By Fritz Heese and David Fries
Marsh & McLennan, Oliver Wyman, Accessed June 5, 2020
There are a few claims we’re making (with confidence!) about healthcare’s future. We predict healthcare’s migration to value will continue. Margin pressure and intense competitive pressure will push efficiency among incumbents (like automating and transitioning care to lower acuity environments). Industry boundaries will be challenged as digital, retail, and other companies make deeper forays into healthcare. But how fast will change happen? And who will win (and lose) profit share?
Below, we examine the range of possible scenarios.
Scenario 1: Status Quo Continues
Here, the next decade closely mirrors the last. Total healthcare costs increase before levelling off with gross domestic product growth. Value-based reimbursement models become only slightly more common. Healthcare’s still primarily fee-for-service. Government deficits continue, but Medicare and Social Security remain solvent.
Incumbents still create incremental efficiency through consolidation and process improvement. Most improvements are uniform, maintaining competitive parity without providing undue advantage to new business models. Electronic Health Record penetration reaches maturity, creating process efficiencies and modest clinical management improvements, reducing unnecessary medical costs.
Payers’ progress is evolutionary. They create simpler, more flexible products featuring integrated ancillary coverage, sculpted networks, and other cost-cutting levers. Care management programs slowly improve. Payer business models aren’t fundamentally disrupted.
Next-generation delivery models (like Iora, Amazon, and Omada) with potential for massive disruption exist, but still at the margins. Innovation happens in pockets. Nobody develops scalable, innovative solutions. Costs increase, but not faster than the system can withstand. Medicare and Social Security remain solvent. Industry economics are largely unchanged.
This scenario may seem unlikely. But if we’d written these words in 2009, it’s this scenario that would have best described the next ten years, where innovations and improvements happen in silos without fundamentally changing healthcare’s economic landscape.
Scenario 2: Healthcare As A No Profit Zone
This scenario begins like the last, but with less optimistic macroeconomics. The industry cannot drive incremental value without fundamentally disrupting existing business models. Government deficits skyrocket. Continued increase in deductibles and out-of-pocket spend oppresses patients, driving political reform. As a result, there’s a “reckoning” five years out, when rising healthcare costs become unbearable.
Medicare and Medicaid reimbursement is reduced, hitting pharma hard, as the government targets drug reimbursement parity with Organisation for Economic Co-operation and Development (OECD) countries. Annual prescription drug price increases disappear. More stringent limitations regarding comparative effectiveness limit new drugs coming to market. The government launches a “Medicare for all” single payer option which is managed similarly to Medicare Fee-for-Service, where payers play only a small, back office processing role. And thus, payers lose most of their commercially insured members to Medicare, now a direct competitor. Employers, eager to reduce costs and offer lower premiums and deductibles, contract directly with providers for the remaining commercial business, further dwindling legacy payer membership.
Incumbents’ margins are dramatically compressed. Consolidation pushes as far as regulators allow, leaving a few incumbents with razor thin margins, as price and earnings multiples enter mid-single digits. Like Scenario 1, innovative start-up and out-of-industry solutions exist in pockets, but aren’t profitable, or scalable enough to disrupt. Despite enough well-funded investors to spark competition and drive lower prices, a killer solution doesn’t thrive and prosper in the end.
Scenario 3: Triumph of Value – Incumbent-Led
Several “vectors to value” reach critical inflection points, going from pilots and silos to disruptors. Market incumbents lead the way. This creates massive consumer value and significantly expands healthcare profit pools, increasing opportunities to harness value for both incumbents and new market entrants. “Value” broadly includes supply-side and demand-side innovations driving better outcomes and lower cost of care.
(For details, use link below.)
Payers leave underwriting and risk taking for healthcare data science, behavior change, and managing an “iPhone-like” integrated healthcare experience. Highly performing providers heavily incentivized for cost and quality achieve massive gainsharing. Across these industries, incumbents hyper-aggressively acquire new innovations that drive transformation.
Scenario 4: Triumph of Value – Innovator-Led
Healthcare majorly pivots towards consumerism; the “Behavior”, “Tech”, and “Science” vectors initially dominate. Brand power, engagement, and strong consumer relationships become primary differentiators. Magnetic platform owners creating quality consumer experiences accrue value. Amazon and/or smart phone apps provide integrated consumer solutions to find doctors, purchase insurance, and change behaviors, leading to healthier lives. New market entrants capitalize on customer relationships to provide more traditional healthcare services, playing in the “Tools” and “Delivery” vectors. Increasingly, these solutions lead patients to healthcare’s “new front door” through retail clinics or virtual care owned and operated by new entrants. Incumbent business models remain largely stagnant, relegated to suppliers highly detached from customers.
Health insurers and traditional providers are commoditized, “racing to the bottom” to offer the lowest prices for services where patients use digital comparative shopping tools. Patients are loyal to the platform, not payers and providers (now secondary vendors). In an extreme case, the traditional healthcare system becomes a last resort destination as patients seek virtual care or retail clinic options, for all but the highest acuity care episodes. Low acuity care is no longer considered “healthcare”, but a consumer service provided by a mix of retail and Internet companies.
For incumbents, results mirror the “Health as a No Profit Zone,” Scenario 2 as they cede wallet share to out-of-industry players, now earning only a small profit portion in healthcare’s new market. Meanwhile, companies considered “non-healthcare” in 2019 will accumulate well over a trillion dollars in healthcare market cap by 2030.
In the future, different scenarios will increase value with highly contrasting implications for profit shares. Those who understand trends, vectors, and how to create strategic control and value will be best positioned. 2030, here we come.
Comment:
By Don McCanne, M.D.
Predicting the status of health care a decade from now is difficult because of the variables, but since the medical-industrial complex is dominating health care, the perspective of Oliver Wyman health care consultants is important since they have a better grasp than the health care professionals do as to where health care is headed.
The most likely scenario is tweaking of the status quo (though the authors state that this may seem unlikely, and that may be the case considering the plethora of capitalists swooping in to try to grab a major portion of the $4 trillion health care market). At any rate, the status quo is not satisfactory since it is failing far too many of us who need health care.
There is much talk today about replacing health care volume with value, and the authors suggest two scenarios in which that could occur: one in which the “incumbents” move from pilots and silos to disruptors, and the other in which “innovators” move in and take over. In both of these scenarios the business players take over and the traditional patient-oriented health care professionals become tools of the entrepreneurs, as the Hippocratic and Oslerian traditions fade into the background. Those who believe that capitalism should always prevail may find this approach to be great, but those supporting health care justice for all will likely find this sadly lacking.
From PNHP’s perspective, their scenario of “healthcare as a no profit zone” should interest us since it is based on their concept of how a “single payer ‘Medicare for All’ option” would transform our system (seemingly confounding a public option with single payer). They seem to be describing the changes from the perspective of a capitalistic, market-oriented entrepreneur – a sector that would be disappointed as the rewards of the system would go to the patients instead of to those who capture the market.
In sharp contrast, our vision of a well designed, publicly-funded and publicly-administered, single payer Medicare for All program would bring us the health care nirvana that we have been seeking. The problem is, they are in control. Their followers likely would prefer the innovator-led, profit-seeker approach (aka value-seeker), while leaving most of the incumbents behind and disrupting the status quo.
Think about it. Shall we just take potshots from the sidelines as the medical-industrial complex continues to transform the system to their liking? Or shall we finally get off our duffs and take over the process? Remember, we’re the ones who advocate for the patients, and that’s what the health care system should be all about. Right?
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