In ads that have appeared online and around New York City, people at rest and at play are bathed in a warm golden light in what appears to be Central Park. There isn’t a hospital in sight, despite the fact that the ads are for Mount Sinai Health System. Instead, they evoke a sense of well-being because the park-goers are supposed to be, quite literally, the picture of health. Mount Sinai’s tagline appears above them in a clear sky: “If our beds are filled, it means we’ve failed.” The ads began appearing in 2015, two years after the Mount Sinai Medical Center merged with Continuum Health Partners to create New York City’s largest nonpublic hospital chain.

The merger and ads speak to the critical issues that now confront the U.S. health care industry. Historically—and still today—health system revenues depended on people getting sick or needing acute care. Much of that care has been delivered in hospitals and developed for a centralized system where beds—filled or empty—mean profit or loss. Now, the model is being flipped as the industry’s center of gravity shifts away from hospitals to community-based settings where primary care providers and outpatient ambulatory clinics focus more on “well care” than “sick care.”

This seismic shift is coming after decades of gradual change punctuated by larger moves forward—such as the Affordable Care Act. Today, the U.S. health care industry is under increasing pressure from the government, employers and patients to not only simultaneously improve and shift care to prevention, but also to dramatically reduce costs. Health care spending has grown faster than the economy for decades with the Center for Sustainable Health Spending reporting that health care’s share of the U.S. gross domestic product rose from about 7 percent in 1970 to approximately 18 percent in 2016. As of January 2016, the U.S. spent more than twice the average of other developed countries on health care, with per capita expenditures totaling $8,713.

These pressures are creating a fundamental tension. While hospitals are still the primary industry player with the size and power to drive widespread evolution, the transformation puts at risk their business model: Fill beds with people who are sick. But forward-thinking health systems are upending old business models while a wide mix of new entrants powered by technology are seizing the moment to introduce new business and care models.

These disrupters are shifting investments from hospitals to outpatient settings, including maintaining or partnering with new ambulatory, retail, specialty and urgent clinics—all of them located outside traditional hospitals. They are also putting in place a number of lower-cost and more consumer-friendly options—coordinated through more evolved, cloud-based networks—that reward collaboration, performance and a focus on cost and quality on the part of management and front-line providers. And finally, some are placing bets on a new investment strategy of building and growing physician networks, as opposed to building more hospitals. They’ve committed to driving cultural change around a new model for how care is delivered that will ultimately look dramatically different and hopefully achieve better results for consumers and providers than that which has been in place for decades.

While hospitals are still the primary industry player with the size and power to drive widespread evolution, the transformation puts at risk their business model.

This creates strategic challenges for the executives now leading industry transformation. Challenging or not, these leaders are focused on overhauling the traditional hospital model to one better designed for today’s health care providers and the patients they serve.

Rethinking the Hospital Business Model

Historically, hospitals have focused their business model on the number of beds they filled—much like hotels or airlines—and the services and products they could sell to the people in those beds. That system depended primarily on insurance companies underwriting the cost of those services, making it easy to layer on more and more services and add more beds to increase revenues. Hospitals currently account for 30 percent of all U.S. health care spending and the average price for general hospital services in the U.S. is much higher than other developed countries.

Policymakers, local governments and progressive hospital executives have known for decades that this traditional model wasn’t sustainable. Thirty years ago, New York state officials considered not approving proposals for any more surgical beds in New York City because there was already an excess of 8,700 hospital beds. Noted authorities on hospital administration, including Warren Greenberg, associate professor of health services administration at George Washington University at the time, urged industry leaders to consider the oversupply of beds as “part of a solution to rising health care costs and not part of the problem.”

The “sick care” provided by hospitals should be limited to the most serious conditions, such as heart attacks and bone cancer.

Greenberg’s realization of an excess supply of hospital beds as a harbinger of change was well ahead of its time. In the immediate future, established institutions as well as health care startups are embracing the idea that having fewer patients in hospitals would be beneficial to the public. This strategy will bring more profits, not less, to those companies in the future. One of those is the Dallas-based CHRISTUS Health System and its CHRISTUS Physician Group (CPG), one of the 10 largest Catholic health care providers in the U.S. that operates in Texas, Louisiana and New Mexico, and extends internationally into Latin America. CHRISTUS has shifted additional investment and focus toward decentralized access to preventative and urgent care during the past five years.

“We call this ‘Generation 3’ of the physician corporation,” says Peter J. Plantes, M.D., CPG’s CEO and system vice president of physician integration at CHRISTUS Health (the parent corporation for the physician enterprise). In 2011, the company began placing more emphasis on acquiring both primary care and specialty physician practices over building more hospitals with more beds. That’s allowed them to become a more diverse health care company that includes ambulatory and urgent care service units.

