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Disruption and the Future of Healthcare: Industry Leaders Parse the Challenges, and Strategic Opportunities

April 4, 2018
by Heather Landi
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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.

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