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Drive Innovation May 20, 2021

Unpredictability Presses On. So Do We.

Partner, Health and Life Sciences, Oliver Wyman
Partner, Health and Life Sciences, Oliver Wyman
Key Takeaway
Over 66% of the world has a cell phone meaning that most people are also walking around with a medical device in their pocket. #OWHealth

Editor's Note: The following article, about our Future Truth predictions for the healthcare industry, was originally published in the Oliver Wyman Health Innovation Journal, Volume 4.

By any measure, 2020 has been a year that history will not forget. The COVID-19 pandemic – which, as of this writing, has sickened over 37 million individuals worldwide and resulted in more than 1 million deaths – has completely transformed our economies and societies. Climate change made headlines, from the wildfires in Australia and the Western US to the floods in Louisiana. Every continent has experienced increasing political polarization and calls to action on racial and ethnic inequities. The economy has also been a story of the haves and have-nots, with the stock markets experiencing historic highs in a context of (also-historic) unemployment.

The healthcare industry has been a main player in this story, both leading the front-lines of the COVID-19 response and having to quickly address changing consumer preferences and economic realities. In fact, at the outset of the COVID-19 pandemic, there was doubt about whether anyone in the industry would survive intact. Images of constrained intensive care unit (ICU) wards flooded news feeds, providers experienced near-total reduction in elective volume, pharmaceutical conferences were deemed super-spreader events, and payers had no idea what impact COVID-19 would have on medical claims.

In the face of these challenges, the industry mobilized and adapted quickly. Health systems went from near zero to thousands of virtual health visits in the course of a week. Payers suspended utilization management programs, moved entire operations to virtual, and provided loans to help their provider partners manage cash flow changes. Biopharmaceutical organizations rushed to develop vaccines, with 92 candidates currently in clinical trials. Suddenly, the unthinkable became commonplace.

Suddenly, the unthinkable became commonplace.

As sudden as this change may have appeared to others, we in the industry were not surprised: The events of the last year just served to catalyze shifts that were already reshaping the market. Across the world, the population is getting older: in 2018, for the first time in history, persons aged 65 or above outnumbered children under five, increasing government spend on healthcare across the globe. The ways individuals receive care are also changing. In the United States, the national market size of the telehealth services industry jumped by over 30 percent each year between 2015 and 2020; and last year was the sixth year in a row that 11 personalized medicines were approved – this is more than 20 percent of newly approved therapeutic molecular entities. The market interest in healthcare innovation has also increased, with total health innovation funding in the first half of 2020 topping $9 billion – a nearly 19 percent jump compared to $7.7 billion during the first half of 2019. Clearly, the rapid change of the last eleven months is just a sign of what’s to come.

We are neither Cassandra nor Miss Cleo. We cannot predict with any level of certainty exactly what form the big advances, setbacks, and milestones of the future will take. But, by considering the trends impacting healthcare outlined above and how players are likely to respond, we can infer how the industry will evolve over the next 10 years. In the meantime, we believe a series of inevitable movements, mindsets, and actions will unfold over the next decade.

Future Truths

Taken together, the following eight Future Truths (many of which are explored throughout our Innovation Journal) represent fundamental changes to the healthcare ecosystem, and when they come to pass, will shape how we as an industry engage consumers, focus investments, and forge partnerships.

We Will See the End of “One-Size-Fits-All” Healthcare

Over 70 percent of the global population is experiencing a rise in inequality. In Latin America and the Caribbean, for example, people with disadvantaged backgrounds are 43 percent more likely to have a disability. In the US, African American infants die at double the rate compared to babies of other races and ethnicities. The bottom line is there can be tremendous difference in people’s needs and outcomes based on social determinants of health (and who pays for their care), even for those that live in the same neighborhood. 

Many healthcare organizations do little to distinguish their products and services offerings by payer segment today. On the contrary, many community health systems and regional health insurers pride themselves on their ability to serve individuals the same regardless of who pays their healthcare bills. Given this philosophy, healthcare organizations have managed margins primarily through cross-subsidy – private health plans paid 241 percent of Medicare rates on average in 2017 – and payer mix management. 

Here in the US, for example, over the next ten years, rising Medicare and Medicaid enrollment will mean that cross-subsidization will be insufficient for break-even economics. Employers, already fed up with healthcare cost increases that far outstrip inflation, will demand that carriers and network administrators hold the line. The largest source of market growth will be in government segments. To be financially viable, healthcare organizations will have to find ways to be profitable in every segment they serve. 

