November 2017. A recent McKinsey review predicted healthcare as one of the top 5 industries with more than 50 use cases that would involve AI, and over $1bn USD already raised in start-up equity 2 . After comparing the mix of revenue across provider segments between 2012 and 2016, we estimate that the shift to distributed settings resulted in about $36 billion in foregone revenue growth for hospital-based inpatient care during 2016. Because of these forces—and the substantial losses many carriers have had to absorb in the individual market—the profit pool from commercial lines of business was less than half the size of the profit pool from government lines of business in 2016. These forces are fundamentally altering the structure of the industry and basis of competition. Amazon gains wholesale pharmacy licenses in many US states: Report. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Never miss an insight. Please try again later. McKinsey analysis based on Capital IQ and Pitchbook data. Ongoing disruption to health insurer profit pools is likely because several forces are working to unbundle the commercial payer value proposition. McKinsey on Healthcare. Between 2012 and 2016, total over-all healthcare industry profit pools (earnings before interest, taxes, depreciation, and amortization, or EBITDA) grew at a faster rate than the combined EBITDA of the top 1,000 US companies (Exhibit 1). The authors would like to thank Elina Onitskansky, Rob May, Nikhil Seshan, Manuel Valverde, and Rasagya Kabra for their contributions to this article. Reinvent your business. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Investment in the creation of new clinical pathways that improve care delivery and outcomes, new business models with significantly lower costs, and a reorientation from delivery-centric models to consumer-centric ones should receive priority over traditional approaches. As shown in Exhibit 2, two of the four segments within healthcare that experienced  profit pool growth above 10% between 2012 and 2016 were service vendors. The groups of systems that focused on either payer/provider integration or core hospital business growth experienced revenue growth during that time, but it was accompanied by margin erosion. The report’s authors note that, “When patients resume care, they may be more likely to seek it at health systems that have demonstrated safe operations in their ability to treat patients while COVID-19 remains present.” In addition, it would need to find and partner with willing stakeholders in other parts of the healthcare industry, including (but not limited to) payers and pharmaceutical companies. Please click "Accept" to help us improve its usefulness with additional cookies. This paper outlines the underlying drivers of historic—and potential future—profit pool shifts among industry stakeholders (health insurers, healthcare delivery systems, service vendors, and pharmaceuticals), as well as the impact technology-driven disruption could have on them. November 2017. McKinsey analysis based on National Association of Dental Plans and IBISWorld data. People don’t want to use digital services for healthcare. Learn more about cookies, Opens in new tab. Shubham Singhal: How do we take the learnings around the rate and speed at which you can change—and take that speed that you’ve shown during “wartime,” if you will—and take it forward to “peacetime”? What's New. Profit pools generated in certain ways—for example, by increasing productivity to lower costs, improving healthcare delivery and healthcare outcomes, or offering better consumer engagement—are likely to be sustainable over time, given the large scope for improvement and the value placed on those elements by stakeholders. Flip the odds. As we look toward the future of healthcare, there are four industry-level changes that could disrupt healthcare value pools as they exist today: modernized transaction and data infrastructure; radically more efficient medical supply chain; faster, more effective therapy development; and new, personalized, and intuitive healthcare ecosystems. cookies, McKinsey_Website_Accessibility@mckinsey.com. Multimedia Getting the right care to the right people at the right cost: An interview with Ron Walls. The data underlying this analysis came from a wide range of sources, including annual financial fillings (10-K) for CVS, Walgreens, and Rite Aid; Euromonitor; The 2017 Economic Report on US Pharmacies and Pharmacy Benefit Managers, Pembroke Consulting, Inc., and Drug Channels Institute. AI has only recently begun to take a leading role in healthcare. 2017 Employer Health Benefits Survey. Between 2012 and 2016, enrollment in fully insured group plans decreased 16% as employers switched to self-insured arrangements,2 Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. McKinsey Quarterly. Many institutions in the private and … Please email us at: McKinsey_Website_Accessibility@mckinsey.com. Defined as employers with fewer than 50 full-time employees (including full-time equivalent employees). We strive to provide individuals with disabilities equal access to our website. The number of first-round venture capital investments in healthcare technology has increased by an average of 30% annually since 2009.11 2. hereLearn more about cookies, Opens in new cookies, physicians who would not have been, historically, willing to engage. Our research shows that 2016 margins were, on average, 17% higher at the top 40 US health systems than at other health systems—and 33% higher than at independent hospitals.10 After 40 million virtual visits, Australia just made temporary telehealth expansion permanent. