New Entrants

The frustrations and costly contradictions of today’s fragmented $2.8 trillion healthcare system are well documented. Despite breathtaking scientific achievements, the US system is marked by inefficiency, waste, a lack of transparency and mixed health outcomes. Put simply, we have not gotten our money’s worth.

But the ground is shifting rapidly, giving way to what we call the “New Health Economy.”

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Healthcare’s new entrants: Who will be  healthcare’s

The health sector’s center of gravity is shifting toward consumers and new tech-savvy players are moving fast to capitalize on the change. 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 in the burgeoning New Health Economy.

Here’s HRI’s look at these new players, and the impact they already are having on the industry.

Here's how

Hispanics are a growing force in the New Health Economy

They are cost conscious and mobile savvy, and do not necessarily stay within the traditional US healthcare system for their care.

But, netting the Hispanic consumer and their dollar will not be easy.

Learn how


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Executive summary

The $2.8 trillion US healthcare industry is being upended by companies attuned to the needs and desires of empowered consumers. These new entrants are nibbling at the edges of the traditional healthcare ecosystem, setting the stage for a New Health Economy.

These new players – from the retail, technology, telecommunications, consumer products and automotive industries – regard their global reach, customer insights, commitment to transparency and trusted brands as critical assets to capture and dominate the fragmented health sector. They are poised to reshape the US health industry. Who are they and what impact are they having?

  • Two dozen of 2013’s Fortune 50 companies are healthcare new entrants. Of those, seven are retailers; eight are technology and telecommunications companies. Venture capital is also pouring into health startups.
  • Consumers are willing to abandon traditional care venues for more affordable and convenient alternatives, signaling threats to traditional healthcare organization revenues, according to an HRI consumer survey.
  • New entrants will propel the democratization and decentralization of healthcare, allowing consumers to access care anywhere.
  • Consumer interest in price and quality transparency has sown a new market being hotly contested by new entrants and traditional healthcare organizations alike.
  • New players are reshaping and expanding the $267 billion US fitness and wellness industry, which presents rapid paths to market, abundant sources of data and opportunities to build new market segments.

Within a decade, the health business will look and feel like other consumer-oriented, technology-enabled industries. Soon, it will have its own, iconic, new economy brands. Incumbents face critical decisions about whether to compete with these emerging healthcare players, or align with them.

Who are the new entrants and what do they want?  

Enter the new entrants

Nearly half of the Fortune 50 companies are new entrants to healthcare, from retailers to technology companies to telecommunications companies to consumer products companies.

Moving the swiftest, in general, are retailers, telecom and tech companies armed with consumer prowess, brand recognition and digital savvy.

Many of these companies combine expertise:

  • Earlier this year, Samsung unveiled its new Galaxy S5 smartphone, complete with a built-in heart rate monitor. In 2013, Apple also was issued a US patent for a “seamlessly embedded heart rate monitor” for devices such as its iPhone. .
  • CVS Caremark announced it would stop selling tobacco products in its 7,600 stores as part of a strategy to expand its role as a healthcare company.
  • AT&T opened its mHealth platform to developers in 2012, aiming to become the essential ingredient in healthcare’s future game-changing apps.
  • Time Warner Cable Business Class announced a “virtual visit” experiment with Cleveland Clinic in 2013. Cleveland Clinic caregivers will be able to interact with patients through televisions using secure video technology.
  • In 2013, Google announced the birth of Calico, a company focused on aging and associated illnesses. Its chief has experience in both healthcare and consumer-oriented technology.

At a time when venture capital investment in life sciences is down, money is pouring into startups targeting digital health, price transparency, workflow and electronic medical records systems and population health management.

In some cases, these companies are looking for a piece of the $2.8 trillion pie. In others, they hope to entice customers to other parts of their business with quality healthcare. Or they view health as a cost-cutting tool to be sold to traditional healthcare purchasers or a hook to gather valuable data that can be monetized into insights or ad sales.

The Fortune 1 giant, the tech startup and the veteran: Three new entrant case studies

Case study: The Fortune 1 retailer

When Wal-Mart debuted its $4-generic drug program in 2006, the pharmacy world looked a lot like the rest of the health sector, with opaque pricing, said Marcus Osborne, Vice President of Health and Wellness Payer Relations at Wal-Mart Stores.

“We just wanted to make price matter in pharmacy,” Osborne said. “The consumer reaction was they voted with their feet, and we picked up a significant share of pharmacy.”

Now Wal-Mart is exploring whether it can do the same thing for basic medical care, a perennial concern of its cost-conscious customers, Osborne said. “How do we introduce service and access at fundamentally transformative price points so there is no one in America who can’t have access to care?” he said.