The requirements for running a successful Medicaid, Medicare, and commercial business vary, given the different consumer preferences, customer demands, reimbursement realities, and regulatory requirements of each. Thus, organizations will need to invest in increasingly specific capabilities by segment; the claims system that works well for ASO (administrative services only) employers will not perform efficiently enough for Medicare Advantage. Only the largest organizations will be able to afford a diversified book of business given the costs. 

These dynamics will lead the United States healthcare ecosystem to shift from “one-size-fits-all” toward purpose-built models that meet the specific demands of each line of business. This type of specialization is not new – most developed countries have distinct private and public healthcare ecosystems, with less expenditure and better outcomes. And we are already starting to see evidence of diverging business models, with organizations as diverse as Centene (in Medicaid), Oscar (in individual and small group), and Humana (in Medicare) demonstrating that focused operating models can deliver positive results for consumers, customers, and investors. 

If done right, increasing specialization by line of business will reduce disparities in health and improve outcomes for all. To realize this potential, there must be adequate level of focus and investment for government-funded segments, be it through incentives, regulations, or both.

We Will Get Care Everywhere, All the Time

Over 66 percent of the world has a cell phone meaning that most people are also walking around with a medical device in their pocket. Today, smartphones can count steps, measure blood pressure, take blood oxygen levels, detect atrial fibrillation, and connect to pretty much any piece of medical equipment (from blood pressure cuffs to glucometers) a consumer may need. Individuals can call, text, or video-chat with their doctor, seek advice from an AI-powered triage solution, order medications for same-day delivery, or summon a doctor or urgent care provider to their home. Providers, payers, and consumer companies can deliver “just-in-time” notifications and reminders in turn, combining real-time consumer data with behavioral-science based algorithms to increase engagement and improve outcomes. Combined, these technologies enable individuals to receive care where and when they need it – at a fraction of the cost of existing, facility-based solutions. 

Over 66 percent of the world has a cell phone, meaning most people have a portable medical device in their pocket.

We have had the technology needed to move much of the care individuals receive in medical facilities to virtual or home-based environments for years. Virtual health’s slow pace of growth has not been a problem of technology, but rather adoption. Lack of consumer awareness, provider skepticism, and regulatory hurdles (particularly in Medicare) have all played a role in slowing the shift. 

The rapid virtualization of healthcare services due to COVID-19 has cleared many of these obstacles. For those that are fans of virtual care, it is tempting to say that COVID-19 was a “Field of Dreams” moment, and that virtual solutions will rapidly prevail over traditional in-person care from this point forward. We do not expect that to be the case. Longstanding relationships between consumers and providers will be hard to disrupt, provider practicing patterns will take time to transform, and the pricing parity between virtual and in-person care negotiated during the pandemic will level the playing field — all of which will slow the virtualization of healthcare.

Ultimately though, virtual ecosystems will emerge that offer step-change evolution in convenience and affordability – and these solutions will predominate, just like they have in every other industry. Whether it's legacy payers, providers, software companies, or hardware companies that crack the code is anyone’s guess – but regardless of who does, they will present a credible competitive threat to local provider organizations as they exist today.

Healthcare Supply Will be Right-sized

Fee-for-service reimbursement models have incentivized healthcare delivery organizations to invest in services – and the personnel, facilities, and equipment they require – that drive revenue and operating margin, versus total cost-of-care management. Recent analysis done in conjunction with Oliver Wyman Actuarial shows that when age-sex adjusting for the projected 2030 population, we will have 1.3 times the number of inpatient beds that we need – if we stopped building additional inpatient beds today.

This also leads to inequitable distribution of healthcare supply and experiences across geographies (rural areas have 40 percent fewer primary care physicians per 10,000 individuals than urban areas) and different population groups (only 27 percent of Black, 27 percent of Latinx, and 23 percent of low socioeconomic individuals agree all patients are treated fairly). 

Rural areas have 40 percent fewer primary care physicians per 10,000 people compared to urban areas.

