In the labyrinth of modern health care, a CEO’s responsibilities are expansive, encompassing strategic vision, operational efficiency, and mission-driven care. One of the most impactful tools at their disposal is the operating model—the often invisible framework that dictates how decisions are made, resources are allocated, and services are delivered. For health care leaders, operating models are not just blueprints but vital instruments to guide transformation, build resilience, and improve adaptability.

The stakes for redesigning health care operating models are immense. The pressures of escalating costs, shifting reimbursement models, workforce challenges, and increasing patient expectations leave no room for inefficiency. At the same time, opportunities to innovate, streamline, and elevate care delivery have never been greater. Here, we embark on an exploration of operating model design requirements and pressures for health care CEOs and their leadership teams, offering insights and actionable guidance to navigate this complex terrain.

 

Mounting Pressures and Complexities

1. A Unique Mission and Strategic Priorities

Health systems operate under a distinct set of guiding principles. Their mission is typically centered on improving health outcomes, enhancing community well-being, and expanding access to care. Unlike for-profit industries where shareholder value reigns supreme, health care organizations are judged by their ability to deliver on a mission of impact. For these organizations, the operating model must harmonize the pursuit of clinical excellence with the practicalities of financial sustainability.

Consider the example of a community hospital committed to reducing chronic disease rates in underserved populations. Achieving this goal requires aligning strategic objectives with operational execution, from staffing and resource allocation to innovative care delivery models. For CEOs and their teams, the challenge lies in embedding this mission into every level of the organization while maintaining adaptability to shifting policy landscapes and market demands.

2. A Diverse and Politically Complex Stakeholder Landscape

Operating model redesign in health care often involves a delicate balancing act among stakeholders with divergent priorities. Clinicians, administrators, patients, regulators, and community members each bring unique perspectives and vested interests. This diversity creates a politically intricate environment that requires deft leadership.

For instance, administrators must navigate competing priorities, striving to balance investments in cutting-edge medical technologies with the need to manage cost containment, efficiency, equity, and access. While most administrators prioritize all these elements, the difficulty lies in achieving the right balance amid resource constraints and diverse stakeholder expectations. Navigating these demands requires transparency, consensus-building, and a nuanced understanding of organizational culture to ensure alignment across priorities.

The introduction of a new electronic health record (EHR) system illustrates this complexity. While administrators might view it as a tool to enable exceptional patient care and enhance operational efficiency, clinicians may see it as an additional burden. Effective leaders recognize the importance of engaging all stakeholders early, fostering collaboration, and aligning incentives to ensure successful implementation.

3. Shifting Regulatory and Compliance Requirements

From patient privacy laws like HIPAA to accreditation standards and reimbursement regulations, compliance is non-negotiable. These requirements heavily influence the design of health care operating models, informing everything from reporting structures to data management systems.

Consider the complexity of quality-of-care standards, such as The Joint Commission accreditation standards, which influence clinical protocols, staffing levels, and performance metrics. Meeting these requirements demands robust data collection, analysis capabilities, and reporting infrastructure—all of which must be integrated into the operating model. For CEOs, the ability to anticipate and adapt to regulatory changes is critical to maintaining compliance without stifling innovation.

4. Optimizing Patient Experience and Outcomes

In health care, the patient is not merely a consumer but the central focus of the mission. As such, an effective operating model must prioritize patient experience and outcomes. However, balancing standardization with local-level responsiveness presents a significant challenge.

Consider a large health care system operating across multiple regions. While standardizing care protocols can improve efficiency and consistency, local variations—such as demographic differences and resource availability—often necessitate flexibility. CEOs must design models that empower frontline staff to make decisions tailored to their communities while maintaining overarching organizational standards.

5. Limited Talent Supply and Workforce Dynamics

Health care’s workforce challenges are both unique and pressing. Talent shortages, particularly in nursing and specialized medical fields, coupled with the complexities of unionization, changing workforce expectations and rising cost pressures, create significant operational hurdles.

For example, burnout among health care workers has reached crisis levels, exacerbated by the demands of the COVID-19 pandemic. Addressing this requires operating models that support workforce well-being, such as flexible scheduling, investments in mental health resources, and streamlined workflows to reduce administrative burdens. For CEOs, the task is to create an environment where staff feel valued, supported, and empowered to deliver high-quality care.

6. Legacy Systems and Processes

Many health care organizations are burdened by legacy systems and entrenched cultural norms that have developed over decades. These can hinder efforts to innovate and adapt to new challenges. Transitioning from paper-based records to EHRs, for instance, often encounters resistance rooted in longstanding practices and the imperative of maintaining continuity of care for patients.

Breaking free from these constraints requires visionary leadership and a clear articulation of the benefits of change. CEOs must balance continuity of care with a willingness to disrupt outdated practices in pursuit of progress. This often involves significant investments in technology, training, and change management.

