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Transform Care February 02, 2017

Predictions For an Unpredictable Year

Managing Partner, Health & Life Sciences, and Global Chair for I&D, Oliver Wyman
Head of Health & Life Sciences, North America, Oliver Wyman
Key Takeaway
What's next for the rapidly changing #healthcare industry? Read @OliverWyman 2017 predictions.

Perhaps the only thing that is certain in the US health market right now is that the coming year is going to be one of macro uncertainty.

In the two weeks that President Trump has been in office, we have seen an Executive Order to “minimize the economic burden” of the Affordable Care Act; new repeal and replace plans introduced by GOP senators; a boycott by Democratic senators opposed to Rep. Tom Price leading the Department of Health & Human Services; a travel ban that has teaching hospitals wondering who will Match and who might be barred from entry; a pledge to slash federal regulations; and an overture to the pharmaceutical industry.

The pace of developments is dizzying and each day seems to bring a new twist.

That said, even amidst the uncertainty, we do see some more meaningful trends taking shape. Below are five predictions for 2017.

1. The shift to value-based care stays in the center lane – but with considerable momentum.

Because the Trump administration’s healthcare proposals have yet to be announced, we anticipate that most of the market will continue down the value-based path at their current pace. There are some innovators who will continue to blaze the path, but most will be more measured. That means the shift will continue at a moderate pace and, consequently, the true potential of value-based initiatives (higher quality, greater transparency, better outcomes, and an improved patient experience) will be realized more slowly.

But make no mistake: The shift to value continues to have overall long-term tailwinds. MACRA, the most significant value-based payment reform to date, was supported by both sides of the aisle, after all. And studies over the past two years demonstrated that value-based pilot projects such as Patient Centered Medical Homes and the Medicare Shared Savings Program have reduced costs, and either maintained or improved quality. Even HR Bill 3762 – the bill passed repeatedly by the US House of Representatives to repeal the ACA – did not include any mention of repealing these initiatives.

That’s not all: Payers are starting to integrate population health strategies into their care management efforts. Throughout the payer landscape, there is increased understanding that the most effective levers for care management vary across Commercial, Medicare, and Medicaid, and even within those lines of business. In 2017, expect more payers to deploy increasingly tailored population health strategies and more targeted care management programs.

2. It’s still all about the consumer.

In 2017, the drive to consumer cost sharing will continue, and continue to shape the market. The new administration and Republican-led Congress have expressed interest in putting more consumers in charge of their health spending, and employers remain committed to consumer directed health plans. (More than 60 percent of large employers now offer a consumer directed health plan.)

If there is a legislative move toward more consumer cost sharing, either through a Medicaid HSA program (similar to the one implemented by Vice President Mike Pence and CMS nominee Seema Verma in Indiana); or the loosening of policies surrounding employer-sponsored HSAs (increasing the annual contribution limit, for example), expect further uptake of HDHPs.

Faced with the possibility of leaner core benefits and skinnier plans, consumers will be more focused on value than ever. This will spur wider adoption of transparency tools and could boost interest in voluntary benefits – which can round out coverage and offer a low-cost way to cover some of the financial exposure of a high-deductible product.

Private exchanges, which allow consumers to see the true cost of benefits and provide a transparent marketplace, could fill consumers’ increasing interest in shopping for value. And they stand poised for growth in 2017.

Progressive healthcare leaders will assess the various potential scenarios, and identify the required actions and course corrections for each.

3. A year of deals.

Regardless of the final rulings in the insurer mega-mergers, 2017 will be a year of deals. The largest of the payers may have reached Department of Justice limits, but payers will still be acquisitive. The difference for the coming year is that the focus will shift to acquisition of capabilities, including care delivery and enablement capabilities. In early-January, UnitedHealth Group took another significant step toward becoming a national provider when it announced its purchase of Surgical Care Affiliates for more than $2 billion. And on January 18, Aetna and Allina Health announced they were launching a jointly owned health plan company that would begin offering a number of commercial products starting in 2018, with Medicare and other products to potentially follow.

We also expect continued activity in payer-provider collaboration, via co-launched products and new joint ventures. Already, we are seeing more providers operating under value-based contracts and continued growth in provider-sponsored plans, particularly in Medicare Advantage.

4. Digital health start-ups have to work harder.

In the digital health space, expect higher standards, longer sales cycles, and more consolidation. In an uncertain regulatory environment, and with increasing scrutiny on ROI, employers and insurers are likely to be more conservative about how they spend limited dollars. Healthcare providers, the biggest buyers of health IT, are the ones that will be hit hardest by any changes to Medicaid and Medicare, and their technology budgets will be pressured accordingly.

This environment makes for a buyer’s market, with opportunities for larger players to take the various sub-scale companies doing individually innovative things and consolidate them into something that feels more like a compelling solution. In fact, we’re already seeing M&A in just this vein. (See: Castlight Health’s January acquisition of Jiff, a digital health benefits platform.) These sorts of solutions are less of a digital widget and get at the core of health benefits and administration. We will likely see more push toward this type of disruption and innovation, and the number of “wellness” platforms will shrink rather than grow.

5. No more business as usual for pharma.

It has been a rollercoaster few months for pharma. Drug company stocks rose immediately upon President Trump’s election. Then on January 11, he declared that the pharmaceutical industry is, “getting away with murder” and promised to change how the federal government purchases drugs. And on January 31, President Trump gathered industry leaders for a meeting at the White House and vowed to lower taxes (“bigly”) and ease rules.

While the most recent meeting indicates the White House may pursue a cordial relationship with pharma, drug costs remain one of the biggest healthcare worries of both employers and consumers, and the administration has not forgotten. Amidst the smiles and handshakes at the White House, President Trump stated that “we have to get lower prices, we have to get even better innovation, and I want you to move your companies back to the United States.”

What that means remains to be seen. But no matter what path the administration chooses, the increased focus on drug pricing means business as usual is a thing of the past. Smart pharma companies will be innovating not just in their pipelines, but in their commercial models as well. Value-based drug reimbursement will finally go from concept to reality, and pharmacy benefit management will continue to move from the crude cost-control instruments of formularies and step-therapy requirements to pharmacogenetics and personalized treatment pathways.

Smart organizations will determine a playbook for maintaining forward momentum in one direction, while simultaneously planning for the other.

Planning for this year of uncertainty

This year is shaping up to be a historic one. For now, though, there is uncertainty in nearly every corner of the industry and any stakeholders are watching events unfold in an alert wait-and-see mode.

Even amidst this ambiguity, there are ways to prepare. Progressive healthcare leaders will assess the various potential scenarios, and identify the required actions and course corrections for each. Smart organizations will determine a playbook for maintaining forward momentum in one direction, while simultaneously planning for the other.

It is certain to be a challenging year, and it will require organizations to flex their “stretch” muscles. But the alternative is to sit and wait and get passed by.    

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