As the market shifts toward value-based reimbursement, particularly in segments such as Medicare and Medicaid, those services that generate significant operating margin within provider organizations will become cost centers. Health systems will start aligning resource levels to what their attributed population needs, versus the total number of services their catchment area can support. With a proliferation of lower-cost virtual- and home-based options – many of which have national scale – it will be harder to justify maintaining today’s expensive infrastructure. And that infrastructure is about to cost a whole lot more: the median average age of hospital plant facilities between 1995 and 2015 rose by 30 percent; rating agencies have downgraded the not-for-profit hospital sector; and while low interest rates make it easier to borrow, increasing pressure from pension liabilities are straining health system budgets. Provider organizations will have to develop more efficient ways to deliver healthcare services if they are to remain viable and thrive into the next decade.

Right-sizing supply is not just about reducing infrastructure. A shift in health system investment toward hospital at-home models, for example, has potential to increase access to acute care for individuals living in rural communities. Leveraging hub-and-spoke models could expand specialist access for underserved populations, ensuring many more people receive high-quality specialist care when they need it. These moves and others will afford an opportunity to build toward a more equitable distribution of resources over the coming decade.

Access Will Become Commoditized 

Over the past five years, organizations across the value chain – and those looking to get into the market – have rushed to control healthcare’s front door and provide differentiated access to services. We see evidence in nearly every large move healthcare organizations have taken, including new products (such as CVS Health Hub and Walmart Health), acquisitions (such as OptumCare’s expansion and Teladoc-Livongo), partnerships (such as Walgreens/VillageMD, Humana/Welsh Carson Anderson & Stowe) and a growing list of successful IPOs (such as One Medical, Accolade, Oak Street Health, AmWell, and GoodRx). These organizations are not just investing in new front doors to increase consumer affinity: Owning this initial touchpoint is seen as critical for achieving a whole host of strategic objectives, from reducing total cost-of-care to increasing share of wallet.

Today, owning the front door is very expensive, with companies spending billions to build, acquire, or integrate (in most cases unprofitable) facility-based primary, retail, and urgent care capacity. With virtual- and home-based models, providing convenient and affordable access is much easier and cheaper to do, and we are already seeing “virtual-first” products emerge. As virtual health solutions shift more toward AI versus expensive, skilled labor, organizations will be able to provide 24/7, immediate access to their consumers for nearly zero marginal cost. 

Today, 20 percent of people change their provider because of access and convenience. In 10 years, because of the proliferation of low-cost, automated front-door access care models, consumers will take ubiquitous access to high-quality preventive and primary care as a given. To get patients through the proverbial door, organizations must differentiate through other means – providing increasingly personalized service, offering delightful signature experiences, or granting unique access to services (specialist care, health and wellness support) that consumers value.

Today, 20 percent of people change providers because of access and convenience.

Data Sharing Will Focus More on Caring

Healthcare companies are collecting and capturing more and more data every day: Between 2016 and 2018, for example, healthcare organizations saw an 878 percent growth rate in the amount of data they manage, with the average organization having access to 9.6 PB of data. And the amount of data is expanding, with increasing collection of biometric- and device-generated data. For example, Blue Button 2.0 from the Centers for Medicare & Medicaid Services (CMS) has collected four years’ worth of 53 million Medicare beneficiaries’ demographic, prescription, treatment, device, and payment data.

Today’s healthcare organizations have already seen the writing on the wall on access and are investing in proprietary data as a hedge, going to great lengths to design products – and influence regulations – that keep consumers in their ecosystems. This includes creating barriers to consumers collecting and sharing their information across competitors; the minute a consumer changes their insurance carrier or their provider, it is like starting from scratch.

At a minimum, consumers expect to be in control of their healthcare data, and regulators are listening, as evidenced by CMS’ Interoperability and Patient Access final rule. But beyond just healthcare data, consumers across the globe are also willing to share their data: 63 percent of workers worldwide are willing to share personal health information to receive higher quality care, and 54 percent to receive more personalized care. Far from being reluctant to share data, consumers will expect their healthcare service providers to share information and, in turn, deliver experiences that earn their trust.

Financial services might show the path forward: Acquisitions by large players, such as when Plaid was bought by Visa or Finicity was bought by Mastercard, have significantly expanded data sharing in payments. Mint, as another example, allows for someone’s different financial accounts to show up in one spot on their phone, updated in real-time.

