(Bloomberg View) -- Marketplace disruption is reshaping health care in the U.S., with headline-grabbing mergers and the formation of new companies. These moves are breaking down traditional silos in health care. And further change can be expected, as calls grow louder for better health-care value for the dollar.
Four trends are driving the shift: an ongoing movement toward value-based payments; improved health-care data analytics; innovations in medical science; and increasing demand from consumers for greater convenience and value.
Although health-care costs have been growing more slowly than they once did, the U.S. still spends far too much, and there's great variation across the country in both prices (especially for employer-sponsored insurance) and utilization (especially for Medicare). Fee-for-service payment is a major reason spending is so high and varies so much from region to region. The shift toward value-based payments -- including bundled payments and accountable care organizations -- is a necessary though not complete solution.
The arrival of Alex Azar as secretary of Health and Human Services has offered hope that Medicare, which has sufficient presence in every local market to change how providers behave, will resume pushing toward these models, and a recent McKinsey analysis highlights their potential. To thrive under value-based payments, companies will need to reduce unwarranted variation across providers and sites of care and keep costs reasonable.
Exciting advances in data analytics are the second force for change. Consider, for example, the data on hospital readmissions. Hospitals and insurance companies have long known that about 20 percent of Medicare patients are readmitted within 30 days, but haven't been able to tell which patients were at the highest risk of returning. Recent advances in machine learning (see here and here) are making it possible to predict which patients are most vulnerable, enabling hospitals and insurers to single them out for the extra attention they need to avoid readmission. Deeper insights can also be drawn from a combination of clinical, medical and pharmacy data to improve care for individual patients and larger patient populations, and to inform the business decisions that hospitals, doctors and other providers make.
The third major trend in health care is the extraordinary amount of biopharmaceutical innovation, including in cancer immunotherapy, gene therapy and cell therapy. But the pharmaceutical industry is also facing an evolving insurance industry and greater demands for proof of how well drugs and treatments work in practice. These forces challenge the companies' growth, intensify their need to invest in research and development that produces innovative and differentiated new drugs, and increase the need for studies of drugs already on the market.
Meanwhile, health-care consumers are demanding lower prices, greater choices and better care. The rapid growth of urgent-care clinics and virtual-care providers highlights the important role consumers play in driving new, more convenient models. Health-care companies will need to find new ways to provide higher quality, more personalized care.
These trends, along with corporate tax reform, will continue to foster mergers and other shifts that blur the lines between previously distinct segments of the health-care industry. In turn, competitive new companies that can provide better, less expensive and more convenient health care will only increase the pressure for system-wide change.
Leaders and investors across the health-care sector will need to consider how to respond to the changing landscape, and find new ways to compete and add value in the years ahead.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
David Gluckman is vice chairman of investment banking and global co-head of health care at Lazard.
To contact the authors of this story: Peter R. Orszag at porszag5@bloomberg.net, David Gluckman at davidgluckman96@gmail.com.
To contact the editor responsible for this story: Mary Duenwald at mduenwald@bloomberg.net.
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