Structural problems in the US healthcare system continue to reveal themselves through poor health outcomes, a lack of value and persistent inequity. Even as America’s healthcare system demonstrated resilience throughout the pandemic — the development of diagnostics, therapies and vaccines was impressively fast — the crisis also put a spotlight on the system’s fragility. Too much care remains siloed. There’s too little digital coordination and too much waste. Life expectancy is moving in the wrong direction, and healthcare equity is elusive.
A connected health ecosystem can encompass any number of different entities that come together in support of shared health goals and other benefits for participants and the broader population. Participants include traditional healthcare payers and providers of all sizes, employers, tech companies, retailers, pharmaceuticals, community organizations and investors. The connectivity and continuous evolution between these entities will take many forms as they work together, from aligning incentives, operations and technology to sharing resources, capacity and data.
It’s not just about size and scale. Patients demand greater flexibility in where and how they receive care, so healthcare organizations seek to better coordinate care to generate higher quality outcomes and build trust and loyalty with patients. Together, players in these new ecosystems have the opportunity to tame healthcare costs, boost efficiency, stoke innovation and create more health equity in their communities and greater diversity in their workforces.
We believe these ecosystems will offer compelling new capabilities and we expect most healthcare organizations will elect to form or join one. Many ecosystems are already coalescing. Healthcare companies need to determine their role to position themselves for the future.
Success in the new ecosystems isn’t just measured in dollars, but in helping more people live longer, healthier lives.
What will make these connected ecosystems so effective? New abilities that can unlock competitive advantage.
Proactive/predictive care should improve as connected ecosystems reach critical mass, delivering optimal outcomes at the individual and population level.
We believe these capabilities will sustain the connected ecosystems, enabling them to work where other models have failed. Healthcare organizations that stick with their capabilities of today will likely have a hard time adjusting. They may be preoccupied with either day-to-day operations (claims, discharges, pills), or on long-term planning (capital construction, actuarial cycles, multi-stage research). In contrast, those who master new capabilities will be equipped with the tools and incentives to flex capacity, meet the customer where they are, share resources and respond quickly and effectively to the unexpected.
The stakes are high. According to PwC models, we’re in the middle of a five-year, $1 trillion shift in revenues away from traditional payers and providers. Payers and providers are already under increasing pressure to find their footing in the evolving ecosystems or risk losing market share to competitors.
By 2025, we expect health organizations will have stepped into one (or more) of three new ecosystem roles to capture market share and meet consumer-driven demand for health products and services as well as the institution-driven supply.
Orchestrators focus on delivering seamless, humane experiences and outcomes to consumers. They coordinate and manage the complexities across various players and solutions, including payers, providers, digital health, employer solutions and care delivery players. As the entry point into the various ecosystems, building loyalty and trust with consumers is paramount.
What’s different: Care moves away from acute settings, creating virtual scale across the consumer journey and a springboard to innovate and improve the customer experience. Patients have far greater choice, transparency and control over how, where and from whom they receive care.
Integrators focus on optimizing value by aligning incentives, and reducing waste and variability in the practice of medicine. Naturally, vertically or virtually integrated players, such as large health systems or hospitals coming together with an insurer to share risk, will create value by better managing the health of the population. Integrators will play a key role, figuring out how to meet a group’s health needs efficiently. One major collective goal is preventing costly hospitalizations and treatments among the 20% of patients who account for 80% of medical spending.5
What’s different: A more tech-enabled, incentive-aligned version of today’s model. A simpler, more convenient experience for consumers is a positive byproduct, though not a differentiator compared to orchestrators’ focus on consumer empowerment.
Platform and solutions players focus on creating technology and cloud infrastructure allowing stakeholders to exchange, store and integrate data. Interchange platforms create and enable interoperability and deliver services others can’t scale. In the process, they capture valuable data, the key currency of the new ecosystem marketplace.
What’s different: Reduced costs coupled with new abilities to generate higher quality insights, helps create a more effective marketplace.
Whether consumers take center stage and the investment community meets them where they are, or legacy incumbents join together to more systematically manage the quality and cost of care — all happening against the backdrop of mounting cost pressure and regulation — our PwC models forecast a $750 billion to $1.4 trillion shift in value.