Just like in financial services, it will not just be consumer demand that leads to greater healthcare data sharing: As more and more solutions proliferate, no one company will have access to all the data they need to manage population risk, track outcomes, or acquire consumers. This will create a collective need for secure, rapid, inexpensive data sharing, shifting the source of competitive advantage from owning the data to generating unique and personalized insights. The next 10 years will see a democratization of data through open APIs (application process interfaces) or other technologies, as all organizations build toward better integration and access across third-party solutions.

The next 10 years will see a democratization of data.

Healthcare Will be Made for You, Not Me

Healthcare is already personalized, with organizations providing individual-level service based on practitioner expertise and judgment. Providers leverage decades of training to recommend treatments to patients, case managers connect individuals to resources based on their specific health and social needs… even insurance brokers and benefits consultants design health insurance plans based on the specific employer groups they serve. And while today’s personalized healthcare provides individual-level service, it is also labor-intensive, prone to variability and error, and expensive to deliver.

The next decade will bring personalized healthcare at scale. This is driven by three factors: better data, more available data, and better analytics. Continued advances in genetics, biophysics, behavioral science, and many more disciplines will expand what is knowable about any individual. Readily available, just-in-time data sharing will exponentially expand the number of data connections possible, and the richness of insights that can be developed. Smarter artificial intelligence engines will drive toward increasingly better recommendations – and continued advances in computing power will allow these algorithms to take in more and more information. 

This is not a vision of science fiction, with magical hand-held devices instantly diagnosing genetic mutations and characterizing new diseases. There are specific examples of personalization in small pockets, where inventions such as CRISPR have had a far-reaching impact on individuals with genetic mutations (for example, beta thalassemia and sickle cell disease). These critical advances in science could have a far-reaching impact on how the industry will be shaped moving forward – including how the dollars flow across the system. The ability to deliver personalized, high-quality care with less and less human capital will reshape fundamental roles across the healthcare industries, from physicians to research scientists to actuaries.

The Distinction Between “Medical” and “Pharmacy” Will Disappear

Increasingly sophisticated and personalized therapeutics have come at a cost. The rising cost of pharmacy – and specialty pharmacy in particular – has been a constant refrain in recent years, but now we are reaching a tipping point. Pharmacy represents 13 percent of today’s total healthcare spend and is growing at a worrisome rate. At Anthem, for example, employees use pharmacy benefits three times more compared to their medical benefits. Consider also that price hikes drove employer-sponsored health costs to record highs in 2018.

Expensive as they may be, biopharmaceuticals deliver substantial value to patients and communities and are a critical tool to lowering overall disease burden. Increasingly, biopharmaceutical interventions are being developed that replace medical intervention completely. Examples range from interventions that each of us will eventually need (such as Cologuard in place of preventive colonoscopies), to cures for rare diseases that save patient lives and obviate the need for years of hospital care (such as Zolgensma for spinal muscular atrophy).

Patients and providers are already looking at medical and biopharmaceutical interventions side-by-side in making treatment decisions… but on the back-end, the industry is not structured to support an integrated approach. Outside of the doctor’s office, pharmacy and medical care are treated entirely separately: Delivery is siloed and benefits are siloed. These structural barriers will become untenable as pharmaceutical interventions become more complex and costs rise.

Over the past decade, large players across the ecosystem have started bringing the different components together, laying the groundwork for much deeper medical and pharmacy integration. With the promise of better patient outcomes, more holistic experiences, and lower individual and population health costs, it is only a matter of time before one or more of these organizations takes the next step, building products and services that merge medical and pharmacy payment, access, and delivery.

Pharmacy represents 13 percent of today’s total healthcare spend.

Climate Change Will be the Most Significant Force Impacting Global Health

Even if the healthcare industry stands still for the next 10 years, we cannot escape the impacts that climate change will have on health across the globe. Extreme temperatures, droughts, rising sea levels, wildfires, hurricanes, floods, and the like will destroy infrastructure, threaten water supplies, create hazardous living conditions, cause food insecurity, and spark migration and conflict across the world. 

The healthcare industry is a major contributor to climate change: the sector is the fifth-largest emitter of greenhouse gases on earth. Healthcare organizations will also be subject to climate change’s impacts, as it will worsen every major category of disease burden: infectious disease, chronic disease, mental health, injuries, and deaths. This combination of cause and effect should push the industry to demand change and adopt more sustainable business practices. Across every major healthcare stakeholder, there are real opportunities to reduce emissions, from greening supply chains, eliminating unnecessary and wasteful care, and investing in preventive care that builds community resilience.