7. Payer Reimbursement Models

The shift from fee-for-service to value-based care has profound implications for health care operating models. Under value-based care, providers are incentivized to focus on patient outcomes rather than service volume, necessitating new approaches to population health management, care coordination, and quality improvement.

For example, accountable care organizations (ACOs) are designed to improve outcomes while controlling costs. This requires an operating model that integrates clinical, financial, and operational data to identify trends, track performance, and inform decision-making. CEOs must ensure their organizations are equipped to navigate this transition, which often involves fostering partnerships across the care continuum and leveraging data analytics to drive improvements.

8. Payer Mix Complexity

Health care organizations must manage relationships with a diverse array of payers, including commercial insurers, government programs like Medicare and Medicaid, and self-insured employers. Each payer comes with its own reimbursement models, contract terms, and administrative requirements, adding layers of complexity to decision-making processes.

Consider that Medicaid, the majority insurer of underserved populations, often reimburses at lower rates than commercial insurance, affecting revenue streams and influencing strategic priorities. To succeed, CEOs must design operating models that address these multifaceted challenges while optimizing revenue cycle management and ensuring equitable access to care.

9. Margin Pressures

Margin pressures in health care are intensifying, driven by rising costs, regulatory demands, and reimbursement challenges. For CEOs, this underscores the importance of cost containment and operational efficiency within the operating model. However, cost-cutting measures must be carefully balanced against the need to maintain quality and invest in innovation.

Consider the rise of telemedicine, which gained prominence during the pandemic. While telemedicine can reduce costs and expand access, it requires upfront investments in technology and training. CEOs must weigh these costs against potential savings and long-term benefits, ensuring their operating models are agile enough to capitalize on emerging opportunities.

 

Why Operating Models Matter More Than Ever

Operating models serve as the connective tissue between an organization’s mission, vision, strategy and results. In health care, this means translating a mission—improving patient outcomes and community well-being—into operational systems that deliver results. The right operating model enables organizations to adapt to market forces, manage resources effectively, and align stakeholders around shared goals.

Consider that digital transformation is reshaping health care at an unprecedented pace. From electronic health records to artificial intelligence, technology is both a catalyst for change and a cornerstone of modern operating models. CEOs must ensure their organizations have the technological infrastructure and data capabilities to support advanced care delivery and operational efficiency.

The dynamic nature of the health care mergers and acquisitions (M&A) landscape also highlights the importance of robust operating models to effectively integrate diverse systems and maximize efficiency across consolidated entities. For health care CEOs, the challenge is twofold: ensuring the operating model supports both the strategic imperatives of the organization and the operational realities of care delivery. This requires managing a web of interrelated components, from workforce dynamics and governance to adoption of technology and financial sustainability. With the degree of consolidation currently underway in health systems, the CEO’s role in combining legacy systems and creating a single high-functioning operating model that delivers on the promise of scale, efficiency, and improved care delivery is critical. These mergers highlight the financial stakes and operational complexities involved, underscoring the importance of visionary leadership in driving successful integration.

 

Establish a Destination Point

In 2023, Lotis Blue conducted research that included 175 C-Suite leaders from across industries, including health care, which identified four distinct operating model archetypes: Network Manager, Strategic Leader, Operational Leader, and Integrated Operator. For health systems, this operating model blueprint allows leaders to build internal alignment on how they envision operating prior to getting into more detailed design choices. This is a particularly important step when two health systems are merging.

 

The Network Manager archetype prioritizes autonomy at the subsidiary level. Here, the system center acts primarily as a portfolio manager, setting financial expectations while delegating most critical decisions to subsidiaries. This model allows subsidiaries to maintain distinct identities and brands, making it particularly well-suited for organizations with diverse service offerings or regional focus areas.

By contrast, the Strategic Leader archetype seeks to align subsidiaries along clinical service lines. The system center defines key performance measures while subsidiaries execute against these objectives. This model balances central oversight with local execution, enabling organizations to maintain strategic coherence while fostering innovation and accountability at the subsidiary level.

The Operational Leader archetype shifts the focus to operational excellence and functional expertise. In this model, the system center provides consultation and shared accountability for metrics and outcomes. While subsidiaries retain some autonomy, the emphasis is on leveraging system-wide resources to enhance performance and efficiency.

At the most centralized end of the spectrum lies the Operational Owner archetype. Here, the system center consolidates decision-making authority, scales capabilities across the organization, and establishes a unified brand identity. This model is ideal for organizations seeking to maximize economies of scale and ensure consistency in care delivery. However, it requires strong leadership to manage the complexity of centralized operations and maintain alignment with local needs.

Each of these archetypes offers unique advantages and challenges, allowing health care organizations to select the model that best aligns with their mission, vision, and operational realities. For CEOs, understanding these frameworks is essential to making informed decisions that drive long-term success.

In 2024, Lotis Blue partnered with Vizient Inc. to understand the impact of these operating model archetypes and how different decision-making styles influenced choices around Program Consolidation, Operational Efficiency, Clinical Variation and Workforce Management. Centralized and hierarchical decision-making is associated with better performance outcomes, while decentralized decision-making correlates with lower safety and mortality rankings.

