The once-in-a-century pandemic thrust the healthcare {industry} into the enamel of the storm. The mixture of accelerating affordability challenges, entry points exacerbated by medical employees shortages and COVID-19, and restricted population-wide progress on outcomes is ominous. This gathering storm has the potential to reorder the healthcare {industry} and put almost half of the revenue swimming pools in danger.
Those who thrive will faucet into the $1 trillion of enchancment out there by redesigning their organizations for velocity to speed up productiveness enhancements, reshaping their portfolio, innovating new enterprise fashions to refashion care, and reallocating constrained sources. The healthcare {industry} has lagged behind different industries in making use of these practices; gamers which can be ready to take action on this disaster might set themselves up for fulfillment within the coming years.
This is the primary in a five-article sequence, the place we deal with the next questions: what are the most important storm clouds on the horizon, and the way does the potential impression evaluate with previous durations of upheaval; how does rising inflation—each broadly, and particularly, because the {industry} confronts a medical employees scarcity—have an effect on entry, prices, and progress; what impression would possibly an endemic COVID-19 have on the anticipated trajectory of healthcare prices; and what ought to stakeholders do about it?
The potential for discontinuous change in healthcare has elevated.
The turbulence that lies forward
The arrival of the COVID-19 pandemic marked the tip of a decade of relative calm in US healthcare. From 2010 to 2019, actual spending on healthcare rose solely 0.3 share factors above progress in actual GDP. This compares with a 3.0 percentage-point differential within the decade earlier than the enactment of the Affordable Care Act. Historically, durations of acceleration in healthcare prices effectively above the expansion of the economic system have resulted in fiscal interventions by the federal government (Exhibit 1). Moreover, financial recessions in these durations have led to broader healthcare reforms (Exhibit 2). As inflation persists on the highest ranges because the Seventies, the economic system has skilled two successive quarters of unfavorable GDP progress and heightened threat of a recession. As a consequence, the potential for discontinuous change in healthcare has elevated.
Exhibit 1
Exhibit 2
Our evaluation finds that nationwide well being expenditure might develop at a price of 7.1 p.c over the following 5 years from 2022 to 2027, in contrast with an anticipated financial progress price of 4.7 p.c. In combination, this could equate to healthcare expenditure progress in extra of financial progress of 2.4 share factors. Health expenditure progress might exceed financial progress by as much as 5.9 share factors in 2023, creating monumental affordability strain. The potential for healthcare expenditure progress to exceed financial progress so considerably within the shorter time period is pushed by a mixture of present excessive inflation, a persistent medical employees scarcity, and decrease financial progress in 2023 (Exhibit 3).
Exhibit 3
Forces fueling the storm
The mixture of considerably increased healthcare prices than anticipated and the challenges dealing with finish payers—employers, customers, and authorities—in paying for this enhance will pressure a reckoning within the {industry}.
Annual incremental healthcare prices of $590 billion
By 2027, US healthcare prices may very well be $590 billion increased than the projected $5.8 trillion anticipated within the estimates made pre-COVID-19 (in 2019). Heightened inflation accounts for $370 billion of this distinction,
of which 40 p.c is pushed by elevated medical labor inflation charges linked to a scarcity of medical employees.
The United States is projected to face a scarcity of greater than 200,000 registered nurses and greater than 50,000 physicians within the subsequent three years.
In addition to fueling persistent inflation, this medical employees scarcity is more likely to create challenges in healthcare entry and doubtlessly exacerbate well being inequities. Growth and margins for suppliers are already strained as a result of this dynamic, and the impression is more likely to worsen. Testing, vaccination, and remedy of endemic COVID-19 and the related elevated burden of behavioral-health and different persistent situations might add one other $220 billion in annual prices over the following 5 years.
End payers, already struggling to afford healthcare, have restricted skill to soak up this potential acceleration in prices.
Affordability challenges confronted by finish payers
End payers, already struggling to afford healthcare, have restricted skill to soak up this potential acceleration in prices.
Employers have continued to shift the fee of healthcare to workers. For instance, 18 p.c of workers have been enrolled in high-deductible well being plans in 2013.
In 2021, 40 p.c of workers have been enrolled in these well being plans.
In addition, in 2019, the typical household contribution to protection was 32 p.c for workers at corporations with greater than 500 staff and 53 p.c at these with lower than 499 staff.
In our latest survey, 95 p.c of employers said that they might regulate advantages if price will increase have been 4 p.c or increased, with the most typical modifications being rising worker price sharing, shifting to high-deductible well being plans, and optimizing the supplier community.
Consumers already face important publicity to healthcare prices, as famous above, with the rising degree of price sharing in employer-sponsored insurance coverage. In 2021, the typical household confronted an estimated annual publicity earlier than protection of $8,000 to $12,000.
With $20,000 in common family financial savings in 2021, customers’ skill to soak up this publicity is restricted.
Furthermore, 22 p.c of customers report having greater than $1,000 of medical debt, 34 p.c of those that selected to defer care said it was as a result of lack of affordability, and 45 p.c of customers state {that a} $10 enhance in the fee of a doctor go to would make them keep away from it.
Moreover, whereas US staff are seeing nominal wage will increase, inflation has eroded the positive factors, leading to unfavorable actual earnings progress.
Consumers’ satisfaction with employer-sponsored healthcare protection is decrease than their satisfaction with Medicare, Medicaid, or particular person medical health insurance exchanges protection.