To Plantes, the “sick care” provided by hospitals should be limited to the most serious conditions, such as heart attacks and bone cancer. For everything else, even for diseases once treated in hospitals, such as gallbladder removals, a network of physicians can manage care in ambulatory centers. At CPG, these physicians act preventively to help patients stop habits such as smoking, help patients maintain healthy diets and encourage preventative tests such as mammograms. The network includes nurse practitioners, physicians’ assistants and advanced practice registered nurses (APRNs) who work closely with doctors. “The difference is we’ve built an investment that’s now geared toward outreach to the community and motivating patients toward maintaining health, rather than asking the patients to come to the hospital to find care just at the point of sickness,” Plantes says.

CPG is also reframing how its physicians and other health care providers are paid. The traditional reimbursement model pays doctors a fee for every office visit and test ordered. Instead, CPG works from the “triple aim” concept: reduce costs, improve experiences for patients and focus on improved evidence-based outcomes. This type of value-based care rewards health care providers that hit quality targets while managing costs and keeping patients healthier. Although most reimbursement across the health care system still arrives through the traditional fee-for-service model, many experts see “value-based care” as the future.

Plantes agrees. He estimates that 80 percent of the industry’s focus currently remains on sick care rather health care. He says hospitals need to provide a continuum of care for patients that takes place in communities where people live, not in traditional hospitals. “One of the big things that’s changing here is that society is asking for a better outcome of quality, safety and cost,” he says.

Some of this shift is being driven by a larger industry-wide phenomenon: Patients are taking on more of the financial burden of their medical care. The annual average deductible for employer-sponsored plans is $1,318, according to the Kaiser Family Foundation, a substantial increase from the 2010 average of $917. HealthCare.gov places the median deductible for individuals with health care through the government exchange from $2,000 to $5,000, varying by state.

As of January 2016, the U.S. spent more than twice the average of other developed countries on health care, with per capita expenditures totaling $8,713.

The rise in personal medical costs is turning patients into powerful health care consumers. As they become more aware of those costs, they are “doctor shopping” and using crowd-sourced ratings websites to find health care that fits their needs and financial situation. As consumers, people with medical issues and health concerns think very differently about how and where they spend their money than they did as patients covered by insurance who had little knowledge of the costs associated with their care.

This shift from patient to consumer has also given rise to new places to receive medical care, including receiving flu shots at retail clinics or having surgical procedures once performed only in hospitals now taking place in ambulatory surgical centers (ASCs). Between 2008 and 2012, the number of Medicare-certified ASCs increased by an average annual rate of 1.7 percent. Urgent care centers are opening at a rate of more than 300 new clinics annually, and along with flu shots, they offer perks that are more in tune with consumer lifestyles, including longer hours of operation, free snacks and WiFi. Drugstore chains have also opened clinics inside their stores, and their use by consumers covered by insurance jumped tenfold from 2007 through 2009. By the first quarter of 2015, 84 percent of services administered by one of the large drugstore chain’s in-store clinics were paid for by third parties. An April 2015 study by Manatt Health found that patients with commercial insurance paid about $110 as opposed to $166 for similar services at a doctor’s office.

“At CHRISTUS Health and CPG, we are networking all of those access points to care: outpatient physician offices, urgent care, ambulatory surgery center, ambulatory imaging, free-standing emergency room, free-standing laboratory and imaging centers,” Plantes says. “We have the physician network out there in the community that provides a variety of readily available sites of care.”

A Clean Slate

Even as traditional hospitals like CHRISTUS transform their business models, well-funded companies working from a clean slate are inventing new models and approaches.

In the fall of 2015, Fairfax Family Practice Centers (F.F.P.C.) had reached a tipping point. The practice had 14 different offices with 130 doctors and two dozen medical residents stretched across Northern Virginia. The doctors knew they needed to evolve, but they also knew they didn’t want to join a traditional hospital system. “The way things are going, you need a certain infrastructure in order to be successful,” says Dr. James Jenkins, F.F.P.C.’s Medical Director. “You want to leverage your IT as best you can. You want to be data-driven and evidence-based in terms of your care of patients. It’s a redesign of the system.”

As Jenkins and his team searched for solutions, they discovered that even though the practice had grown in terms of the number of doctors, more expertise and sophisticated infrastructure were needed to be successful in performance-based programs with payers and employers. Size matters, Jenkins realized, but that didn’t have to mean joining a large hospital company. Instead, F.F.P.C. decided to become affiliated with physicians’ network Privia Medical Group in late 2015. Privia, based in Washington, DC, operates a network of physician practices that includes roughly 1,400 doctors and over 270 locations folded into a single core framework of Privia Medical Group.

“We believe that most physicians in the country want to practice in a way that’s most beneficial to their patients, yet most doctors don’t have the infrastructure that they actually need to be able to provide the kind of care to their patients that they want to be able to provide,” says Privia Health CEO Jeff Butler.

Butler recognized this problem not while working in the U.S, but when he was helping doctors treat HIV and AIDS in rural South Africa. He organized physicians into a network and created technology to encourage patient monitoring, home-based support and preventive care. The result was improved clinical outcomes, and his work there served as the blueprint for Privia.