Last year, partnering with Kaiser Permanente, the retail giant opened micro-clinics called Kaiser Permanente Care Corners in two stores in California. Each is equipped with basic diagnostic equipment such as blood pressure cuffs and offers telemedicine connections to Permanente clinicians.

Each mini-clinic is about 300 square feet, with nurses and physicians available for telehealth video appointments. Appointments are open to shoppers who are Kaiser Permanente members and Wal-Mart associates and their dependents.

Osborne said the company also is exploring other primary care clinic models, with plans to run more tests, learning what works before expanding on a large scale. “There is a new world order coming and it does require investment in base delivery of services that don’t exist,” he said. “I think it will be a new healthcare service offering, heavily technology-enabled, dead simple to engage with, staffed with whole new professionals.”

Case study: The tech startup

Based in San Francisco, CellScope was born in 2010 with the goal of building a home medical kit of sophisticated devices taking advantage of the smartphone’s capabilities. The company’s debut product is the Oto, a smartphone otoscope that takes digital images of the ear canal.

“Oto is intended to turn the mobile phone into a smart medical device, meeting a really meaningful need,” CEO Erik Douglas told HRI. Ear infections are responsible for 15 to 30 million U.S. office visits annually.

Registered with the FDA and on target to sell for about $199 later this year, Oto is one of many consumer-oriented diagnostic tools threatening to disrupt the health sector. Taking advantage of technology that has become cheaper, more powerful and smaller, companies such as CellScope are banking on families adding these next-generation diagnostic tools to their medicine cabinets.

CellScope is betting parents will pay for the Oto out-of-pocket or place the device on a baby shower gift registry. “We have been avoiding making a big bet on reimbursement because it is out of our control,” Douglas said. “We don’t have years to wait for a code.”

Physicians have been early champions of the Oto, Douglas said, but the company is still working out how to compensate them for time spent reading digital images sent by patients. “All companies of this ilk need ways for doctors to be compensated,” he said. “We cannot expect doctors to work for free.”

But, in a value-oriented environment, a tool that can replace in-person follow-up visits for ear infections could be financially worthwhile to a physician with a busy practice. A quick look at a digital image of a healing ear could free up a slot for a higher-value visit, and save time and money for mom and dad, too.

Case study: The cautionary tale

The healthcare industry’s payment system remains so complex that only those armed with real-world strategies for payment will survive, as some muscular, sophisticated technology and financial services companies have already learned.

Take Hospital at Home, a care model that is consumer-centered, home-based and technology-equipped. The Hospital at Home model enables patients with diagnoses such as congestive heart failure to avoid inpatient admission by supporting them at home with technology and clinician visits. Studies found it is popular with patients and produces equal or better outcomes to similar inpatients. Costs were lower than inpatient care, too.

Yet Hospital at Home has failed to spread widely since it was developed by Johns Hopkins geriatrician Dr. Bruce Leff and his team, starting in 1994. The problem? The industry’s bias toward facility-based care and a lack of financial incentives for adoption in a fee-for-service world, said Leff, director of the Center on Aging and Health-East at Johns Hopkins Medical Institutions.

The rise of value-based models may change that as systems seek ways to provide cheaper, good quality care, he said. But today, Medicare fee-for-service still dominates, and just a handful of systems offer Hospital at Home, including Presbyterian Healthcare Services in Albuquerque and several Veterans Affairs hospitals. “I have been at this almost 20 years,” Leff told HRI. “I am hoping this happens in a big way before I need it.”


Kelly Barnes
US Health Industries Leader
Tel: +1 (214) 754 5172
Ceci Connolly
Health Research Institute Leader
Tel: +1 (202) 312 7910
Vaughn Kauffman
US Health Industries Principal
Tel: +1 (216) 363 5817
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New Health Economy

For decades, American consumers, policymakers, business leaders and healthcare professionals have experienced repeated, costly, contradictions in our $2.8 trillion fragmented system of care. Put simply, we have not gotten our money’s worth.

Despite breathtaking scientific achievements, the United States has a mixed record of health outcomes. Insurance coverage is expanding but millions still lack basic care. Unnecessary procedures and administrative waste account for more than a third of spending. Productivity gains have been modest as misaligned financial incentives have rewarded inefficiency. And the purchasers of care have no easy way to compare prices or measure the value of services they buy.

But the ground is shifting rapidly, giving way to what we call the “New Health Economy™.”

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.

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 that can help achieve that.