The authorities may additionally not be ready to fund the rise in healthcare prices. The 2022 Medicare Trustees report initiatives that the hospital insurance coverage belief fund steadiness will flip unfavorable in 2028, limiting the federal authorities’s room to maneuver because it pertains to prices.
Recent implementation of 2 p.c Medicare sequestration cuts illustrate this challenge. If the Medicare belief fund must pay for added healthcare spending, this timeline for belief fund insolvency might speed up. In addition, federal debt stands at 123 p.c of GDP.
As the Federal Reserve raises rates of interest and shrinks its steadiness sheet, curiosity funds on federal debt are anticipated to double as a proportion of the US finances between 2022 to 2027.
Implications of the storm on the healthcare {industry}
It isn’t clear that finish payers—employers, customers, and authorities funders—will be capable of bear this enhance, leaving {industry} gamers to handle the extra spending or face important EBITDA threat. The forces famous above might put $450 billion of EBITDA
—greater than half of the overall projected 2027 revenue pool—in danger. However, there’s a $1 trillion enchancment alternative out there in healthcare. It gives the most effective avenue to enhance healthcare for all stakeholders and alleviate the potential margin strain on the {industry}. Four areas make up this chance:
- Care supply transformation. The future of care supply within the United States is evolving. It is turning into patient-centric, digital, ambulatory, and out there at dwelling. It can be turning into value-based and threat bearing; pushed by knowledge and analytics; extra clear and interoperable; enabled by new medical applied sciences; funded by non-public traders; and built-in but fragmented. This radical transformation of the {industry} introduces potential financial savings of $420 billion to $550 billion. To seize this worth, the transformation should occur rather more rapidly than the present course and trajectory suggests. For instance, attaining these financial savings would require, amongst different efforts, shifting 20 to 25 p.c of hospital-based quantity to different websites of clinically applicable care.
Based on our analysis, it might additionally imply rising the inhabitants in whole price of care, value-based preparations from about 6 p.c in the present day to just about 40 p.c. We know from case examples that risk-bearing, value-based preparations can materially enhance price of care in addition to affected person expertise, however few, if any, of the efficient fashions have been in a position to scale.
- Clinical productiveness. Over the previous one to 20 years, labor productiveness within the US healthcare {industry} has declined; between 2001 and 2016, the {industry} contributed 9 p.c of US financial progress however 29 p.c of job progress. Previous McKinsey evaluation has proven that if the healthcare supply {industry} might rely extra closely on labor productiveness positive factors than workforce enlargement to fulfill demand progress, there’s a potential financial savings alternative of $160 billion to $310 billion. Importantly, many modifications may very well be made inside the present workforce—and in addition assist deal with the rising medical employees scarcity. There is important unused capability in doctor schedules in the present day; minor modifications akin to periodically “pruning” clinically inappropriate desire guidelines and broadening automated reminder methods to cut back affected person no-shows might contribute materials positive factors. These varieties of modifications might additionally result in higher entry and high quality of care, improved inpatient mattress and operating-room capability, and affordability enhancements for customers. Technology-enabled modifications to medical observe (famous under) would supply extra positive factors.
- Technology enablement. Healthcare has lagged behind different industries within the utility of new applied sciences, partly as a result of client reticence, the reluctance of extremely educated clinicians, entrenched stakeholder pursuits, a fancy regulatory framework, and the fragmented nature of the market. But we additionally know that progress in healthcare will be exponential when the fitting situations for fulfillment exist. For instance, in April 2020, through the COVID-19 pandemic, total telehealth use for workplace visits and outpatient care was 78 occasions increased than it was in February of the identical 12 months.
Three essential technology-backed use circumstances provide a $250 billion to $350 billion financial savings alternative: variability and waste discount (for instance, elimination of frequent low-value procedures), efficient care supply (for instance, utilizing linked gadgets and digital care to advertise illness administration and keep away from exacerbations), and simpler deployment of superior AI, together with in nonclinical features. This alternative is web of the fee required to develop and implement some of these transformative applied sciences.
(In our earlier analysis, we recognized 9 applied sciences that might reshape healthcare, which will be organized into 5 key use circumstances.) - Administrative simplification. Nearly 1 / 4 of US nationwide well being expenditure goes towards administrative prices. Our evaluation has proven that this may very well be decreased to about 18 p.c by means of identified interventions that may be utilized both by particular person organizations or by settlement and collaboration between organizations however with out requiring industry-wide change. Examples embody eradicating handbook work for nursing managers by means of automated staffing and scheduling instruments; constructing strategic payer–supplier platforms to cut back demand by sharing data akin to out there in-network specialists; and automating repetitive work in human sources and finance. These identified interventions all have a optimistic return on funding and may very well be deployed utilizing present expertise with nominal expense. The ensuing system-wide financial savings could be $270 billion to $320 billion, and will additionally result in materially improved worker, supplier, and client expertise.
The headwinds for healthcare are important and the dangers for the {industry} are sizeable. But the dimensions of the chance outstrips these challenges. Innovative fashions exist and, if scaled up, might ship the $1 trillion enchancment. The problem for the {industry} is to scale up these revolutionary fashions at velocity. Another article on this sequence, “The gathering storm: An opportunity for leaders to reorder the healthcare industry” outlines the strategy {industry} leaders might undertake to seize these enhancements.