New Consumer Survey Reveals Imminent Risk to $64 billion in Revenues Traditional
Health Providers Receive for Common Treatments and Services
New York, April 10, 2014 –New entrants are poised to draw tens of billions of dollars in revenue from traditional healthcare’s $2.8 trillion revenue pie as these market disruptors rapidly develop products and services like the innovations that transformed banking, entertainment and publishing, according to Healthcare’s New Entrants: Who will be the industry’s Amazon.com?, a new report released today by PwC’s Health Research Institute (HRI). HRI found that consumers are ready to embrace new options being developed by new entrants from the retail, technology and telecommunications sectors, from smartphone otoscopes to online evaluations of digital photos of rashes.
“Today’s New Entrants are in the vanguard of a New Health Economy that over the next decade will see today's siloed healthcare industry become a wide open health marketplace,” said Kelly Barnes, PwC's U.S. health industries leader. “To meet looming revenue threats, traditional healthcare companies will have to partner, innovate or can face fading away. Meanwhile, the nimble and innovative New Entrants can benefit from partnerships with existing healthcare organizations, which understand the complex regulatory and reimbursement landscape.”
According to HRI’s research, half of 2013’s Fortune 50 companies are new entrants into healthcare – including seven retailers, eight technology and telecommunications companies and two automakers – simultaneously encroaching on and expanding today’s $2.8 trillion market for traditional U.S. healthcare participants. Healthcare’s New Entrants calculates that the U.S. market for fitness and wellness products and services adds an additional $267 billion to American health spending. This sector is being aggressively pursued by new entrants, attracting in particular startups and venture capital. Considering these two markets together suggests Americans spend over $3 trillion a year on health.
“As the health sector’s center of gravity shifts toward customers, savvy new players are moving fast to capitalize on the change,” said Vaughn Kauffman, principal, PwC Health Industries. “These new entrants are poised to shake up the industry, drawing billions of dollars in revenue from traditional healthcare organizations while building lucrative new markets. Within a decade, the health and wellness business will look and feel like other consumer-oriented, technology-enabled industries – retail, banking, publishing and music. Soon, healthcare will have its own Amazon.com-style, iconic, new economy brands.”
Consumer Survey Identifies At-Risk Revenues
As part of the report, HRI is releasing results of a consumer survey conducted in December 2013 that identifies a $64 billion marketplace in common health diagnostics, treatments and services that is at risk of being drawn away by new entrants – based on consumers’ willingness to seek competitively priced health solutions from non-traditional sources. The survey suggests this is the tip of an iceberg.
Survey respondents were presented with a series of common medical treatments, tests and procedures offered in new settings, such as using a kit to test for strep at home, having a digital photo of a rash evaluated by a physician online or having chemotherapy administered at home. Asked how likely they would be to choose each alternative treatment or service if it cost less out of pocket, nearly half of respondents on average chose these new options. More than 50 percent said they would opt for new services for a range of minor tests and procedures such as examining a rash or checking vital signs at home with smartphone device. More than one-third would consider alternatives for more sophisticated care such as infusion therapies.
New Health Economy: Context for Healthcare’s New Entrants
The Healthcare’s New Entrants report is prefaced by a separate essay outlining PwC’s vision of the New Health Economy, in which technological advances, empowered consumers, disruptive new entrants, and rising demand by an aging population are ushering in a new era in healthcare. While many of those trends have been emerging for some time, never before have they been accompanied by a rapid shift in dollars, triggering major changes in behavior and fundamentally altering the business landscape.
Today, healthcare revenue flows from government and employers through third-party payers, insulating consumers from true costs. In the future, purchasers – government, employers and individuals – will direct payment to the entities providing the best value, whether it is a clinical team or a sporting goods company, a nutrition counselor or a website.
In the New Health Economy, “patients” will be “consumers” first, with both the freedom and responsibility that come with making more decisions and spending their own money. These consumers will demand a continuum of well-being, rewarding the trusted advisers who can help achieve that.
New Entrant Focus Areas
Healthcare’s New Entrants examines in-depth three areas that are especially ripe for new entrant growth: retail-based clinics, price and quality transparency and the fitness and wellness market.
An HRI consumer survey, conducted in December 2013, showed 35 percent of respondents had visited a retail clinic in the last 12 months (up from 9.7 percent in 2007). The report highlights a partnership between the nation's leading non-profit integrated health plan, Kaiser Permanente, and Wal-Mart to open in-store micro-clinics – 300-square-foot operations that offer Kaiser members and Wal-Mart associates and their dependents basic diagnostic services and telemedicine connections to Permanente clinicians.
Industry estimates conclude that in three years venture capital firms have invested $400 million in start-ups targeting price transparency. Some new and traditional players in this space include Castlight Health, Truven Health Analytics, Healthcare Bluebook, HealthSparq, Aetna, Cigna, UnitedHealth Group and WellPoint.
New entrants such as wearable makers Nike, Fitbit and Jawbone are carving paths into a fitness and wellness market worth $267 billion in the U.S. annually. Such strategies represent an easy entry point to the wider and more complex healthcare market, as in the case of startup Jiff, which developed a digital exchange for employee wellness programs and has its sights set on building a digital health assistant to help consumers evaluate symptoms.
Key Principles for the Age of New Healthcare Entrants
Healthcare’s New Entrants concludes that while opportunities abound, healthcare remains a complex and highly-regulated ecosystem. One of the biggest barriers to change, its third-party payment system, is unlike that of any other industry. Success will require an understanding of market needs, consumer desires, regulatory requirements and reimbursement complexities.
For more information and to download an electronic copy of Healthcare’s New Entrants: Who will be the industry’s Amazon.com?, visit http://www.pwc.com/us/healthcare-new-entrants.
About PwC’s Health Research Institute (HRI)
PwC’s Health Research Institute (www.pwc.com/hri) provides new intelligence, perspectives, and analysis on trends affecting health-related industries. The Health Research Institute helps executive decision makers navigate change through primary research and collaborative exchange. Our views are shaped by a network of professionals with executive and day-to-day experience in the health industry. HRI research is not sponsored by businesses, government, or other institutions.
About PwC’s Health Industries Group
PwC’s Health Industries Group (www.pwc.com/us/healthindustries) is a leading advisor to public and private organizations across the health industries, including healthcare providers, pharmaceuticals, health and life sciences, payers, employers, academic institutions and non-health organizations with significant presence in the health market. Follow PwC Health Industries at @PwCHealth.
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