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. tab. Developing the workforce of the future depends on how companies adapt to automation and AI. 14. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. The growth in the profit pool for clinical and financial services reflects ongoing industry changes. As a result, venture capital and private equity investments in healthcare technology service vendors have skyrocketed. Although traditional service vendors, such as third-party administrators, group purchasing organizations, and brokers, still account for a significant portion of the total service-vendor profit pool, their EBITDA has been growing more slowly. Several primary arguments underlie the belief that such a company could successfully disrupt the pharmaceutical value chain. Nearly $100 billion in gross margins are being retained by intermediaries across the pharmacy value chain. See more from McKinsey Future of Health Care Forum, Oct 1-2 2015, Stockholm, Sweden . The McKinsey on Healthcare Podcast features conversations with McKinsey and other industry experts on the challenges, strategies, and innovations shaping the healthcare industry. Strong EBITDA growth is projected for many of these solutions in the coming years. Clinical laboratory and pathology groups that support ambulatory and virtual care, and urgent care and retail clinics may experience growth. ... SUBJECT * MESSAGE * Security validation * McKinsey & Company is committed to protecting your information in accordance with its privacy policy. MA profits also rose, but more slowly. The challenges facing a potential technology entrant to the pharmaceutical value chain are meaningful. Sectors . Press enter to select and open the results on a new page. Furthermore, new challenges, such as the ongoing opioid crisis, continue to emerge. Scale also offers additional benefits such as broader data sets, ability to build skill-based capabilities in data, and advanced analytics. Functional. Over 125 million Americans now live in regions where the leading provider has a market share above 35%, and 79 health systems already hold direct-to-employer contracts (Exhibit 6). McKinsey analysis based on Medicare cost reports 2012–16, VMG Intelli­marker, IBISWorld, and US Economic Census data. Flip the odds. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. October 26, 2017.Retail pharmacies are already acutely aware of the potential of technology-driven disruption, as front-of-store pharmacy revenues have been virtually flat since 2012 due to the digital transformation of the retail industry. An important change has also occurred within the government lines of business for health insurers. Amazon gains wholesale pharmacy licenses in many US states: Report. Helping US healthcare stakeholders understand the human side of the COVID-19 crisis: McKinsey Consumer Healthcare Insights. According to Frost & Sullivan, AI systems are projected to be a $6 billion dollar industry by 2021 1 . We’re through the first wave. Global management consulting company McKinsey and Company’s report, “The Great Acceleration In Healthcare: Six Trends to Heed,” identifies six trends in healthcare that are accelerating due to the global COVID-19 pandemic. Between 2012 and 2016, enrollment in fully insured group plans decreased 16% as employers switched to self-insured arrangements,2 and the number of small employers3 offering health benefits dropped 24%4; however, revenue from ancillary lines of business (e.g., dental, vision) grew by 25%.5 At the same time, enrollment in Medicare Advantage (MA) plans, with or without prescription drug benefits, rose 71%; enr… This threat made headlines with Amazon’s apparent intention to enter the market, as reflected in its hiring of pharmacy professionals in May 2017 and its acquisition of wholesale drug, medical device, and supply licenses in at least 12 states by October 2017.15 … Hear perspectives on navigating the changing healthcare environment, embracing opportunities and disruptions, and prepari… Payer insights; Provider insights; Services Insights; Topics . Defined as employers with fewer than 50 full-time employees (including full-time equivalent employees). We use cookies essential for this site to function well. Gallery Delivering workplace wellness via mobile tools The Most Significant Innovation in Modern Healthcare Isn’t a Drug. Please try again later. How we lock in that speed is going to be a big imperative as we look ahead. We strive to provide individuals with disabilities equal access to our website. Although growth in the penetration of mail-order pharmacies has waned in recent years, initial attempts to sell prescription drugs online (e.g., through start-ups like Pill Pack and Lemonaid Health) have started gaining traction.17 November 2016. What the COVID-19 crisis has done is accelerated that. 16. 