, and other outpatient providers.

AI and data infrastructure are critical – but have growing pains

Artificial intelligence has rapidly moved from innovation initiative to a core component of enterprise strategy. At the same time, AI and digital enablement have not yet fundamentally transformed provider and ASC operations at scale. Organizations remain in the early stages of moving from pilots and point solutions to enterprise-wide deployment.

Healthcare leaders may be starting to view AI less as a standalone initiative and more as a core infrastructure affecting future operating models, but this shift in perspective comes with its own set of challenges. Organizations are grappling with the non-technical aspects of AI integration (governance, workforce adoption, data quality, and compliance oversight, etc.) as much as the implementation of the technology itself.

Successful AI deployment requires a well-defined governance framework that’s clearly communicated and consistently reinforced. Strong cross-functional leadership alignment is also paramount, as is having a clear strategy for integrating AI into existing clinical and operational workflows.

Medicaid: What’s ahead for health systems

Strategic partnerships expand the growth playbook

Partnerships have long been a core vehicle for health system growth and strategic differentiation. What is changing is the breadth of organizations involved and the role these arrangements play in enterprise planning.

Health systems are increasingly looking beyond traditional hospital affiliations and pursuing partnerships with physician groups, ASCs, PPM platforms, behavioral health providers, home health organizations, post-acute operators, technology companies, employers, and payors. Increasingly, health systems are using these partnerships to strengthen market position, expand access points, broaden outpatient capabilities, and create new avenues for growth beyond traditional hospital-based models.

As partnership models become even more integrated and strategically important, diligence must extend beyond financial and legal considerations. Governance structures, decision-making authority, cultural compatibility, data-sharing arrangements, and operational alignment are all critical components of partnership fit and value creation. Change management also remains one of the most important, though frequently underestimated, determinants of long-term partnership success, especially as new technologies get rolled out across sites of care.

Regulatory review starts earlier in transaction planning

Healthcare transactions face increasing scrutiny at both the state and federal levels. State transaction review laws, antitrust enforcement, ownership transparency requirements, and broader public-interest are all influencing transaction timelines and deal structures, including what a more comprehensive diligence process should look like.

To account for shifting policy – including Medicaid funding uncertainty, Medicare Advantage changes, and evolving value-based reimbursement models – investors and buyers must start the diligence and underwriting processes earlier. Regulatory preparedness and reimbursement resilience are not downstream considerations, but rather part of the original investment thesis itself.

Bottom line: Investment priorities have changed

For health system leaders and platform operators, the challenge is no longer identifying growth opportunities, but building out the operational capabilities to capitalize on them. Investors and strategic buyers are now evaluating organizations through that same lens, placing greater emphasis on execution, resilience, and long-term performance than on growth potential alone.

McDermott HealthEx returns to Nashville in 2027. Join us on May 11-12 at the JW Marriott for even more opportunities to connect, collaborate, and engage with leaders shaping the future of healthcare.