Can health care become pain-free?
Managing Director EY-Parthenon
I’m struck by the rate of change in the health sector. Market forces continue to add significant pressure, creating impediments to growth, and uncertainty continues to cloud strategic planning.
Rising costs are placing an incredible strain on health care system and have reached unsustainable levels. In the US alone, health care expenditures accounted for 17.8% of overall GDP in 2015, rising 5.8% to $3.2 trillion.13 Recent deal making has been primarily focused on controlling these costs and finding ways to drive scale and efficiency. Affordability also continues to be a major driver for both consumers and providers. As consumers struggle to afford rising deductibles and out-of-pocket costs, they are less likely to seek non-essential care and invest in what they view as unnecessary wellness technologies.
At the same time, many of these technologies are struggling to meaningfully quantify their health outcomes for early adopters. For providers, stagnant reimbursement rates, political uncertainty, and an increased responsibility for outcomes have meant more work and risk for less money. While the sector has increasingly focused on improving quality, outcomes and efficiency, more work is needed. Finally, industry convergence and the rise of the “super consumer” in health care have significantly accelerated development and adoption of new technologies. New technologies are offering a chance for organizations to shift their approach, re-evaluate whom they collaborate with and how they interact with their patients. But knowing where to invest resources is tricky.
Big solutions will be required to solve the issues of today. These solutions will come from collaboration between stakeholders from across and outside of the health sector – the problems are simply bigger than any one company can handle. Collaboration is needed to build adoptable, value-adding platform solutions that are scalable. Large organizations are certainly the most likely to generate the level of scale needed but may be hesitant to look for partnerships among similarly sized organizations given the low regulatory success rate for large mergers.
The prevalence of small to midsize organizations entering the space has increased, and the environment is becoming highly competitive. While many anticipated the deal making momentum seen in 2016 would continue in 2017, the current regulatory environment is proving to be a significant headwind.
Despite these challenges, creative partnerships can be a great vehicle to turn to in this environment. Joint ventures, alliances, vertical integration activities and the like can provide organizations with several key benefits.
- Add strategic capabilities to portfolio – as new technologies and analytics from outside the sector reach the market, health organizations can create strategic plans that will maximize the return for integrating new offerings.
- Build scale across populations – partnerships that take advantage of successful approaches for managing one population may show benefit for others. For example, predictive models built by combining available data may find use in other regions or populations within the same state.
- Improve and solidify market positioning by filling gaps – partnerships that grow networks, fill holes in infrastructure or complete capabilities for serving the entire continuum of care for a population are an attractive way of filling gaps without starting over again.
13 2015 National Health Expenditure Fact Sheet, CMS, https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.html.