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Unraveling Healthcare Industry Dynamics: M+A, Shifting Risk and the Data Revolution

Posted June 26, 2018| Robert Flynn

There is no denying that change is the single most prominent theme in healthcare today. Most people point to change imposed by the government including concepts to constrain pharmaceutical drug prices and morph or repeal the Affordable Care Act, or Obamacare. However, most of the change is being driven by health players themselves – payers, providers, technologists, pharmaceutical manufacturers, and, to an increasing extent, consumers.

While it’s impossible to predict the final configuration, it is feasible to cheapture the primary factors involved in or driving the transformation. Reviewing our recent engagements with major corporations across the healthcare industry, speaking with executives at conferences such as the Blue Cross Blue Shield Summit, the HealthSmart IT event, and several pharmaceutical tradeshows, we’ve identified some of the top issues that are driving healthcare change. Knowing these elements and their nuances is critical for the executive and policymaker, who want to stay ahead, or drive change themselves.

To label these as definitive would deny the very essence of the transformation afoot. Yet, these are, as of now, critical issues affecting the industry.

Coalescence Among Sectors is Breaking Down Traditional Silos

The industry is beyond traditional mergers and acquisitions. What we’re seeing is an amalgamation of activities, strategies and intentions across the industry, upending the age-old labels such as payer and provider. The CVS acquisition of Aetna, predicted here the summer before it was announced, is no routine acquisition but better characterized as an existential redefinition of both parties’ mission. The Blue Cross Blue Shield plans have established subsidiaries for expansion beyond claims payment to wellness and even investment in innovation.

Provider organizations hit a record number of mergers and acquisitions, a total of 115 transactions in 2017 a year that Kaufman Hall analysts characterize as a “transformative year for healthcare deal-making.” As entities such as CVS/Aetna push into the provider space, hospital administrators are trying to build scale and expand offerings, a sign of a melding of the industry. The result is a new ecosystem.

The Risk Equation is Shifting Toward Quality Care + Outcomes

In the old system, risk was assessed at the group level and payments made by health insurers. These companies, including Aetna, UnitedHealth Group, Cigna, Blue Cross Blue Shield, had near exclusivity on the data that was required to adjudicate claims and to recommend treatments. Today, that risk equation is shifting. More providers are either taking on the task of assessing patient care considering overall risk factors, or are being thrust that responsibility by consumers and payers. A physician’s decision to order an MRI, perhaps previously made “just in case,” is now carefully evaluated by that physician in terms of the expected value such an expensive test may or may not deliver. The unification of managing risk and delivering care is not universally embraced by overburdened providers, but it does hold promise of controlling costs. As one example of this emphasis on care, under the Hospital Value-Based Purchasing Program (VBP), hospitals receive payments based on the quality of care delivered. This program reimburses hospitals based on the quality and safety of inpatient care:

  • Eliminating or reducing adverse events (healthcare errors resulting in patient harm)Adopting evidence-based care standards and protocols that produce the best outcomes for patients
  • Changing hospital processes to create better patient care experiences
  • Increasing care transparency for consumers and families
  • Recognizing hospitals that provide high-quality care at a lower cost to Medicare
  • Yesterday’s emphasis on managing risks is being transformed into a system focused on care.

Advancements in Data + Technology Will Revolutionize Diagnostic Capacity, Personalized Care, and Operational Efficiency

We are now moving into the age of innovation in delivery platforms and artificial intelligence and are starting to realize how they can contribute to quality, cost-efficient care. Integrated at scale throughout the health industry, technological advancements will be invaluable to advancing the industry.

Real-Time Patient-Level Data 

Consumer technologies like FitBit or Apple watches tell us our heart rate. Consider at the individual level, the value of tracking chronic conditions and reporting the diagnostic data to a healthcare provider in real time. At the aggregate level, executives’ can streamline analysis of hospital efficiency and accelerate care delivery improvements. Capturing patient data allows payers and providers to deliver more customized products.

Improved Access to Care

The advent of telemedicine reduces the need for visits to a hospital or provider’s office, extending the reach of quality care more broadly—a win for both physician and patient.

Operational Efficiencies Achieved with Artificial Intelligence

Artificial Intelligence (AI) drives cars, operates manufacturing plants, routes transportation, even delivers our packages. It is also beginning to improve healthcare delivery. Nvidia, has focused its efforts on transforming healthcare through its AI chips and software infrastructure and it is receiving accolades. Despite recent setbacks, Watson Health and Google DeepMind along with GE Healthcare and Oracle have all made progress in applying AI towards improving equipment and processes in healthcare.

Technology devices, software applications, and artificial intelligence hold promise for progress across the health industry and once resolution of disparate data challenges advances, we’ll see exponential developments in data applications across the health industry.

Take a Page out of Charlie Munger’s Book

These factors are each in various stages of realization, and to a certain extent, polarizing. Players in this changing industry, just as players have in other disrupted industries, will need to face the ultimatum – adapt or become irrelevant. Choosing the former is not as daunting as it seems, assuming executives are prepared and properly armed. Understand the forces at play, rule number one according to Charlie Munger of Berkshire Hathaway: market assessments, analysis of current and potential competitors, understanding of consumer base and demand, identification and monitoring of early warning indicators, scenario-based planning, and development of both core and contingency plans are all key elements of preparation and prioritization. Regardless of what the future holds and how it is ultimately configured, organizations can be ahead of the competition, and positioned for success.

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