Reprinted with permission from Deloitte.
Because 2012 is an election year, the U.S. health system ─ and the respective advocacy posture taken by its varied special interests and trade associations ─ will be even more visible. Health reform will likely be one of two major news items, second only to the economic recovery.
The U.S. health industry is highly regulated, highly dependent on capital for technologies and facilities and labor intense. For U.S.-based hospitals, ambulatory providers, plans, bio-pharma and device manufacturers, the future is complicated. The industry should anticipate contending with three major forces: (1) the Affordable Care Act legislates fundamental changes in the financing and delivery of care, (2) U.S. economic recovery and deficit reduction means cuts in health and (3) demand for health services soars as a result of consumer expectations and the aging population.
In 2012, the critical trends likely to impact the industry will be:
- Do more with less: According to the Congressional Budget Office (CBO), health costs will increase 6 percent overall, though government payments may slow, forcing tough negotiations in the industry’s supply chain and with third-party payers. As a result, margins will shrink, consolidation will increase within sectors and offshore contracting for talent will likely accelerate to reduce operating costs. Opportunities for innovative, low cost/high value/technology-enabled delivery and financing solutions will increase.
- Go big: The health system in the U.S. is highly fragmented: 4,500 biotech companies, 6,000 device manufacturers, 5,800 hospitals, 700,000 physicians, 1,300 health plans and so on. Most providers operate locally; most manufacturers seek regional market penetration to achieve solvency and sustainability. The year ahead will likely witness significant integration of physicians with hospitals, plans with physicians, bio-tech with pharma, traditional and nontraditional medical models, pharma with physicians and others. Consolidation in each sector is likely to accelerate, and there will be winners and losers in each. Bigger is better.
- Follow the money: The U.S. economic recovery has been slower than desirable. As a result, health industry stakeholders should grow revenue in new, sometimes risky, sometimes unconventional markets. Manufacturers will likely pursue direct contracting via gain sharing models with providers, increase global market growth and offshore core operating functions to cheaper labor markets. Health plans will likely pursue risk-based contracts with providers, diversifying into wellness and healthy living services for employers and individuals and monetize data to assist in the transition to information-driven health. Hospitals may consider augmenting clinical services, adding allied health, long-term care and physician services, and some will develop health plans to get closer to the premium revenue stream. And the role of consumers will likely increase because they may be paying more out of pocket ─ transparency, technologies and timing suggest increased activism by consumers seeking more effective health and lower costs.
According to the CBO and the Deloitte Center for Health Solutions’ study “The hidden costs of U.S. health care for consumers,” at the end of 2012, health care will likely make up 24 percent of the total federal budget, 21 percent of the average state’s budget and 20 percent of the average household’s discretionary spending. The cost of the U.S. health care system is projected to increase by 6 percent, while the economy overall will see a 2.5 percent improvement in gross domestic product (GDP). It cannot be avoided; it’s a “big deal.”
Paul Keckley, Ph.D., is executive director of the Deloitte Center for Health Solutions, Deloitte LLP, and John Bigalke serves as vice chairman and U.S. national industry leader of Deloitte LLP’s Health Sciences & Government practice.