We have not done enough, as an industry or as a society, to stop the impact of climate change or even react to climate crises that emerge today. It remains to be seen whether healthcare organizations will mobilize and transform their business models to better withstand the impact. The next 10 years will see more severe and more frequent climate crises – the question is, which communities will be ready, and which will fail.

Change Means Choices

Each of these truths will push us in different ways and force us to accept the most sanguine truth of them all – that change is inevitable, and we have the power to shape the form that this change will take. Over the coming decade, we will face a series of choices – big ones, small ones, and ones that will feel insignificant but will impact us (and the industry) in major ways. As organizations make these choices, each will face existential questions about the nature of their business and their role in delivering healthcare to their customers. 

Where will our businesses achieve scale, and is that scale defensible? With virtual and home-based care models and process automation, scale will become more than back-office efficiency or negotiating leverage. For all but the largest players, scale will have to come from other sources – local market knowledge, unique data insights, one-of-a-kind experiences. Organizations must ensure sources of scale advantage ultimately guide our decisions on building, buying, or partnering for new capabilities – and which existing capabilities to outsource or wind down. And we cannot be fooled by just moving everything online – without automating significant parts of both clinical and administrative workflows, we will still be tied down by labor-based economics.

Where will we generate and leverage unique consumer insights? For years, organizations believed data equals power. As a result, most organizations fight to maintain control of their data and historically, it has been viewed as a locus of strategic control. However, as the market moves to open API interfaces, and data becomes more and more democratized, the value will shift from data to insights. We must make careful decisions on future data investments, balancing focus on acquiring necessary data with generating unique insights.

Who is the primary customer? Do we have a choice? The reality is that a one-size-fits-all model just doesn’t work in healthcare. Most businesses will need to choose. Current capabilities and projected demographics will force the hands of many organizations (particularly local health systems and regional health plans) that historically have preferred to serve commercially covered populations.

When will we begin the shift away from facility-based services? As consumers elect more virtual- and home-based care, the need for (expensive) physical facilities will diminish – but this shift will not happen overnight. Hospital systems and physician organizations alike must weigh options and investments in physical versus virtual and home-based care delivery, walking a fine line between going “too virtual” too soon, versus carrying expensive assets that never deliver a return on investment. We will still need intensive care units and surgical facilities a decade out. It’s just about making things like these available to people on a needed basis.

When will the differentiated services we provide be automated – or are they already? As the healthcare technology sector continues its rapid growth, and machine learning and AI present ever-more promising possibilities, investing in tools and enablement technologies that support differentiated services that are expensive today (including physician-delivered care, concierge service, and network contracting) will forge the future path for several organizations.

It's our responsibility to step forward and make those choices. Unfortunately, not making a choice is also a decision – at a minimum, being deliberate is a choice everyone should make.

A one-size-fits-all model just doesn’t work in healthcare.

Go Out There and Do It

There is so much we do not know. But we do have faith that we will make the critical decisions that will enable our industry (and the individuals and communities we serve) to thrive. We must sketch out how our businesses may be operating five or ten years out. We must dive into healthcare as being continuous versus a series of unrelated or fuzzy touchpoints. We must approach scale, growth, and communication as ideas and actions that transcend physical interactions and “business as usual.” To do this, and more, we must lead differently, lead better, and lead as empowered, informed, and inspired decision-makers. The unknown awaits. We are ready.

As much as the last 11 months have stretched all of us to our limits, we have also learned that when pushed, we can do what it takes to keep our communities and the globe healthy and strong. In the words of Bill Gates:

When you go out and see the empty streets, the empty stadiums, the empty train platforms, don’t say to yourself, 'My God, it looks like the end of the world.' What you’re seeing is love in action. What you’re seeing, in that negative space, is how much we do care for each other, for our grandparents, for our immuno-compromised brothers and sisters, for people we will never meet. People will lose jobs over this. Some will lose their businesses. And some will lose their lives. All the more reason to take a moment, when you’re out on your walk, or on your way to the store, or just watching the news, to look into the emptiness and marvel at all of that love. Let it fill you and sustain you. It isn’t the end of the world. It is the most remarkable act of global solidarity we may ever witness. It is the reason the world will go on.

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