Butler acknowledges that he had the luxury of creating Privia as U.S. health care was undergoing a profound shift. Instead of having to change an old system to fit a new world, he could intentionally design his organization around the new reality.

Despite an influx of more than $28 billion in federal funding, even the most basic efforts at digitization, improved connectivity and basic data sharing have proven difficult for many health care systems.

Using data drawn from its physicians’ network, Privia creates benchmarks that focus on patient satisfaction, quality of care and controlling costs. That’s not unlike CHRISTUS’s triple-aim goal, but Privia has added a fourth: increasing physician satisfaction. To reach that goal, Privia first had to determine what “high-performing” meant across its network. To do that, it used metrics and analysis drawn from a single shared cloud-based electronic records system—athenahealth. The two companies have worked cooperatively since 2014. athenahealth is used by nearly 80,000 providers in the U.S. and supplies health systems and medical practices with cloud-based services, including for electronic medical records, billing and population health management.

That’s the kind of technological step forward that has eluded many other providers. Despite an influx of more than $28 billion in federal funding, even the most basic efforts at digitization, improved connectivity and basic data sharing have proven difficult for many health care systems. In 2010, just 19 percent of hospitals could share information electronically with physicians practicing beyond their walls. Seventy-three percent of physicians didn’t receive information about patients being discharged from hospitals within two days.

Privia uses technology to create unified, connected information networks that support the physicians and, in the end, support health care consumers. For example, Privia can reach out to retail clinics and urgent care facilities and share data with them. “If a patient shows up at a retail clinic, we know that happened, getting the data back into the EMR so that we can best coordinate care,” Butler says.

He points out that this ability to use data effectively has been at the heart of the company’s success. Many practices that join Privia’s network see more than a 30 percent increase in overall revenue within 90 days. That comes from Privia’s doctors being able to rely on a single source of metrics and a consistent, efficiently managed workflow to set benchmarks that are transparent and replicable across its physician network. Privia also blends data analysis and support staff to improve both efficiency and efficacy. Streamlined trainings help Privia practices align their operations quickly. Each doctor has access to data related to their own performance and importantly lets them compare their patient outcomes and expenditures against those of colleagues in their office, with Privia’s network of doctors and across athenahealth’s entire national network.

Discourse between Privia’s physicians also is crucial. Doctors learn, share best practices and are encouraged to provide feedback in groups called PODS, which stands for Physician Organized Delivery Systems, that meet regularly to discuss performance and practice issues. They gather in large groups first and then in smaller breakout groups of practitioners. Coaching is also available from Privia’s performance specialists or from administrative officers like Sandy Cave, who helps manage data and analytics for Fairfax Family Practice Centers. “We have lots of metrics,” Cave says, who joined the practice 20 years ago as a nurse. “Understanding which ones are the metrics that drive change for us, in the sense of enhancing patient outcomes, is what supports the change in patient outcomes.”

That understanding is key, Butler says, because it has helped Privia combine scale with an infrastructure built around value, not around buildings or beds. So far, Privia’s model is proving successful in a number of ways. It has received significant venture capital investment, including $400M from a Goldman-Sachs-led investor group in 2014. The model is also paying off for the doctors in its network. Two years ago, Privia formed an Accountable Care Organization (ACO), called the Privia Quality Network (P.Q.N.), and participates in the Medicare Shared Savings Program. In 2014, the first year of their participation, P.Q.N. ranked among the top 15 percent of ACOs in the U.S. Unlike the vast majority of ACOs participating, they beat quality and cost targets, earning $5.7 million dollars in Medicare Shared Savings. Privia then distributed bonuses to physicians for helping it achieve those goals; such bonuses are a key part of how Privia physicians are compensated.

“In two short years, the physicians have gone from a very fragmented, five doctors practicing over here, 15 doctors practicing over there, to having banded together around the idea of improving outcomes and driving value into the system,” Butler says. “We are now in a very significant position of impact in the marketplace where the existing incumbents, the health systems and diagnostic facilities, and ambulatory surgery centers and labs and others now have to pay attention to and actively collaborate with doctors who are truly accountable for the outcomes of their patients.”

But Privia and CHRISTUS will need to be joined by many more organizations willing to overturn their traditional business models before health care will truly reflect the scenario described in Mount Sinai’s ad campaign. Getting there will require strong leadership because it means disrupting and replacing the hospital-centric model for good. Butler himself wonders if there are “going to be enough disruptive entrants into the market that can truly disrupt the marketplace and drive value into it?” The big shift currently underway in health care shows no signs of reversing course or slowing down. Most policy experts believe it’s essential for reining in runaway costs and setting U.S. health care on a sustainable path. Those organizations that fail to respond and adapt quickly will be left behind as health care innovators step up and capitalize on the opportunity with new models that can better serve doctors, patients and ultimately our national economy.