4. Employers in several markets are already collaborating to pursue new models of care delivery for their workers. Reuters staff. They also face pressing questions about what the future of healthcare provision may look like in a post-COVID-19 world. For example, increasing use of care management and population health management models has strengthened the market for clinical services. And, if needed, how do we convert other areas—like hotels, et cetera—into lower-acuity sites of care when the hospitals are full? Our flagship business publication has been defining and informing the senior-management agenda since 1964. Trends disrupting pharmacy value pools and potential implications for the value chain. ... Finding the future of care provision: the role of smart hospitals. September 19, 2017. In addition to increasing demand, three other major factors make healthcare a dynamic industry with significant opportunity: Industry growth, major changes, and strong value-creation potential make healthcare an exciting industry. Please click "Accept" to help us improve its usefulness with additional cookies. Among Medicaid carriers, for example, pretax margins are more than twice as high for those with more than 10 million covered lives than for those with between 2.5 and 5 million lives. A transcript of their remarks follows below. The data underlying this analysis came from a wide range of sources, including Express Scripts Drug Trend reports (2012–16); US Bureau of Labor Statistics; US Centers for Medicare and Medicaid Services; Office of Statewide Health Planning and Development, State of California. Exhibit 8 Scale is especially important for specialized insurers (Exhibit 5). An online vendor would need to overcome operational and regulatory challenges. Healthcare in 2020 and beyond Healthcare in 2020 and beyond In this video, Penny Dash and Shubham Singhal, two leaders of McKinsey’s Healthcare Systems & Services Practice, reflect on how COVID-19 is transforming the healthcare industry. McKinsey Analysis: Up to $250B of Healthcare Could Be Virtualized. Please use UP and DOWN arrow keys to review autocomplete results. Services. Finally, evidence exists that demand for direct purchasing of drugs online by consumers could be on the rise. Kaiser Family Foundation. During a crisis, do we have established protocols for allowing a nurse in the hospital so that they can be trained to be an ICU [intensive-care-unit] nurse and capable of helping with ventilators, for example? McKinsey white paper. If you would like information about this content we will be happy to work with you. The provider market continues to experience a significant move away from inpatient care and toward distributed settings of care. McKinsey & Company: From no mobility to future mobility: Where COVID-19 has accelerated change The COVID-19 pandemic has disrupted mobility, and its effects will linger well into next year. Something went wrong. Overcoming pandemic fatigue: How to reenergize organizations for the long run, What’s next for remote work: An analysis of 2,000 tasks, 800 jobs, and nine countries, The future of business: Reimagining 2020 and beyond. The traditional boundaries of the life sciences and health care industry are dissolving as exponential innovation propels the future of health forward. Trends disrupting pharmacy value pools and potential implications for the value chain. At the same time, enrollment in Medicare Advantage (MA) plans, with or without prescription drug benefits, rose 71%; enrollment in managed Medicaid plans increased 80%.6 Please fill out the form below to inquire about our work in Healthcare Systems & Services. Clinical laboratory … So keep hold of the digital technologies and the remote working. In that same year, shifts in settings of care led to about $29 billion in additional revenue for hospital-based outpatient care and $7 billion for other more convenient sites of care (e.g., urgent care clinics, free-standing emergency departments, retail clinics).8 Companies given first-round funding in recent years are more likely than their predecessors were to have received multiple rounds of funding from both financial investors and strategic buyers; as a result, they are more likely to have moved beyond the start-up phase and scale significantly. Reinvent the business by aggressively reallocating capital and resources toward future business models, either through investments in technology (including medical science and technology, machine learning/artificial intelligence, advanced analytics, or digital), care delivery models (i.e., distributed sites of care), managed care models, or all three. Exhibit 6 The McKinsey on Healthcare Podcast features conversations with McKinsey and other industry experts on the challenges, strategies, and innovations shaping the healthcare industry. ... Healthcare is the only sector in our analysis in which the need for physical and manual skills will grow in the years leading to 2030. November 2017. We'll email you when new articles are published on this topic. ... ’ concerns about security, workflow integration, and effectiveness compared with in-person visits, along with the future for reimbursement. Many places did. Annual EBITDA growth was 17% for companies that deliver clinical services (e.g., population health management, clinical information systems) and just above 10% for those offering financial services (e.g., revenue cycle management, payment integrity). 