In the New Health Economy, the mere collection of data will be replaced with lightning-fast analysis delivered directly to a care team that anticipates problems before they arise. Individuals will be co-creators of their health decisions, spending more of their discretionary dollars on tools that help them live well.

In reality, the revenue opportunity in the New Health Economy is much greater than $2.8 trillion, though many more players will be fighting for their share. In one survey by PwC’s Health Research Institute (HRI), consumers indicated they are willing to spend collectively up to $13.6 billion a year of their own money on medical products such as health-related video games and ratings services. At the same time, HRI estimates the ancillary health market of products and services such as personal trainers, mobile apps and vitamins generates an additional $267 billion.

Care delivery, following the move from inpatient to outpatient services, will inch ever closer to the home via retail businesses, remote monitoring and mobile devices. For incumbent health companies, the emergence of these popular technologies presents a central challenge: to partner or compete?

Successful organizations will squeeze out administrative waste, improve the health of entire communities, reduce costly errors, better manage chronic conditions, understand consumer preferences or develop targeted therapies with proven advantages for a given patient group. Transparency in cost and quality will fuel these developments.

The New Health Economy represents the most significant re-engineering of our health system since employers began covering workers in the 1930s. It goes beyond the recent period of convergence in which business roles blurred. Yes, siloes are coming down as providers, insurers and life sciences companies begin to coalesce around the pressure to demonstrate value. But in the New Health Economy, as the money flows from consumers to new players, today’s siloed disease treatment industry will be replaced by a wide open health marketplace.

Change with the swipe of a finger

Remember the days of having no other option than getting in the car and driving around in search of that must-have item?

Today, consumers have a choice: the easy swipe of a finger and a package at the front door. Mobile devices, sophisticated customer segmentation and demands for convenience and transparency gave birth to new winners in industries such as publishing, entertainment, travel and banking. Money followed the innovators.

Many of the incumbents in those industries took notice too late. Now the shakeup is coming to healthcare and the sector is moving toward the traditional economic principles that govern other industries. Market forces such as robust competition, revenue based on results, and the notion that the customer is king, will play a greater role in the health and wellness space.

Venture capital firms, a leading indicator of economic trends, have diverted their healthcare dollars. Since 2007, investment in medical devices has fallen 40% while software start-ups experienced a 75% increase.

Employers, as major purchasers of care, will continue to drive change. Successful health businesses of the future will tailor strategies to this influential customer. In recent surveys, 44% of employers indicated they are considering offering only high-deductible health plans, while 45% are contemplating moving to a private insurance exchange. Defined contribution plans will likely follow.

Combined with the 51 public exchanges created by the Affordable Care Act, health insurance marketplaces signal a major change in the industry business model from today’s B-to-B environment to a retail-style B-to-C approach.

Next-generation health companies will need different skill sets and investments. Core competencies must evolve to take advantage of technological advances, delivering better clinical outcomes and improving the overall customer experience Organizations must have the courage and agility to fail frequently on their way to success, perhaps via pilots, incubators, crowd sourcing or computer modeling. Expertise in unconventional areas such as behavior change and social media take on greater importance in the New Health Economy.

Many of today’s health companies have begun the journey, refashioning care delivery, tapping into Big Data, taking on more risk and forging unconventional alliances. Consider the number of insurance companies that have invested in major analytics divisions, physician group practices, affordable housing, and healthy food programs.

“We believe in this time of incredible change across the industry that a diversified portfolio matters,” Aetna CEO Mark Bertolini said in describing his strategy of broadening the insurer’s offerings to compete in the changing landscape.

Drug companies are pursuing relationships with universities, patient groups, the makers of remote sensors and computers all with an eye toward faster, cheaper discoveries and proven value for cost-conscious purchasers.

The lines are already blurred. Health systems are securing insurance licenses. A telephone giant advertises its role in treating sick children in India and the Philippines. And drugstores are pushing deeper into care delivery.

Walgreens, for example, sells immunizations, infusion therapy, cholesterol screening and counseling for chronic conditions. The company posts prices publicly and tracks the habits of 74 million customers through a rewards program. It has formed a partnership with a lab business, aligned with nearly 200 well-known health systems, bought an online prescription company and expanded internationally through two major alliances.

These innovators—some incumbents, some newcomers and some hybrids—are sketching out the contours of the New Health Economy.

In the coming months, we will detail our vision for this new era in a series of reports. We’ll calculate the revenue opportunities, illuminate the danger zones and offer practical guidance as businesses navigate a value-based, customer-centric, data-driven world. The first installment, included here, is a look at the new entrants, a cast of retail and telecommunications companies seeking first-mover advantage in the New Health Economy.

New Health Economy is a trademark of PwC.

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