2015 Healthcare Trends
Riding a wave of policy
turmoil, consumer empowerment, and tightening margins, payors and providers
have no choice but to go bold.
It can be hard to
distinguish the signal from the noise surrounding the healthcare industry these
days. And the decibels will only rise in 2015, especially as the U.S. Supreme
Court is set to weigh in on a critical facet of the Affordable Care Act and
2016 presidential contenders are beginning to offer their healthcare
prescriptions.
Among the din and uncertainty, however, some clarity can be found.
Indeed, the immediate future for the healthcare sector can be summed up by
these trends, which Strategy& and PwC have dubbed the New
Health Economy:
·
Consumers will increasingly play a decision-making role in their healthcare coverage and treatments.
·
The federal government will further solidify its position as
healthcare market maker.
·
Insurance reimbursements will become stingier.
·
Employers will look for ways to remain paternalistic by exploring
new care and funding models such as bundles.
More than five years ago, Strategy& postulated that the creation of state healthcare exchanges would lead to
competition for consumers among insurance companies offering a range of
affordable insurance plans. Yet we cautioned against the notion that these exchanges would make employer-driven
insurance obsolete. So far, these predictions appear to be on track. Despite a
shaky start, the new insurance marketplace is having an impact; a total of 6.7
million people had enrolled through the federal and state exchanges as of
November 2014, and insurers are planning to offer more products in more states.
Of course, if the U.S. Supreme Court rules in favor of the plaintiffs in King v. Burwell and outlaws federal subsidies for
people living in states without their own insurance exchanges, the ACA’s
insurance market will have been dealt a heavy blow. But it would not be fatal —
many states are already developing workarounds to continue subsidizing
coverage.
In 2011, Strategy& also forecast that hospital margins would
come under tremendous pressure for the rest of the decade, taking a hit of 20
percent. Since then, a Modern Healthcare study has shown hospital margins have lost about 14 percent, going from
3.6 percent in 2012 to 3.1 percent in 2013. Moody’s has similarly reported a decline in hospital margins over the past
two years, nonprofit institutions feeling it the most.
Going forward, we anticipate that as reimbursement pressure grows
and underlying costs continue to rise, margin pressure will persist, despite
economic expansion and increases in overall healthcare spending. Elimination of
the subsidies by the U.S. Supreme Court would exacerbate the situation,
particularly in the states opposed to the ACA. Hospitals must respond by
significantly lowering costs, surgically removing waste, and reinjecting
savings into areas of growth. Many health systems, including some of the most
advanced systems in the country, are preparing for this through comprehensive
transformation efforts, targeting
double-digit improvement in financial performance. We believe that every health
system still has room to improve on this front by standardizing, innovating,
automating, and driving toward greater system cohesion.
Strategy& strongly believes that there is a need for stronger-form healthcare
products — procedural, acute, chronic, or long-term
care offerings that change the way healthcare is delivered, financed, and
consumed. The accountable care organization (ACO) construct, which reimburses
participating providers for achieving quality and cost objectives for a defined
Medicare population, has not generated sufficient improvements in care
transformation or patient engagement. Indeed, the Pioneer ACO program has lost
40 percent of participating hospitals. Health systems that are continuing with
the ACO construct are realizing that changes have to be more than skin-deep.
Meanwhile, productized or bundled healthcare — in which a patient pays a single
fee for all tests and treatments related to a condition or procedure — is
gaining in popularity. A recent Strategy& survey found that about 30
percent of the large health systems and innovative employers are pursuing
bundled care and another 50 percent are interested in the concept.
We are witnessing the evolution of a new healthcare marketplace,
offering a range of solutions that combine care and financing. It will be more
competitive and more transparent, and ultimately shaped by the shifting of risk
to providers and consumers, and the addition of retail channels for care and
financing. This marketplace will deal in population health solutions combined
with a range of acute, chronic, and long-term products. Below are three
recommendations for how to lead, manage, and differentiate your organization in
this new environment.
Ladies and
gentlemen, place your bets
In the past, many of
Strategy&’s recommendations for healthcare payors and providers took the
form of no-regret moves — foundational management actions sure to pay off under
any industry scenario. However, no-regret moves are insufficient for
competitive differentiation, and this year we urge payors to place big bets.
