In a turbulent environment, it is vital for healthcare companies to build business models that can withstand uncertainty and change.
The clock speed of the healthcare industry has been accelerating for years. And now the pace is growing frenetic. Consider the news from just one week. U.S. insurer UnitedHealth Group, which has been building its Optum subsidiary into a health services juggernaut, acquired DaVita Medical Group, adding significantly to its roster of 30,000 physicians. The blockbuster combination of CVS and Aetna will blur the lines between care delivery, care management, and retail. Should the deal close, the combined entity’s reach will be impressive. Some 70 percent of the nation’s population resides within five miles of a CVS–Aetna location.
The latest dramatic corporate moves are playing out against the backdrop of broader regulatory uncertainty surrounding proposed changes to the Affordable Care Act (ACA) and the Medicaid program and of the systematic shift toward a more consumer-oriented, value-driven and cost-effective health system.
The level and scope of consolidation highlights the ways in which companies continue to place large bets even amid the continual disruption and uncertainty. But it’s evident to us that it is both necessary and advisable to take action — even when we can’t be entirely sure what the market will look like in five or 10 years. Market participants that can manage dynamically with a sharp eye focused on value creation can gain an advantage. The path to doing so starts with three major steps: understanding future money flows and sources of value; identifying viable business models and choosing a suitable “way to play”; and developing a resilient strategy that combines no-regret moves likely to pay off in a variety of scenarios, offensive plays, and investments that create option value.
Future Money Flows and Sources of Value
As we’ve noted, the vast and powerful forces at work are fundamentally reshaping the way money will flow through the healthcare system. Over the next five to 10 years, up to US$1.5 trillion in profits could be up for grabs. A demand-driven restructuring of the industry in which consumers become decision makers, creating almost $400 billion in value in the form of lower prices through better competition between providers. Providers could capture a significant amount of value as supply-driven restructurings lead them to take on risk and focus on prevention over treatment. Material changes to the ACA and other regulatory actions could place $200 billion of profits at risk.
Looking ahead, we see three key sources of value that healthcare industry participants can mine.
Read more: https://www.strategy-business.com/article/Building-a-Resilience-Advantage-in-Healthcare