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Reengineering episodes of care is increasingly important (and more possible). Care engineering can unlock better patient outcomes and financial sustainability, even at Medicare rates.
Cost cutting alone is unlikely to close the gap—care model redesign can help
Healthcare leaders are confronting the structural reality that while cost reduction and efficiency initiatives remain essential to financial discipline, they may no longer be sufficient to enable long‑term sustainability. Most systems have captured the obvious administrative and operational efficiencies, but overreliance on these cuts can be a recipe for diminishing returns.
In our work with clients, we are seeing leading systems redesigning care models to orchestrate patient flow, sites of service, workforce deployment, and decision support. For these systems, care is no longer constrained by physical services at a hospital campus, an outpatient office building, or an ambulatory surgery center. Instead, it’s managed across in‑person and virtual settings using real-time data and flexible resources to adapt to cost pressures and capacity constraints.
This isn’t about rigid standardization. It’s about building reliability that holds up under change, delivering consistent access and quality without requiring proportional growth in labor or cost. And it’s not simply an efficiency project. Care engineering represents a step toward a model where affordability, capacity, and quality are designed into the system from the start, not retrofitted after the fact. With margin pressures intensifying, labor issues persisting, consumer behaviors shifting, and technology advancing rapidly, this is no longer a discretionary investment. Care engineering builds the foundation for a fundamentally lower cost structure, one that could enable leading systems to run sustainably at or near Medicare rates.
Care engineering is the dividing line between systems that grow stronger and systems that fall behind
Systems that can steer demand, balance resources across sites, and coordinate handoffs with partners will outperform those relying on fixed networks and traditional processes. The ability to deliver efficiency as a core capability rather than a series of cost cuts can determine which health systems grow stronger.
Reasons to believe
US healthcare is being reshaped by intensifying economic pressure, rapid advances in technology and medicine, shifting demographics, and rising consumer expectations, forcing providers to rethink not just where care is delivered but how it’s designed. Four structural factors are exposing the limits of today’s operating models and creating a compelling case for care engineering as a more deliberate, sustainable approach to care delivery.
- Reimbursement is shrinking. The cost of care is not. The math no longer works. Reimbursement growth, particularly from Medicare and Medicare Advantage, continues to lag underlying cost inflation. Recent data from the American Hospital Association indicates that a significant share of US hospitals are operating with negative margins, underscoring the urgency of structural cost redesign rather than incremental efficiency measures. Improving efficiency of care delivery is no longer optional.
- Acuity explains some of the variation. The rest is a design problem. Based on a PwC analysis, many health systems have significant internal cost variations within the same diagnosis-related group or procedure. Patient acuity explains part of this variation, but differences in labor models, sites of care, length of stay, supply use, and clinical practice patterns also create meaningful variation in both cost and clinical quality.
- Variation can be predicted and prevented. Rather than relying solely on retrospective benchmarking, leading systems are beginning to use predictive insight to anticipate variation before it manifests, identifying risk, mismatches, and inefficiencies earlier in the episode. Over time, care pathways can increasingly be designed with embedded intelligence that helps guide decisions in real time, narrowing variation while preserving clinical judgment.
- Another round of cuts won’t reset the cost structure. Traditional cost cutting levers such as administration expense cuts, hiring freezes, or across the board productivity targets may deliver short-term relief, but they don’t reset the underlying cost structure. Care pathway engineering instead takes a zero-base view of how care should be delivered to meet future margin requirements.
Six no-regrets moves to embrace care engineering
The trends shaping today’s care delivery environment—margin compression, workforce constraints, new technological capabilities—are pushing systems to rethink how care can be designed and delivered. Here are six practical starting points to support implementing care engineering.
1. Begin where impact is inevitable.
Prioritize one or two care pathways where economic pressure, clinical variation, and strategic importance intersect. This can create the conditions to show value quickly and credibly, building momentum for broader change.
Innovator’s move: Treat the pilot as a “minimum viable care platform” that proves holistic orchestration, such as algorithmic routing, dynamic staffing, and automated handoffs, so it can scale across pathways like software, not remain a one‑off improvement effort.
2. Shared facts end debates. Build them first.
Establish a clear baseline by mapping the overall patient experience, analyzing variation in outcomes and resource use and identifying friction across departments. Anchor redesign efforts in clinical quality and episode‑level contribution margin. A shared fact base creates alignment on where unwarranted variation exists and where redesign can generate meaningful impact.
Innovator’s move: Move from retrospective analysis to a real‑time digital twin of the pathway that predicts bottlenecks, margin leakage, and avoidable variation before they occur and recommends the next best operational move.
3. Redesign fails without the front line. Engage clinicians as architects, not reviewers.
Involve frontline clinicians early in pathway design to make sure that your new models reflect real workflows. Frame redesign as a quality and care‑delivery effort (not cost cutting) to build trust and momentum. Engage respected physician and nursing champions and use transparent peer data and benchmarks to surface variation constructively and enable productive, evidence‑based clinical dialogue.
Innovator’s move: Pair clinicians with AI copilots during design to simulate pathway changes, stress‑test edge cases, and translate frontline judgment into decision support that improves continuously.
4. Redesign without governance is a project. Redesign with governance is a capability.
Establish clear ownership through a clinical-operational dyad with defined decision rights, metrics, and review cadences. Embed pathway oversight into existing service‑line and quality forums to make redesign part of routine management, not a parallel initiative. This governance model enables that changes stick and balance quality, access, and cost over time.
Innovator’s move: Evolve dyads into standing care‑pathway teams with shared outcome accountability and authority to reallocate capacity across sites, including virtual settings, in near real time.
5. Workarounds are symptoms of a pathway that wasn’t truly embedded. Reduce reliance on them.
Embed redesigned pathways into systems of care—EMR order sets, discharge protocols, scheduling, referral workflows—so that the proper actions are the default. Continuous performance monitoring enables rapid course correction and reduces reliance on workarounds.
Innovator’s move: Shift from guidelines embedded in the EMR to policy‑driven, semi‑autonomous workflows with human intervention focused on exceptions and clinical judgment.
6. A pathway designed only around internal assets is already too expensive.
Evaluate how external partners—community providers, medtech, biotech—can be integrated to transform care pathways to improve quality, capacity, and economics. Thoughtfully designed partnerships can offload excess cost while maintaining quality and continuity.
Innovator’s move: Design pathways as ecosystems with plug‑and‑play partners, shared data signals, and outcome‑linked commercial terms, allowing capacity to flex beyond the enterprise as seamlessly as it does within it.
The winners will likely be those who engineer care, not just manage costs
While systems can begin with focused pilots and disciplined baselining, these steps typically operate within the constraints of an existing care model. Real success can come from institutionalizing transparency, standardization, and governance across sites.
Innovators redesign care pathways as scalable operating platforms, embedding real-time intelligence, dynamic staffing, and integrated decision logic into how the system runs. This shift often moves beyond benchmarking and incremental improvement toward structural cost redesign, positioning the organization to sustain margin performance under tightening reimbursement conditions.
What is care engineering?
Care engineering is a disciplined approach to analyzing, designing, and improving operational workflows to help drive efficiency, quality, and performance. Care engineering investigates how care is performed today, identifying bottlenecks and waste with the aim of redesigning processes to achieve the organization’s goals. This process uses data, insights from stakeholders, and leading practices to streamline operations, reduce costs, and improve outcomes and patient, caregiver, and employee experience.
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