2017 Employer Health Benefits Survey. We strive to provide individuals with disabilities equal access to our website. We'll email you when new articles are published on this topic. Subscribed to {PRACTICE_NAME} email alerts. … And those people are going to need support—both emotional support as well as a bit of time to rest. 5. People create and sustain change. Sept­ember 19, 2017. Multimedia ... Finding the future of care provision: the role of smart hospitals. It is likely that both will be significant drivers of health insurer profit pools going forward. ‎The McKinsey on Healthcare Podcast features conversations with McKinsey and other industry experts on the challenges, strategies, and innovations shaping the healthcare industry. In many countries, we’ve seen 70 to 80 percent of primary-care consultations either go online or be carried out by phone. Across all lines of business for health insurers, scale has become increasingly important. Payer insights; Provider insights; Services Insights; Topics . 15. The intrinsic demand for healthcare services continues to rise in the United States, given population aging, the increasing prevalence of chronic disease, and the search for a higher quality of life. We strive to provide individuals with disabilities equal access to our website. However, profit pool growth varied widely across the healthcare industry, and both it and the factors driving it (e.g., revenue growth and margins) will continue to be uneven for at least the next several years, as shown in Exhibits 2 and 3. October 1-2, 2015 | Stockholm, Sweden Dr. Pumerantz, Vice Chairman of Medical Advisory Board, ClickMedix, describes ClickMedix – Western Diabetes Institute integrated care model for chronic diseases for diabetes and related co-morbid conditions. These forces will require commercial health insurers The Medicaid program has experienced significant changes since 2010, when the Affordable Care Act was passed. Since the Affordable Care Act was enacted, a major shift in insurers’ profit pools has occurred. Press enter to select and open the results on a new page. If you would like information about this content we will be happy to work with you. Kaiser Family Foundation. Although provider concentration has been growing more rapidly than payer concentration, on an absolute basis payer concentration continues to be higher than provider concentration in most markets. 8. Team-based care at Western Diabetes Institute, California. Combating COVID-19 with resilience. Article Understanding the impact of unmet social needs on consumer health and healthcare. People create and sustain change. McKinsey analysis based on Capital IQ data. September 19, 2017. and the number of small employers3 Penny Dash: And what’s happened in the past three months has been an unbelievable level of adoption. Now we’ll cancel the remote consultations and we’ll go back to how things were.” That would be such a lost opportunity and a wasted opportunity and, of course, would also detract from what is going to be needed, which is more efficient services in order to deal with the backlog. Our research shows that EBITDA margins rise significantly as scale increases, even though the decrease in per member per month G&A costs flattens at relatively modest size for payers. In 2015 and 2016, venture capital activity in the healthcare industry largely focused on solutions that create value in one of three ways: by delivering productivity improvements, enabling improved care quality and outcomes, or supporting member-centric care (Exhibit 9). It’s Your Cell Phone. Reuters staff. Nevertheless, if an online vendor is able to overcome these challenges to gain a foothold in the pharmacy market, the potential disruption to the pharmaceutical value chain and industry profit pools could be significant. ... McKinsey Global Institute. DISCLAIMER: The views and opinions expressed are those of the interviewee(s) and are not necessarily those of McKinsey and Company. McKinsey white paper. Use minimal essential Among the key concerns that McKinsey experts believe will impact hospitals and health systems in the near future: Ø Discontinuity in patient relationships. McKinsey analysis based on Capital IQ and Pitchbook data. Article The hospital is dead, long … The strategic choices health systems make are becoming increasingly important because of the confluence of forces facing healthcare delivery, including the shift to distributed settings of care and rapidly rising consumer expectations. Hear perspectives on navigating the changing healthcare environment, embracing opportunities and disruptions, and preparing for the future of healthcare across the globe. Obviously, we have moved extremely fast. We strive to provide individuals with disabilities equal access to our website. Understand the evolution of the industry’s profit pools at a granular level, including the underlying source of the company’s profit pool and its sustainability.