In my three most recent blog posts, I've been unpacking the concept of "systemness"—and seeking to understand why so few systems have been able to achieve it. I've been breaking it down though a four-part framework my Advisory Board colleagues developed, which I initially used to explore first-level systemness, which we define as using scale effectively to build operational advantage, followed by followed by second-level systemness, which we understand as achieving clinical advantage by reducing unwarranted variation in all patient-facing processes.
Today, I want to move the discussion to level three: How can systems attain a competitive structural advantage? Proponents of mergers, acquisitions, and partnerships often cite economies of scale as their primary rationale. But, in practice, combined systems rarely make the changes to their fixed assets to realize these economies. (A note: While my previous posts also looked at economies of scale, the key distinction here is that levels one and two are largely about addressing variable costs, whereas I'm focusing now on fixed assets.)
It's not a fault of logic. As systems get larger, they should be able to spread their fixed costs across a larger number of patients, service lines, and sites of care. But doing that proves to be much more challenging in reality than in economic theory. All too often, systems grow the size of their asset base without fundamentally rethinking the configuration of those assets or how they are used. As a result, the economies of scale they hoped for are never realized.
In practical terms, this inaction means duplicative investments (two cath labs in a market that can only support one), overcapacity, and inadvertent competition within the same system. And internal inefficiencies aren't the only consequences—communities suffer as well. With health system capital tied up in unnecessary and redundant assets, other community needs (such as for behavioral health services, care management, and virtual care) remain unmet.