New Health Economy Vision for the Future

The frustrations and costly contradictions of today’s fragmented $2.8 trillion healthcare system are well documented. But the ground is shifting rapidly, giving way to what we call the “New Health Economy.”

Read HRI’s New Health Economy essay.
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Money matters: Billing and payment for a New Health Economy

A horse-and-buggy in a world contemplating driverless cars, US healthcare’s consumer payment system is an inefficient antique. Much can be done in the near-term to improve the system, but longer-term fixes will require a new structure for a New Health Economy.

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Healthcare's new entrants
Who will be the industry's

The US health sector’s center of gravity is shifting toward consumers. New players are moving fast to capitalize on the change. These new entrants are poised to shake up the industry, drawing revenue from traditional healthcare organizations while building new markets in the burgeoning New Health Economy. HRI examined these new players, and measured the impact they are having on the industry.
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Health wearables: Early days

Technology companies are developing a myriad of wearable health devices that can track physical activity, monitor glucose and even sense if the user falls. What do consumers think about wearables? What are the implications for the health industry? PwC’s HRI explores health wearables in its new report, Health wearables: Early Days.
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Kelly Barnes
US health industries leader
Tel: +1 (214) 754 5172
Ceci Connolly
Health Research Institute Leader
Tel: +1 (202) 312 7910
Paul D'Alessandro
Principal, US Health Industries
Tel: +1 (312) 298 6810
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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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Health wearables: Early days

While the smartphone remains Americans’ device of choice, the tech world is creating a future of wearable devices that promises to entertain consumers, save them money and help them live healthier lives.

Technology companies’ interests in health and wellness have sparked the creation of a myriad of wearable devices, from fitness bands that monitor activity and sleep patterns to flexible patches that can detect body temperature, heart rate, hydration level and more.

These devices produce data that, often enabled with analytics, can be used by consumers to manage their health and by healthcare organizations to improve care and potentially reduce costs through systems such as remote patient monitoring.

Data generated by personal devices can be used by insurers and employers to better manage health, wellness and healthcare costs, and by pharmaceutical and life sciences companies to run more robust clinical trials and capture data to support outcomes-based reimbursement. Many consumers believe wearables can dramatically improve their health.

This potential is fueling venture capital investment in digital health and wearable tech. By mid-2014, digital health startups had raised $2.3 billion, more than they raised in all of 2013. More than $200 million went to digital medical devices such as wearables.

Yet these are the early stages of the technology and product adoption lifecycle. Just one in five American adults owns a wearable, according to a national survey of 1,000 US consumers conducted by PwC in 2014. One in ten uses it every day. At the Rock Health Innovation Summit in August, Genentech CEO Ian Clark called health wearables “a bit trivial right now.”

“I don’t doubt that the wearable piece is going to be a productive business model for people,” Clark told an audience packed with health wearables entrepreneurs. “I just don’t know whether it’s going to bend the curve in terms of health outcomes.”

As wearable technology becomes cheaper and more sophisticated, and data quality improves, these devices and their associated apps will become a part of consumers’ lives and the health ecosystem.

The devices will need to be seamlessly interoperable, more self-sufficient and free from additional steps such as syncing and powering. Companies will need to interpret and use data streaming from these devices. The software side of wearables will be emphasized as much as the hardware. Consumers will place greater value on companies that can help them use data to improve their health.

In the summer of 2014, PwC’s Health Research Institute (HRI) and Consumer Intelligence Series (CIS) sought to better understand American consumers’ attitudes toward wearables through a consumer survey, focus groups with technology thought leaders and interviews with executives from inside and outside of the health industry. HRI’s report, Health wearables: Early days, can be read here. CIS’s wearables report, which covers industries from retail to health to entertainment, can be read here.

Key findings:

  • Consumers have not embraced health wearable technology in large numbers, but they are interested. Technology companies hoping to exploit this nascent interest will have to create affordable products offering greater value both for users and their healthcare partners.
  • Most consumers do not want to pay much for their wearable devices. They would rather be paid to use them, and companies—especially insurers—offering incentives for use may gain traction. HRI’s survey found that 68% of consumers would wear employer-provided wearables streaming anonymous data to a database in exchange for breaks on insurance premiums.
  • Simple social strategies might not work well for health wearables. Few consumers are interested in sharing health data with friends and family. Social media strategies for health wearables must be engaging, interoperable and intelligent if they are to succeed.
  • Consumers remain concerned about privacy. But they trust clinicians more with their data than any other entity. To retain that trust, companies will need to be transparent about what is being done with the data.
  • Glimpses into the health wearable future are visible. More than one million customers transmit data from fitness trackers to Walgreen Co., in exchange for points that can be used like cash in the company’s stores and through its website for many products.

Physicians at Dignity Health use Augmedix’s Google Glass program to enter patient information into electronic medical records. Ochsner Health System’s “O Bar” sells a curated selection of wearables and apps that can be “prescribed” by physicians.

And in September, Apple unveiled a smartwatch that can monitor heart rate and activity, one more step toward creating a one-stop-shop for health information for consumers and their healthcare providers. Apple CEO Tim Cook called the Apple Watch “the most personal device we’ve ever created.”

