Preparing for Growth and Change in the Global Healthcare Ecosystem

The global healthcare market is expected to reach nearly $12 trillion by 2022. Meanwhile, over the coming years, this vital industry will continue to undergo dramatic changes across digital health, advanced medical technologies, data analytics, pharmaceuticals, and business and healthcare models. As a result, industry participants face major opportunities for growth, as well as significant challenges to the status quo.

Greg Caressi, business unit leader and senior vice president of Frost & Sullivan’s Transformational Health practice, manages a global team of researchers and consultants focused on understanding, monitoring, and analyzing the growth opportunities and competitive issues facing clients across five main areas—digital health, pharma/biotech, next-generation diagnostics, medical devices, and medical imaging.

The current COVID-19 pandemic, of course, is having both short-term and long-term impacts on the healthcare sector. For example, the industry is expected to experience a short-term decline of about 15 to 20% in revenues in 2020 as a result of delays in elective surgery, reduction in capex spending and fewer purchases of medicine due to fewer prescriptions written, according to Frost & Sullivan.

Shortages in medical devices like ventilators and test kits, along with operational issues including the disruption of clinical trials and difficulty in scaling up virtual care, are exacerbating challenges further. Moreover, COVID-19 is poised to trigger double-digit growth in telemedicine and virtual care solutions, as providers use remote access technologies to triage and meet with patients they cannot bring into medical office venues.  Finally, supply chain disruption in device and drug manufacturing has highlighted the need for increased local production of essential drugs and needed medical supplies.

COVID-19 aside, the industry is shifting globally from a system that was built to master sick care to one more focused on health care in terms of managing conditions and trying to prevent people from developing chronic diseases. Part of that shift is a transition from payments for sick care activities to being paid based on longer-term metrics that focus on outcomes and quality of care delivery as well as total costs for all health delivery service for groups of people.

“It's no longer necessarily about heads in beds; it’s about trying to help manage the total cost of care for a population,” says Caressi. “You have what we call value-based care, which is a big part of the regulatory regime in the US in terms of reimbursement, and then increasingly this is being looked at in other countries as a focus that they're likely to adopt as well.”

The move from sick care to health care means, in part, helping people become aware of their individual risk factors and positioning them to manage their conditions if they already have an onset of problems. Additionally, it means providing individuals with personalized information, insights, and analysis, helping them interface with perhaps lower-cost healthcare providers and clinicians as well as automated systems. This approach empowers patients to self-manage their health.

The shift also means significant changes in the way providers and other industry participants are reimbursed. “The system is becoming increasingly incentivized to deliver positive health outcomes versus only providing sick care activities,” says Caressi. It is prompting such things as shared services and shared savings across payers and providers—bundled payments so that healthcare providers, specialists, primary care physicians, and hospitals look for ways they can, as a group, reduce the cost of certain treatments through a bundled payments program to deliver lower-cost care at a higher quality for a group of people.

For pharmaceutical companies it means thinking “beyond the pill,” he says. "How can we become part of the solution for cardiac care long-term, not just the provider of a medicine that treats a cardiac patient in the short-term? If there are fewer cardiac patients in the future, then pharma companies will get fewer dollars out of their drugs. They’re looking for ways they can make up for that decline and grow their business by being part of the longer-term treatment,” Caressi notes.

Meanwhile, the trend toward health-focused care is helping foreground major opportunities and need of data-driven analytics. Increasingly, the industry is looking at how digital transformation can make internal operations and supply chains more efficient to produce better outcomes at a lower cost. It is examining how data and digital tools can improve treatment and diagnoses.

Healthcare providers may use data to help them achieve proper staffing. Pharmaceutical companies are looking at how they can use data and digital tools to accelerate and improve drug development processes and reduce costs for clinical trials.

“Everybody's looking at individual insights, such as from genomics, that can lead to more effective treatment and in developing new solutions that are targeted towards smaller cohorts, based on their individual characteristics,” Caressi says.

Digital transformation is also creating opportunities and innovation for new entrants and new business models. Technology providers who are already established in other vertical markets are now recognizing opportunities in the healthcare arena. Meanwhile, some entrants are focusing on direct-to-consumer solutions like wearables. Their business models are often twofold: consumer products and services, on the one hand, but also the collection of valuable data that can be sold, for example, to pharma companies for use in drug development and product planning, on the other hand.

Similarly, business models are morphing for established equipment manufacturers, like imaging companies, which comprise one of the hardest-hit sectors in healthcare in recent years. Healthcare providers have become more reluctant to make big capital investments to upgrade to the latest technology, so they are trying to extend the life of existing equipment. As a result, companies like Philips and GE have sought to move to more service-oriented models, in which the imaging vendor owns the equipment and, in some cases, operates it for a health system, creating a longer-term service relationship.

In the face of dramatic changes within the industry, what must healthcare companies do to ensure they survive and thrive in the future?

“In our view, they have to look at how they've traditionally made money,  look at the future, and recognize how that scenario might be threatened by the changes that are going on,” says Caressi. “How is the world of the future going to be different than it is today, and how do I need to evolve my business?”

The competitive environment is changing rapidly. New competitors are increasingly coming from developing markets in areas like pharma and medical devices. China is a rising leader in a wide range of technologies critical to the future of healthcare. Caressi recommends that his clients take a broad view of the healthcare ecosystem to determine who their competitors—as well as their partners—will be in the future.

“They will need to use that broader view to build the right partnerships and to make acquisitions that take advantage of where the puck in going in the future, if they are to expand their growth opportunities,” he says.

In addition, nearly all participants in the healthcare ecosystem should be asking themselves how they can become more data-driven and make better decisions based on data. They need to build data partnerships with other organizations and leverage shared data as a valuable asset rather than looking only at the data they own.

“The sum of these individual changes requires a broad cultural shift toward openness and innovation, one that many participants in such a highly regulated industry still need to develop,” Caressi concludes.