An interview with Mitch Morris, MD, Vice Chair and US and Global Health Care leader; Greg Scott, Vice Chair and US health plans leader; and Greg Reh, Vice Chair and US and Global Life Sciences leader.
Which of the top 2-4 global trends will have the largest impact on health care and life sciences in the US?
Dr. Mitch Morris: Cost is the most significant issue for health providers, in the United States and globally. All other impactful trends derive from cost considerations, including access to care, treatment advancements, accountable care and alternative payment models, and digital consumer engagement.
An estimated 34 million people in the US still are without health insurance and dependent on emergency departments for basic care, but the Affordable Care Act are driving market changes to encourage effective new ways to deliver and pay for care.
The trend toward consolidation in the provider industry and implementation of value-based payments will be facilitated in 2016 by the so-called “Cadillac Tax” on high cost, employer-sponsored health coverage (which goes into effect Jan. 1, 2018), and the Medicare Access and CHIP Reauthorization Act of 2015, known as MACRA).
The net impact of the Cadillac Tax, an excise tax on premium plans, should be a proliferation of high-deductible plans and an increase in private exchanges with a direct impact on providers. Deloitte’s 2015 Survey of US Employers confirms its potential effect, with most employers saying they expect the tax to influence their benefits strategy.
More impactful is MACRA, legislation that caps increases in Medicare reimbursement at 0.5 percent through 2019. Physician costs will likely rise more than that.
Accountable care organizations, bundled payments and other reimbursement models are addressing access and affordability, signaling progress in preventing emergency department visits and extended hospital stays. One growing and pivotal trend is that care increasingly is moving from hospitals to less costly settings — work, school, even the home.
And technology will continue to help bridge the cost and access gap – mobile phones, web conferencing and portals are changing the way stakeholders manage and pay for care.
The challenge of affordability is a primary concern for health plans and their administrators. Health spending is projected to increase by nearly 5 percent in 2016, 64 percent higher than the overall CPI; health care is expected to exceed 18 percent of GDP this year. This means mounting affordability pressures on all stakeholders, from individuals to health plans to employers. It’s the signature issue in the US health care industry.
The second key trend – the quest for value – revolves around development of value-based care (VBC) models. They will continue to evolve and mature. Recently, Deloitte surveyed US providers and found 95 percent had a least one VBC contract with a commercial health plan.
Consumers are also rewriting the script for how health plans operate. Nearly a quarter of the 147 million people covered by employer-sponsored insurance have a high-deductible plan, with incentives to exercise a more cautious and prudent approach to paying for their health care. This expanded cost-sharing function is the most important driver of US consumers becoming more mindful and active participants in their medical treatments.
Government involvement in the purchase and regulation of health care continues to grow. The projection for 2016 outlays in Medicare and Medicaid is expected to top $1.25 trillion, and – regardless of potential electoral and political effects on the Affordable Care Act – many of the law’s critical tenets are here to stay. Health exchanges, however, are already beginning to feel marketplace pressures due to poor financial performance and their future may be uncertain.
Breakthroughs in health care and health care-relevant technologies are changing many of the core assumptions and characteristics of the entire health care industry. We’re seeing dramatic progress in the categories of clinical and relation innovation, and expect to see even more impactful advancements in the year ahead.
The trends we expect to capture the lion’s share of industry attention involve the regulatory and risk environment and its impact on operational performance, as well as pricing and cost pressures, and the adoption of new business models shaped by scientific and technology advances.
Start with operating performance. Challenges remain in regard to compliance and overall cost optimization, requiring a sharp focus on manufacturing complexity and quality, finance, research and development, and safety.
As in other corners of the health care/life sciences industry, merger and acquisition activity is intensifying, leading many organizations to rethink how to realize the full value of post-transactional consolidation. Potential strategies range from restructuring around shared services 3.0 and designing centers of excellence, to making better use of existing resources.
The second trend is cost pressure. Companies are assessing the value of their initiatives from sales and administrative perspectives. Acquisition and divestiture strategies will be dominant in 2016, and a review of supply chain networks is probable, due to current guidance on base erosion and profit shifting.
Truly innovative products serving unmet needs, could continue to command premium prices — and defray the cost of future innovations – but patient and payer resistance is growing. Drug manufacturers will likely experience ongoing pressure to justify the cost of their products.
Of all the factors affecting the life sciences, however, none may have the impact of the movement toward patient-centric care models. They can affect the entire value chain, from R&D through treatment delivery. As chronic diseases afflict a higher percentage of Americans, and rising patient demand for targeted therapies in an atmosphere of reform-driven price controls, companies should seek a balance between innovation and efficiency.
Read more about the 2016 outlook for life sciences and health care at www.deloitte.com/us/LSHC-Outlooks