Hospitals restructure for efficiency — but at what cost?

Modern Healthcare – Tuesday, July 1, 2025
By Alex Kacik and Caroline Hudson

Health systems are revamping leadership teams and organizational structures to operate more efficiently, but some may fall for a short-sighted cash grab if restructuring isn’t handled carefully.

Reimbursement pressures and potential funding cuts are leading many systems to rethink their governance models and trim their ranks. At the same time, growing industry consolidation and an aging workforce are leading to executive reshuffling.

Leadership cuts lead to upfront savings on salaries, but health system executives say the aftermath of restructuring must be carefully planned out. Providers can hurt morale if they rush reorganizations.

Yale New Haven Health in March said the New Haven, Connecticut-based system would consolidate management and administrative roles. Boston-based Mass General Brigham made similar changes this year. Springfield, Massachusetts-based Baystate Health has cut corporate roles and leadership positions over the past eight months. In January, Main Line Health went through a reorganization that led to a reduction of 300 positions, many of which were middle management. Main Line is expected to save about $30 million a year.

Health systems have pinned reorganizations to financial challenges and outdated operating models.

“The status quo is not sufficient,” Orlikoff & Associates President Jamie Orlikoff said. “The structures and the approaches of management, of organizational tables, reporting relationships and numbers of direct reports that were relevant just five years ago won’t be relevant today.”

Systems are increasingly looking to limit bureaucratic layers by enlisting systemwide directors to oversee certain specialties and sites of service such as ambulatory care. These changes can root out some middle managers and expand existing roles, while allowing health systems to better allocate resources across inpatient and outpatient networks, according to health system executives.

For example, Main Line has broken down communication barriers, accelerated decision-making and improved financial planning since the health system started shifting its focus from individual hospitals to systemwide services about two years ago, said Pam Teufel, chief human resources officer for the four-hospital system in suburban Philadelphia.

Clinical leaders and physicians are paired with administrators to oversee operations and growth strategies for services across the entire organization. Service lines are supported by human resources, along with finance and other executives who help map out business plans and staffing. Previously, Main Line had a finance director at every hospital, Teufel said.

Health systems have to move quicker and sometimes that translates to fewer administrators, she said.

“We can’t afford to do everything — we have to have ruthless prioritization. We have to change how we do business,” Teufel said. “We don’t have the luxury of doing something and not worrying about the profit.”

More health systems are poised to overhaul their governance models as CEOs retire, finances tighten and technology advances, experts said.

“What you will continue to see is regionalization of leadership roles to get rid of hospital fiefdoms,” said River Meisinger, regional vice president at staffing group AMN Healthcare Leadership Solutions/B.E. Smith.

Where health systems can stumble is taking a short-term approach to leadership changes and failing to consider the long-term strategy ramifications, industry observers said.

Rahul Singh, head of the provider practice at consulting group West Monroe, said health systems can run into trouble if they cut jobs too quickly and don’t focus on the reorganization of responsibilities afterward.

“If you don’t transform the work, the work doesn’t change. Now you’re trying to do it with fewer people but in a different corporate structure, and that doesn’t help,” Singh said. “If you’re just doing it to cut costs, I don’t think it’s the right approach. If you’re doing it to truly transform how you operate, then I think there’s value.”

Realigning the workload post-restructuring takes time.

Sanford Health Chief Financial Officer Nick Olson said the system has a 36-month road map for its integration with Marshfield Clinic, with which it merged in January.

In April, Sanford cut nearly 100 leadership and administrative roles due to the integration process. Olson said the Sioux Falls, South Dakota-based system can achieve upfront cost savings with cuts, but the more important benefits stem from scale, technological capabilities and process improvements. He said Sanford is not planning to cut additional leadership roles.

Providence President and CEO Erik Wexler noted a months-long reset after making executive-level changes.

New executive roles create a cascading effect, where teams have to get to know one another, learn new processes and figure out how everyone works together toward the system’s larger strategy, he said.

“You can’t just stop with, ‘OK, you have a new assignment,’” Wexler said. “It does take months, but what you see is ongoing improvement, so it gets better and better every day.”

Providence has made big changes to its organization in recent years, including condensing seven regional divisions into three. Earlier this year, the nonprofit health system made more adjustments to leadership by eliminating some roles and reshuffling responsibilities as Wexler took the helm.

Renton, Washington-based Providence has also sought a financial turnaround in recent years. As of January, the system had achieved about $1 billion in operational improvements.

The money-saving benefit of cutting executive positions was a secondary consideration, Wexler said. The main goal was ensuring decision-making and standardization could happen at a quicker pace.

Despite its progress, Providence cut 600 mostly nonclinical full-time positions in June, citing financial pressures including payer denials and rising operational costs.

Health systems can stunt long-term growth if they do not effectively communicate why and how an organization needs to adjust, said Greg Button, president of global healthcare services at executive search firm Korn Ferry.

“Systems face potential cultural issues, losing employee engagement and hurting patient and physician satisfaction if they don’t do this right,” he said. “Health systems are walking a fine line, especially for those that have done this purely to cut costs and haven’t thought through using technology and streamlining processes to make the lives of administrators easier.”

Phased approaches to restructurings can limit disruption, experts said. However, not all health systems have the foresight or discipline to regularly evaluate and incrementally roll out new governance models, said Lawrence Prybil, a retired University of Kentucky health management and policy professor.

Scripps Health tends to revamp its operating structure at least once every 10 years, said Chris Van Gorder, president and CEO of the four-hospital health system. The leadership changes help shape Scripps’ succession planning as executives develop new skills, he said.

The San Diego, California-based system eliminated some hospital-focused executive positions in 2019 and adopted a regional governance model with expanded physician and nursing leadership roles. Physicians, for instance, split systemwide operations oversight by ambulatory and inpatient care.

Involving clinicians in leadership structures is a key part of Scripps’ strategy, Van Gorder said.

“It’s good to shake things up a little bit,” he said. “Organizations must continue to evolve. I never assume this is the final structure or way to do something. But I know we are going to find ways for doctors to get into management.”

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