Huge decisions loom about
the role payors will play, particularly in care delivery transformation. As
risk shifts to providers, rewards will follow, and payors will have to decide
whether to defend against this transition or accelerate and enable it. For
example, payors might seek gains by investing in care delivery assets, renting
analytical capabilities to ACOs, or helping balance demand and risk for bundled
services offered by a provider. Deciding on the right course will require
payors to pick winners — a role they have been uncomfortable with up to this
point. And becoming more involved in care delivery means going outside the
traditional payor core, a move that could make sense for a subset of payors in
2015 as a way of transforming their business while leveraging their
capabilities.
Moreover, capturing the
new healthcare consumer will require all health plans to develop a clear retail
strategy relying on solid customer analytics. To attract a broad swath of
consumers, health plans should develop a winning product mix, pricing
structure, and customer experience in 2015, with pilots and experimental
programs focused on developing new distribution and digital channels by 2016.
And just as payors face fresh competition from providers going directly to
employers, private exchanges bring the risk that benefits consultants will play
a larger role in influencing an employer’s choice of healthcare plans.
Hospitals and health systems are similarly standing at a
crossroads. The decision of how much risk to assume is a major one, driven by a
range of factors including market dynamics, mission, network adequacy, and
technological strengths. We anticipate that several hundred health networks will become payors. Even more fundamentally,
many health systems have yet to decide how they will stand out to consumers and
employers: Will it be on the basis of convenience, cutting-edge innovation, value,
or experience? Downstream from this fundamental choice is a set of decisions
about how health systems will use the new retail channels in the financing and
delivery of care.
Having decided on how they will differentiate themselves, health
systems can and should double down on growth. The nuance this year is to find
opportunities that are less capital intensive by crafting affiliations with
like-minded organizations, forging more effective physician partnerships, leveraging advances in
virtual health, and freeing up internal funds and bandwidth to redeploy in
areas where strategic gains are possible.
Don't take
no for an answer
As a health plan or hospital executive, you may have had a
conversation with your team recently in which you were told that they have
nothing left to cut. Respectfully disagree. In our experience, aligning
resources with strategic priorities and applying modern industrial engineering
techniques, such as standardizing processes as well as the flow of patients
through the facility, can reduce health plan
administrative costs by as much as 25
percent.
The “find savings” conversation is most contentious in hospitals,
where quality and safety are often given as the reasons to just leave things
alone. Another frequently heard excuse is, “We don’t want to stop doing x while
the payors are still reimbursing it.” In our experience, it is possible to
improve quality, safety, access, patient experience, and engagement of
physicians and staff while cutting costs. Most of the leading
health systems in the country are setting ambitious targets and rightfully
embarking on a ruthless search for unnecessary complexity, fragmentation, and
waste. By closely matching supply to demand and getting faculty, doctors,
staff, and facilities to perform at the top of their potential, these systems
are realizing benefits no matter what payment model they choose. In short, a
campaign for operational effectiveness and efficiency is no longer optional —
it is table stakes.
Don't
believe the hype
In 2014, hospitals,
payors, and companies from other industries invested record amounts in
healthcare technologies through venture funds, incubators, accelerators, and a
variety of other vehicles. Chances are, many of your team members are talking
about disruptive innovation, and bankers, vendors, and potential partners are
lined up outside your door.
But not everyone will be
equally successful in these diversification and innovation efforts. Some will
play to their strengths and gain capabilities required to succeed in their
specific markets. They will use innovation and diversification as an engine to
transform their fundamental core and create advantages in the face of multiple
possible industry scenarios. Many others will overpay and take their eyes off
the ball. Be guided by your particular business strategy.
Conclusion
The coming year will serve
as another waypoint in the evolution of the healthcare industry toward a more competitive
and efficient marketplace. We’re optimistic about cost-saving innovations, the
entry of new consumer-savvy competitors to the marketplace, and the flourishing
of genuinely new models like productized and virtual health. The process will
remain evolutionary and thus slow, nonlinear, and massively parallel, with an
occasional dead end. Those hoping for a great leap forward will likely be
disappointed. Those prepared to compete over the long term will succeed.
http://www.strategyand.pwc.com/perspectives/2015-healthcare-trends
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