Effective decision-making relies on clarity and cohesion, ensuring all stakeholders are aligned and working towards shared goals. Centralized, hierarchical decision-making with clear and cohesive processes leads to superior performance in health systems.

Overall, centralization in health systems leads to more efficient, consistent, and effective decision-making, ultimately improving patient care and operational performance.

According to Vizient Research Institute’s findings, centralized and hierarchical decision-making processes significantly impact performance outcomes in health systems. For example, health systems that adopt centralized approaches exhibit stronger safety and mortality quality rankings compared to those with decentralized models. These findings are reinforced by survey data revealing that over 70% of CEOs believe program consolidation decisions should be centralized, a view shared by 53% of CFOs and 63% of clinical executives. Additionally, inconsistencies in decision-making approaches, such as variations in clinical practices and workforce management, were linked to reduced operational efficiency and lower patient satisfaction scores. This research highlights the critical need for cohesive and well-defined decision-making frameworks to optimize care delivery and achieve superior performance.

 

Target Operating Model Design for Health Care

Effective health care operating models are built on several core pillars. Each represents a critical area of focus that, when harmonized, drives organizational performance and impact.

1. Services and Capabilities

At the heart of every operating model is a clear understanding of the organization’s unique value proposition. Which services and capabilities create the most value? Where can economies of scale be achieved? How should merging systems think about Program Consolidation and minimizing clinical variance? For health care organizations, identifying core capabilities—such as population health management, integrated care delivery, or data analytics—is essential to prioritizing investments and optimizing performance.

2. Accountabilities

Defining roles and accountabilities for leaders, managers, and providers across hospitals, centers of excellence, shared services, and at the enterprise level is critical to managing the distribution of work and performance metrics that define success.

3. Organizing Features

The structure of a health care organization—from corporate headquarters to clinical units—dictates how work is managed and decisions are made. CEOs must decide where to centralize functions for consistency, scale and quality and when to take a more decentralized approach to foster agility and innovation. Balancing these priorities is particularly challenging in systems with diverse service lines or geographically dispersed facilities.

4. Decision Rights and Governance

Decision-making processes are the lifeblood of an organization. Clear governance frameworks ensure accountability, streamline decision-making, and align stakeholders. For health care systems, governance must accommodate the complexity of multiple stakeholder groups—clinicians, administrators, regulators, and patients—each with unique priorities and perspectives.

5. Structure

Deciding on the right organizational structure for a unique health system that is aligned to its mission, vision and strategy cannot simply be a benchmarking exercise. Benchmarking can be helpful in understanding overall costs, number of layers in the organization and management spans of control. Ultimately, leadership structures should align with a health system’s strategy, the number and geographic spread of locations, and the chosen degree of integration and centralization.

6. Behavioral Norms and Culture

Establishing a culture that reinforces excellence in patient care is critical. Culture tends to be an outcome of a number of elements that come together; leadership style and aspirations, stated values, performance metrics and accountability, and what gets celebrated and rewarded. Blending cultures post-merger is a particularly challenging endeavor as oftentimes, while the legacy organizations may share some common values, they may operate differently based on the communities they serve.

7. Workforce Strategy

The health care workforce is the backbone of care delivery, yet it is also a source of significant challenges. Talent shortages, burnout, and skill gaps demand innovative workforce strategies. CEOs must focus on building resilient teams, investing in workforce development, and creating environments where staff can thrive.

 

 

Aligning Models with Performance Outcomes

Recent studies underscore the link between operating model design and performance outcomes. Centralized decision-making often correlates with improved safety and mortality rankings, while decentralized models may foster innovation and local adaptability. According to our research collaboration with the Vizient Research Institute, centralized and hierarchical decision-making models consistently outperform decentralized models in key metrics such as safety and clinical quality. Health systems with clearly defined governance structures and decision rights demonstrate higher performance as they align stakeholders and mitigate intra-system inconsistencies.

For health care executives, this means recognizing the unique challenges and opportunities within their organizations. For example, systems with diverse service lines or geographical dispersion may require a blend of central oversight and local autonomy to balance efficiency with responsiveness. Furthermore, leaders must address internal decision-making gaps, ensuring alignment across clinical, operational, and financial priorities. Leveraging these insights, CEOs can establish operating models that enhance patient outcomes and improve workforce engagement and financial performance. A tailored approach that reflects the organization’s mission and strategic imperatives is essential for achieving sustainable success.

 

The Road Ahead

The future of health care depends on the ability of organizations to adapt and innovate. By adopting intentional and evidence-based approaches to operating model design, health care CEOs can position their organizations to navigate complexity, improve outcomes, and achieve sustainable success.

The journey is not without challenges, but it is one worth undertaking. With clarity, discipline, and a commitment to excellence, health care leaders can build operating models that are not only effective but transformative.

 

By Aaron Sorensen, Ph.D. and Garrett Sheridan