If healthcare consumers take center stage, they can have more choices and more discretion over how they spend their healthcare dollars. That includes insurance premiums and spending on medical services, drugs and even health and wellness benefits. In this scenario, organizations can gain consumer trust — and market share — by providing care that’s perceived to be fair, respectful of the patient’s time and convenient. If the future were completely driven by healthcare consumers, our models forecast a $750 billion shift in revenue from traditional healthcare organizations to those embracing the new ecosystems with orchestrators gaining the largest share.
In a future where payers and providers work together more closely to manage the quality and cost of care delivered, our models show different outcomes against the backdrop of cost pressures from employers and the government (price transparency and surprise billing rules). Partnerships, risk sharing and full vertical integration between traditional payers and providers would enable high-performing networks and improved care coordination, making real a better patient experience and cost savings through value-based care arrangements. Employers in particular gravitate to these networks to stem increasing healthcare costs, and consumers find themselves choosing between networks of care, more so than individual providers of care. In this scenario, our PwC models show the potential for a greater shift in revenue, in the neighborhood of $1.3 trillion, from traditional healthcare organizations to those that embrace the new models, with integrators gaining the largest share.
The future, of course, will probably fall somewhere in the middle, as consumers direct more of their care dollars, investors respond and institutions create networks ready to capture those dollars. Finding ways to provide quality, coordinated and lower-cost care is still the goal in every scenario.
There’s an influx of capital investment into healthcare, flowing to established companies as well as start-ups. Those investments will be informed by the role your company chooses to play in the ecosystems, whether as orchestrator, integrator, platform player or some combination.
With provider revenue moving away from fee-for-service and increasingly driven by value-based contracts, providers are being forced to take costs out to be competitive and maintain a profit margin. To reduce costs, providers first have to understand where the costs are. Many are investing in large-scale enterprise resource planning (ERP) implementations in order to better understand their costs, how they’re influenced by supply chain issues and labor shortages and, in turn, make decisions on how and where to cut.
Everyone in the healthcare sector should expect more competition from medical and tech innovators and start-ups. That includes new entrants disrupting the model by creating a more targeted and personalized approach for patients. It also includes biopharmaceutical companies that are launching an array of personalized and targeted treatments like gene and cell therapies.
Many in the sector will find value in forging and expanding data-sharing partnerships to take advantage of a surge of medical information from wearable sensors and other health monitoring devices. Many will boost investments in digital tools — ERP systems, automation, robotic process automation — to be more effective and nimble through a transition into the ecosystem.
The good news for health organizations is that there’s still time to choose to work in one, two or even all three of these new roles. But the historic pace of disruption does not favor legacy health plans or aging hospitals.
According to PwC models, we’re in the middle of a five-year, $1 trillion shift in revenues away from traditional payers and providers.
Here’s our view of what’s next in health and how you can use these forces to help shape your own growth story in 2022 and beyond.
As you look to how your healthcare organization will fit in these new ecosystems, consider the essential roles played by cloud and digital technologies.
Cloud is a critical enabler for this broad business transformation. It helps connect systems, data, devices and emerging technology in ways that can help healthcare organizations respond more quickly and innovatively. As regulators push the industry toward interoperability, there will be more data sharing between payers and providers than ever before, enabling patients to directly access their health records on their smartphones. Leaders need to be sure they’re building integration with existing systems.
Take a fresh look at available data. Reimagined data can drive differentiation for the consumer and guide decision-making that creates even more digital value — driving integration, transparency and new insights — and makes real the opportunity to reimagine your business and service offerings.
And, of course, cloud also enables large-scale initiatives like remote work for back-office staff, and it can improve enterprise resource planning by providing real-time insight into the supply chain and workforce, two pain points that surfaced early in the pandemic.
Cloud enables the creation of large data marketplaces and advanced analytics capabilities to better understand the current state of the business and drive decision-making about daily operations and strategy.
Traditionally, cloud adoption meant migrating hundreds or thousands of legacy applications and records into new systems that still required large, fixed capital investments. Organizations can now migrate these data sets easily, quickly and cost-efficiently.
PwC’s US Cloud Business Survey found the No. 1 interest for healthcare leaders was using cloud technologies to create better customer experiences.
Health systems and insurers are focused on taking the lessons learned from the abrupt virtual and digital health explosion forced by the pandemic to fine-tune digital and in-person care. They see opportunities to offer patients intuitive apps and tools that enable omnichannel, digital connections with clinical teams throughout treatment and beyond to critical elements of the healthcare system such as clinical trials. They also see cloud-enabled tools that can gather data from disparate sources to support clinical decision-making. With consumers already accustomed to using apps in their daily lives for everything from food delivery to step tracking, health organizations that don’t have these types of options risk being left behind.
