Realizing the transformation vision: Modernization economics in practice

In Part 1 of this series, "Reducing uncertainty before capital is committed," we explored how a Value Model can help health system leaders align transformation priorities, define value, identify the Value Accelerators required to realize them and sequence initiatives before capital is committed.

Part 2 turns to a composite example of how sequencing, Value Accelerators and reinvestment dynamics can reduce the overall costs of transformation over time.

Business as usual modernization versus sequenced enterprise transformation

The difference becomes clear when transformation is evaluated over time, not just by total investment, but by when value is realized and how it compounds.

In a business-as-usual, or transactional, model, modernization typically occurs incrementally, with assets replaced department by department over multiple years. Investment is spread across time, but value realization is delayed and fragmented.

This often leads to:

• Rising service costs and downtime as assets continue to age
• A 10+ year path to full modernization, missing out on the benefits of fleet standardization
• Higher administrative and operational burden
• Unpredictable funding cycles year-over-year
• Limited or delayed operational improvements

Value is spread thinly across time and enterprise. Inflation, deferred savings, and fragmented decision-making erode the overall return on investment.

In a Care Alliance, modernization, operational improvement and execution capacity are intentionally aligned and sequenced so early gains can support reinvestment over time.
This changes the economics of transformation by accelerating value realization, improving funding predictability, reducing long-term investment requirements and coordinating execution across people, process and technology.

As illustrated by the Compounding Value Engine:

• Modernization and operational improvements are front-loaded to accelerate value realization
• Operational gains create margin that can be reinvested during the program lifecycle
• Predictable annual payments improve planning and reduce funding variability
• Economies of scale and cost avoidance help reduce the investment required

A composite example: how value compounds over time

The following example is based on an actual GE HealthCare experience; the details included are representative and simplified for illustrative purposes. This illustration focuses on one specific Value Model; each health system’s model is customized to its circumstances; program drivers and scale are unique to each health system and may not be representative for your system. A Care Alliance director can provide a more detailed case example or support development of a customized Value Model for your health system upon request.

Consider a mid-sized, integrated health system operating multiple acute-care hospitals, ambulatory sites and physician practices in a densely populated regional market in the United States, with approximately 2,000 staffed beds and $4 billion in annual revenue.

Clinical infrastructure

The system has approximately 1,300 assets in scope for modernization, with an average age of eight years. About half of imaging and ultrasound systems and three-fourths of anesthesia devices are beyond end-of-service-life, contributing to fragmented technology across sites and limited standardization across service lines.

The challenge

The system operates with a fragmented, capital-intensive approach to technology investment and service delivery characterized by thin margins, capacity constraints, and rising service costs and downtime driven by an aging, fragmented fleet.

The impact extends beyond capital planning. Aging infrastructure can affect care quality, access, throughput and the experience of clinicians and technical teams while rising service costs and downtime continue to pressure margins and operational capacity.

For example, aging imaging assets drive escalating cost structures, with maintenance expenses increasing approximately 25% for each year equipment operates beyond its useful life.¹

The organization has reached a system-wide inflection point: Aging assets have accumulated to a level where modernization at scale is required to maintain high-quality patient care, expand operational capacity and continue advancing its Centers of Excellence.

The economic reality

Continuing to replace assets reactively and episodically increases long-term cost and operational risk.

Over a 10-year period, a business-as-usual transactional approach would require approximately $648 million in total spend for equipment and maintenance, about 14 percent higher than their historical spend over the 10 prior years.

Through a Care Alliance, the system instead commits to a structured $569 million investment, aligned across service, technology and execution enablement, with a predictable annual payment of $56.9 million.