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The New Health Economy in the age of disruption:
Novel combinations attempt to remake the health system
The New Health Economy in the age of disruption
The US health industry is in a period of unprecedented dealmaking. New business models are emerging from unexpected sources. These models, a mix of new entrants and traditional players, are coming together to offer new capabilities and models of care. Their arrival in the industry should prompt players new and old to reconsider their business models and their strategies or risk being left behind.
Four archetypes of emerging healthcare deals
PwC’s Health Research Institute (HRI) has identified four new archetypes in the recent announcements of healthcare deals and partnerships: Vertical Integrators, Employer Activists, Technology Invaders and Health Retailers. Each can transform the New Health Economy in unique ways, but key challenges may limit their disruptive abilities.
Vertical Integrators
What?
Companies trying to reduce supply chain costs by owning more of it, and pass savings to patients
Examples
CVS Health and Aetna; UnitedHealth Group’s Optum and DaVita Medical Group; Cigna Corp. and Express Scripts Holding Company
Implications
Health integrations are especially tricky. Fifty-eight percent of executives involved in M&A transactions said integrations were more difficult than expected. Just 50 percent say the deals were financially successful—sobering data for some healthcare executives about to spend tens of billions to make acquisitions.
Gain insights from unparalleled access to critical data. Vertical Integrators will collect a wealth of data, and should invest in systems and staff to create customized customer experiences, reduce costs and improve outcomes.
“In a value-based environment, the more pieces of the supply chain that you can influence, the more you can impact utilization and cost.”
— Jane Sarasohn-Kahn, a healthcare economist and founder of the group THINK-Health
“Data is really key to integration efforts.”
— Eric Topol, founder and director of the Scripps Translational Science Institute
Employer Activists
What?
Employers seeking to limit the growth of their healthcare costs
Examples
JPMorgan Chase & Co., Berkshire Hathaway, Amazon; Health Transformation Alliance
Implications
Think big. To drive down healthcare costs, companies must rethink how they purchase and deliver care. Scale is one option, but some employers are focused on new innovations.
There’s no silver bullet for healthcare. Employer Activists may be large and well-capitalized, but their negotiating power remains relatively modest. Their employees are spread out across the country, diluting their leverage in negotiations with local providers and payers.
“The more we learn, the more we learn the importance of unstructured data about population health”
— Rob Andrews, CEO, Health Transformation Alliance
“These costs are on the balance sheets of companies whether they like it or not. It’s about whether companies choose to address them in smart ways.”
— Rebecca Onie, Co-founder of Health Leads
Technology Invaders
What?
Technology companies seeking to grab a greater foothold in health
Examples
Google; Apple; Amazon; Uber; Lyft
Implications
Changing consumer behaviors create new opportunities. Technology Invaders can wield new devices, apps, robots, and data to meet consumer wants and needs, such as accessing their healthcare information on their phones.
Partnerships can lead the way. While Technology Invaders have the capability to disrupt, they likely will need partnerships with existing health companies to access industry expertise.
“I think the healthcare companies that are going to emerge and going to make a difference are the ones that are fluent in three languages. You have to be fluent in healthcare. You have to be fluent in technology, like analytics and artificial intelligence. And you have to be fluent in media, in driving discussions and having dialogues with patients to make them feel a certain way.”
— Jeff Arnold, Chairman and CEO of Sharecare
“Any tech company can build a diabetes product. Few tech companies can build a diabetes product knowing the history of what’s worked, what hasn’t worked. By combining [a technology company with a healthcare company] you really get the best of both worlds.”
— Josh Riff, CEO of Onduo
Health Retailers
What?
Retailers looking to gain market share by providing some types of healthcare directly
Examples
Walmart; CVS Health; Amazon; Albertsons Companies/Rite Aid
Implications
Broaden your view of the consumer. Retailers are uniquely positioned to understand the wide range of people’s needs that impact their overall health, such as access to food.
Beware of a changing environment. A common shadow looms over many pharmacies and retailers alike: Online retailers can meet key consumer needs without pricey retail locations.
What comes next?
Companies not involved in these deals should be prepared. Some players may find themselves out-competed or disintermediated. New capabilities and partnerships will help to ensure survival.
Workforces are likely to be a key differentiator for companies with capabilities that are similar to their competition. Advancements in technology will require the right people to make use of those technologies.
Invest in customer experience. Consumers are ready for healthcare to mirror other parts of their lives in terms of convenience, transparency, choice and affordability. Companies that invest in a deep data-driven understanding of their customers will win.
Focus on price. Employers, government and other players largely have focused on utilization over the past decade. Price is the next frontier.
The message is clear for players across the US health industry: Disrupt, or be disrupted. That was the theme of PwC’s 180° Health Forum held on May 8, 2018. At the Forum, thought leaders and executives from the health industry and beyond explored opportunities to disrupt the status quo as the New Health Economy evolves. The videos below provide a glimpse of some of the disruptive forces that are reshaping our industry.
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