A wearable world is emerging, slowly, helping build a New Health Economy.

Money matters: Billing and payment for a New Health Economy

Executive summary

The nation’s healthcare payment system is an artifact of an earlier age, focusing for decades on perfecting business-to-business functions. American consumers were patients, not purchasers.

This is changing rapidly as individuals shoulder more of the cost of their own care. The healthcare billing and payment model must change as consumers demand systems that reflect the mobile, one-click reality of their lives.

Businesses that make this shift – offering convenient, seamless, affordable, quality, reliable and transparent billing and payment – may expect to be rewarded in the New Health Economy. They will retain more customers and attract new ones.

Hospitals, physician practices and other healthcare providers who successfully transition may collect more of their patients’ bills and they may collect them more quickly. They may be able to better manage cash flow, reduce reserves for bad debt and minimize administrative costs. This shift is attracting attention from new entrants and traditional healthcare organizations, which are finding opportunity in expediting the change.

The financial services industry has led the transformation of payment systems and technology, enabling the rise of new Internet-based business models. These advances have not made it into the health business, much of which still relies on telephones and paper. The health system is fragmented, with an array of patch-like solutions and a lack of universal standards.

The industry is burdened with systems that do not work together and bills that are difficult for the average consumer to decipher. The relationship between customer, healthcare provider and insurer is complex. New billing codes, known as ICD-10, will only add to the complexity. Healthcare payment marries two of the most regulated industries in the country, compounding complexity and risk.

It is hardly surprising many consumers are unhappy. In its 2015 consumer survey, PwC’s Health Research Institute (HRI) found dissatisfaction with healthcare billing and payment (see Figure 1). The one bright spot was retail pharmacies.

“People have been frustrated for many years,” said Jamie Kresberg, director, product management at Citi Retail Services. Citi launched its Money2 for Health online medical bill management tool last year. “They want to view their bills, make a few clicks, pay their bills and be done.”

Despite the challenges, green shoots are emerging from the system’s long-dormant soil. Wal-Mart shoppers are paying $40 cash for visits to its clinics. The next generation of healthcare consumers in Atlanta are approving $100 charges for Alii Healthcare smartphone visits with emergency room doctors.

Savvy insured hospital patients are asking for self-pay and prompt pay discounts. And thanks to a partnership with healthcare payments network InstaMed, Apple Pay customers will be able to pay some medical bills with the swipe of their phones or watches.

Aetna members are managing and paying their medical bills online with Citi’s Money2 for Health. Banner Health patients are receiving one bill for all of the care they receive. Innovators are contemplating and, in some cases, offering, layaway for care, loyalty programs, healthcare subscriptions and more. As Wal-Mart’s Marcus Osborne told HRI, “If you build for today, you will miss tomorrow.”

To create a roadmap for a new consumer healthcare payments system, HRI interviewed executives from new entrants and traditional healthcare organizations and commissioned a survey of 1,000 US adults. HRI also analyzed commercial claims from 34 million Americans in the Truven Health MarketScan® 2012 commercial claims database. Key findings include:

  • Patients and affluent consumers are most dissatisfied with the healthcare billing and payment system. For example, one in two consumers in poor or fair health – the greatest utilizers of the system - rated hospitals poorly on price transparency and affordability.
  • Cost-conscious millennials are more likely than the general population to judge healthcare organizations based on their billing practices. They also are more likely to challenge medical bills, search for better deals and make value-based decisions.
  • Consumers and new entrants are beginning to circumvent the claims-based healthcare payment system, especially in primary care services and chronic disease management.
  • Four in five adults with commercial insurance paid less than $1,000 in out-of-pocket expenses in a year, according to an HRI analysis. And yet as deductibles rise, more patients will find paying their share of their medical bills difficult. As many as two out of three bankruptcies involve illness, injury, significant uncovered medical bills or a combination of these factors and the fallout from them.

What this means for your business

In the short term, healthcare organizations should begin building more convenience, transparency, affordability, reliability and seamlessness into their revenue cycle and payment systems. In the longer term, healthcare payment must fall in step with other industries. The system needs more than patches, bolt-ons and retrofits: It needs structural change.

  • Accelerate the move to digital. Commercial health insurers conducted just 15% of payments and 27% of payment remittance advice electronically in 2013. The rest of US business averages 43% for payment. This remains one of the system’s most critical bottlenecks.
  • Embrace simplicity. Many consumers do not understand their insurance benefits and are confused by their medical bills. Online payment sites, mobile apps and aggregated billing are all steps toward a simplified consumer experience.
  • Sidestep claims. The growth of high-deductible plans means more consumers will pay for care out-of-pocket. New entrants are reconsidering whether these cash payments require claims, and consumers are interested, but credit towards deductibles is more important than ever.
  • Multiply payment options. The system’s complexity and opacity lead to consumer delays in paying medical bills, or even abandonment of them. Offering choices for payment, making payment easy and helping consumers plan for costs can reduce bad debt and days in accounts receivable.