At the same time, the risk of cyber attacks — and the need to protect consumer information and organizational reputation — remain real for an industry with a growing digital footprint and history of vulnerabilities. We’ve seen the frequency of health data breaches growing with the pandemic-induced shift toward technology-driven consumer experiences and operating models. Medical devices are also vulnerable to cyber attack and ransomware attacks cost the healthcare industry $20.8 billion in downtime in 2020.6
The recently-introduced bipartisan Healthcare Cybersecurity Act of 2022 is the latest example of the government recognizing the vital importance of safeguarding data and improving security. The proposed legislation would require a cybersecurity assessment and provide government-backed analysis and training. While the support could bolster national security of the healthcare infrastructure, it may also bring new regulatory considerations.
In a recent PwC survey of executives, almost half of respondents pointed to the shortage of labor as the biggest risk to achieving growth targets.
For the health industry, the challenges are particularly acute. Even before the pandemic, staffing shortages and burnout were critical issues. Physicians have been retiring, reducing the supply of professionals, while the population has been aging, increasing demand. Institutions coped with nursing shortages during the pandemic by relying more on highly-paid traveling nurses, raising concerns about fairness. According to PwC analysis, healthcare industry employment in the US grew less than 0.5% in 2021. Gains in outpatient settings barely exceeded losses in long-term care facilities and hospitals. And all 50 states have reported one or more hospitals with a critical staffing shortage in 2022.
There’s no quick, easy fix. Ensuring jobs are meaningful and rewarding can help attract and retain talent, and leaders should consider new approaches to employee management that ensure fair and flexible policies.
An effective workforce strategy complemented by the right technology investments begins with optimizing and upskilling existing staff and taking full advantage of artificial intelligence (AI) and other technologies. Choose cost-effective systems and tools that can help you address your challenges, partner with vendors who deserve your trust and roll out skills and processes that drive technology adoption and a better employee experience.
A commitment to environmental, social and governance (ESG) initiatives fits well with the historic mission of medical providers and payers. In particular, the social pillar of ESG has been by far the biggest focus for providers and payers, according to PwC analysis of publicly disclosed company information.
The industry should be ready for a continued focus on equity from President Biden’s administration, which has opened the US Department of Health and Human Services (HHS) Equity Action Plan for feedback. Policies are in place to increase financial incentives for the care of underserved communities and temporarily expand government-subsidized health insurance coverage, and policy work is underway to drive better collection of public health data to identify disparities across social demographics. Future policy changes affecting payers and providers could involve additional reporting requirements, changes in reimbursement structures and additional regulatory oversight of digital health models, among other possibilities.
Fossil-fuel generated air pollution and climate change generates more than $820 billion in medical costs7 every year in the US alone. Additionally, the US healthcare system is responsible for about a quarter of all global healthcare greenhouse gas emissions8, more than the healthcare system of any other nation. Those numbers, along with the SEC’s proposed rules for climate change disclosures, will increase pressure on both public and private healthcare organizations to take meaningful action.
Most investors want to see ESG embedded in corporate strategy, as well as better and more standardized reporting of ESG activities, according to a 2022 PwC survey across industries. Healthcare executives need to consider how they’ll address the wide-ranging effects of climate change. That could include thinking through adjustments to their clinical service line, growth and population health strategies as well as how those changes impact capital plans, clinician recruitment plans and research portfolios. It could also span to the details of a decarbonization strategy for facilities, supporting operations and the supply chain.
Medicare and Medicaid spending continues to grow9 (3.5% in 2020, to $829.5 billion; and 9.2% in 2020, to $671.2 billion, respectively). Increases in federal healthcare spending in 2020 (the most recent year for which figures are available), were driven by provider assistance programs, increased federal public health spending and growth in federal Medicaid payments due to faster enrollment growth and an increase in federal medical assistance percentage.
Payers and providers should regularly be assessing their government programs strategy, which has an outsized influence on broader industry trends. One example is the massive surge in demand for telehealth and virtual care during the pandemic as the federal government loosened restrictions on telehealth reimbursement for Medicare patients. Other issues include a continued overlap in member/patient life cycle and high acuity needs of the population.
Providers are still working to enhance the digital experiences of patients, fine-tuning mobile apps that connect them to their patients, beefing up portals and intensifying use of customer relationship management tools. We expect these digital investments in the patient relationship to expand consumer access to care, increasing utilization and medical cost trend in 2022.
