Just in the past three months, news headlines have signaled the potential for disruptive change in the healthcare space—from Amazon teaming up with Berkshire Hathaway and JPMorgan Chase to form a healthcare company, to speculation of a Walmart-Humana deal, to tech behemoth Apple launching its Health Records platform.
With continued vertical integrations, mergers and acquisitions and big tech companies making healthcare moves, it’s clear the pace of disruption in healthcare is accelerating, but what does this mean for the future of healthcare? Is there an upside to disruption for industry stakeholders?
A cross-industry panel representing financial, health, technology and life science leaders discussed the implications of this sudden digital disruption during a webcast on Wednesday hosted by Ernst and Young (EY), the New York City-based advisory services firm. The panelists dissected the opportunities made possible by digital disruption, what these changes may mean to stakeholders across the health value chain and what organizations can do to seize the upside of technological disruption.
Kristen Vennum, EY Americas advisory health sector leader, a panelist during the webcast, summed up the current landscape and dizzying pace of change when she urged healthcare executives to “find their strategy within the chaos.”
“We have to change as quickly as our marketplaces are changing, or we’re on the wrong side of the S curve. And this speaks to the amount of change that healthcare executives are facing now, and it’s going to increase as opposed to decrease. Finding your strategy within the chaos is critical,” she said. “Six or eight months ago, or a year ago, we thought disruption might come from Washington D.C., [with] regulatory changes. And now, the conversation has really changed; disruption is coming from unexpected sources and new places. The ability to be agile in our strategy and to be able to take in a lot of input, then set a course and adjust it over time, is an important asset.”
Along with Vennum, the panel was comprised of Roger Park, financial services, innovation leader at Ernst & Young; Mike India, transaction advisory services, Ernest & Young; and Simon Mathews, M.D., head of clinical innovation, Armstrong Institute for Patient Safety and Quality at Johns Hopkins Medicine in Baltimore. Jacques Mulder, U.S. health sector leader for Ernst & Young, moderated the panel discussion.
The panelists kicked off the discussion by first describing the current landscape in the healthcare industry and what they saw as signals for change. According to data provided by EY, Fortune 500 companies spent more than $265 billion in healthcare costs in 2017. Large employers pay, on average, $9,800 for annual healthcare costs for their employees.
What’s more, the industry is facing enormous cost pressures. According to EY data, the calculated cost of the end-to-end healthcare marketplace as it relates to U.S. gross domestic product (GDP) is $3.4 trillion. It’s estimated that the U.S. healthcare system wastes about $765 billion a year. And, healthcare costs are projected to grow 5.7 percent, outpacing U.S. GDP and inflation. This all points to an industry with ongoing market inefficiencies, unmet consumer demands and unmet employer needs, the panelists noted.
Providing a physician’s point of view, Dr. Mathews said, “There is a consensus that in the healthcare delivery space, there are pockets of excellence, such as advancing new technologies and specific health outcomes, such as post-stroke mortality, but if you zoom out, you see a different story. The statistic that medical errors are the third leading cause of death, if you think about the magnitude of this problem, it’s clear that there are challenges and opportunities going forward.”
The panelists first tackled the disruptions taking place on the business side, such as increased mergers and acquisitions (M&A) activity as organizations look to consolidate and scale as well as ongoing vertical integrations.
“One of the things we’re seeing is organizations turning themselves into pretzels; we have clients who have become payers, providers, suppliers or distributors, and [we have] changing business models,” India said, with regard to vertical integrations. A few notable examples include UnitedHealth buying DaVita Medical Group for $4.9 billion, CVS’s plans to buy Aetna for $69 billion and four leading U.S. health systems announcing plans to develop a not-for-profit generic drug company.
Vennum said healthcare organizations have three options—deny change, get bigger, or “get different.” “Those are not mutually exclusive, but ‘getting different’ is new. It’s part of a journey that will reshape what the healthcare market looks like in North America and reshape how the value chain works. The end game might be to just ‘be different’,” she said.