The disruption wrought by the pandemic led healthcare systems to upend how they deliver care. Seemingly overnight, the industry realized unprecedented collaboration among stakeholders — including policymakers and regulators, providers, payors and life science companies — in the service of delivering on the healthcare outcomes that mattered most to patients.
Value-based healthcare aims to deliver the best possible outcomes for patients while being efficient in spending. While the decades-old concept has never realized its full potential within the industry, our PwC modeling still provides evidence for its place driving competitive advantage within these emerging ecosystems.
The time may be right for the rise of VBC 2.0. Along with defining patient groups and defining measures of success — and building a culture of transparency around outcomes — healthcare system stakeholders will need to establish data standards and consider how to seamlessly have consumers self-report on outcomes.
The competitive advantages will be real for those with the ability to analyze outcome data, learn from leading practices, implement service improvements and measure how they contribute to achieving value for patients and the healthcare system.
Opportunities to invest and grow remain, particularly as competitive and regulatory pressures loom, and healthcare organizations recognize the need to improve resilience and unlock value in the changing ecosystems by building or acquiring new capabilities.
Executives at health services organizations say they’re poised to seize opportunities in fast-changing markets. Six in ten tell us that corporate M&A, joint ventures and alliances will be very important to their company’s ability to grow in 2022. Interest in M&A is high, despite market volatility related to geopolitical concerns.
Deal activity in health services industries remains robust, driven by transactions involving medical groups, managed care and rehabilitation. Private equity and corporate capital firms have been seeking high-value services in healthcare. While deals involving long-term care businesses remain the most popular in the first quarter of 2022, the number of deals targeting physician medical groups in the same period is also notable.
Practices have experienced challenging economics and may face 2022 Centers for Medicare and Medicaid Services payment cuts as well. That could spur more consolidation, but deals among large health systems have been testing regulators on the federal level and companies have been reporting delays in state approvals as well. In this regulatory climate, smaller private equity roll-up deals of medical specialties will continue to be attractive to investors and allow greater back-office efficiencies across provider networks.
In addition to the availability of capital, factors shaping the healthcare deal-making space include the need to comply with regulatory requirements (such as interoperability and patient-centric commitments), interest in digital technology and alternative care models (like hospital-at-home care), and greater competition for healthcare consumers.
The pandemic forced healthcare payers and providers to rapidly expand virtual care and also to account for those newly working from home. What started as a temporary shift has in many cases become permanent. Many workers who moved to different states seeking better weather or cheaper housing aren’t coming back to their desks or clinics.
That massive shift may create tax issues for healthcare organizations depending not only on where workers — and the patients they treat virtually — live. The presence of a single employee in a state could create new tax obligations for an organization.
Meanwhile, an increase in the corporate tax rate is being debated. The Democratic Party leadership reproposed raising the corporate tax rate to 28%, as outlined in the Fiscal Year 2023 Budget, released March 28. Global tax reform has also been in development through the Organisation for Economic Cooperation and Development (OECD) and is on the near horizon.
As the pandemic ebbs, at least temporarily, health organizations should take a step back to reassess larger strategic priorities, including addressing persistent inequities. In 2017, the US Congress created tax-advantaged Opportunity Zones to spur economic growth and job creation in low-income communities. Through the program, providers can partner with for-profit developers and other investors to fund new construction or improve existing health infrastructure. The New Markets Tax Credit program as well as potential state and local credits and incentives also offer means to support these initiatives.
1. PwC analysis of Definitive Healthcare provider data and National Health Expenditure Accounts
2. PwC analysis of Decision Resources Group membership data
3. The Organisation for Economic Co-operation and Development Statistics
4. García, Imelda. “Fewer than 20 miles separate Dallas communities with the lowest and highest life expectancy,” The Dallas Morning News, Nov. 8, 2021. National Center for Health Statistics, “Life Expectancy at Birth for U.S. States and Census Tracts, 2010-2015.”
5. Ortaliza, Jared, McGough, Matthew, Wager, Emma, Claxton, Gary and Amin, Krutika. “How do health expenditures vary across the population?” PETERSON-KFF Health System Tracker, Nov. 12, 2021.
6. 2020 offered a 'perfect storm' for cybercriminals with ransomware attacks costing the industry $21B
7. Air pollution costs each American $2,500 a year in healthcare - study finds
8. Health Care Pollution And Public Health Damage In The United States: An Update
9. NHE Fact Sheet