The question moving forward, Mulder said, it whether vertical integration will create value. India said he believed it would, noting “The thing that strikes me about the U.S. healthcare market is how extremely fragmented it is. Even the biggest businesses throughout life sciences, including payers and providers, none are bigger than 3 percent of the total market. Even the big businesses are struggling to direct traffic as much as they would like. For stakeholders along the health value chain, with vertical integration, they can streamline throughput, take hand-offs out of the process, lower costs in a meaningful way and find standardization and consistency,” he said.
Park noted parallels between financial services and healthcare: “There is going to be a lot of integration, as it creates value, vertically and horizontally. It’s about creating the ecosystems and the networks that allow parties to work with each other to create value for consumers, end users,” he said.
Digital Disruption and Potential Benefits
The panelists next tackled the digital disruption taking place in healthcare, with non-traditional players (Google, Amazon, Apple, etc.) looking to offer better technological platforms for administering healthcare, particularly with a focus on providing more optionality and access as well as price transparency. Examples include the Amazon/Berkshire Hathaway/JPMorgan Chase partnership, Apple’s plans to open two health clinics in California for its employees, and reports that Google is looking to break into the managed care space.
“What’s different about this digital disruption is this idea of finally brining the consumer to the forefront, and that’s different than just having health records implementation in the health system, or having apps. It’s about consumers owning their own data. We’re seeing signals that large companies are working to actually put the data in the hands of the consumer,” Vennum said.
“Data is the currency that the health economy trades on,” India said. “Right now, it sits with insurance companies and providers; it sits with everyone but the patient or consumer. These latest announcements are aimed at shifting who controls the power in the health economy. That causes our clients to think about how they engage the patient or member, as they will have more choice and optionality, which could drive value.”
A digital healthcare ecosystem will significantly disrupt healthcare by providing consumers/patients with more choice, access, transparency, curation of medical information, and discovery, with information being more focused and analytics-driven.
As a physician, Mathews said there is tremendous value in shifting control of healthcare data to the patient. “It’s about empowering patients with data and tools, and ultimately driving the outcomes that matter.”
He continued, “At a hospital level, what we don’t do enough of, and what needs to happen to realize value, is that we need to be integrating by designing systems to deliver on outcomes.”. “At the unit level, technology in and of itself is in a vacuum, and a reality in the clinical environment is that it needs to integrate with clinical workflows and culture. Technology needs to augment, facilitate and work with these other elements.”
The promise of a digital healthcare platform is the ability to integrate all the information that a patient needs in one place, Vennum said. “Someone shared an observation at HIMSS (the Healthcare Information and Management Systems Society Conference in Las Vegas last month), where they looked at the exhibit floor and said, ‘This is the problem with healthcare—there are tens of thousands of point solutions. I don’t want tens of thousands of places to go; I want to go to one trusted place and everything else plugs into that’,” she said.
Despite the dizzying pace of change and the shifting landscape, the panelists noted that there are upsides to disruption. “It’s an exciting time, and you almost can’t keep up with all the announcements in health. What does this mean? The first point is that every organization needs a strategy to capture, protect and influence their demand. Or, you risk being commoditized,” Vennum said.
To this end, organizations should evaluate their M&A and partnership strategy to accelerate strategic partnerships and consider non-traditional M&A partnerships (vertical integration) to reduce complexity and cost, India said. And, organizations should work to build interfaces and demand aggregation platforms.
On the technology side, organizations should work to become leaders in digital and mobile engagement, establish digital marketplaces and use digital to influence population health. “As you’re evaluating platforms and technologies, one simple thing to look for is, does this enable better behavior, does it enable the customer to make better choices and make it easier for them to do the right thing?” Vennum said.
“The upside of disruption is that we can use these technologies and capabilities to create better outcomes and create a better experience for the end user. The upside is the opportunity to reimagine the industry,” Park said.