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care outlook
Battling costs while
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2016 Global health care outlook | Battling costs while improving care 1
Change is the new normal for the global health care sector.
As providers, payers, governments, and other stakeholders
strive to deliver effective, efficient, and equitable care, they
do so in an ecosystem that is undergoing a dramatic and
fundamental shift in business, clinical, and operating models.
This shift is being fueled by aging and growing populations;
the proliferation of chronic diseases; heightened focus
on care quality and value; evolving financial and quality
regulations; informed and empowered consumers; and
innovative treatments and technologies all of which are
leading to rising costs and an increase in spending levels for
care provision, infrastructure improvements, and technology
innovations.
The Economist Intelligence Unit (EIU) reports that health
care spending in the 60 countries that it covers rose by
2.6 percent in nominal U.S. dollar terms in 2014 but that
spending is forecasted to dip in 2015, reflecting the current
weakness of the euro and other currencies against the U.S.
dollar (USD)*.1 On a Gross Domestic Product (GDP) and
per-capita basis, the most recent figures available from the
Netherlands
$6,145
U.K.
Germany
$3,598
$5,006
Canada
$5,718
U.S.
$9,146
ME
(SA, UAE, Qatar) India
$61
$1,473
Mexico
$664
China
$367
Japan
$3,966
Brazil
$1,083
Health expenditure per capita
(current US$)
$12
$9,146
Australia
$5,827
Source: DTTL Global Life Sciences and Health Care (LSHC) Industry Group analysis of The World Health Organization Global Health Expenditure
database (see http://apps.who.int/nha/database for most recent update)
* Unless otherwise identifed, all monetary references are in U.S. dollars.
Defragmentation
The health care sector is moving from its traditional,
fragmented approach to clinical and financial operations
to one focused on consolidation, convergence, and
connectivity. In some countries, increasing competition and
sharply climbing costs are fueling the trend of bigger is
better individual (fragmented) hospitals are merging
with each other and with independent physician groups to
form large health systems that can leverage economies of
scale and broader service reach to withstand rising economic
and regulatory pressures. Emerging reimbursement models
are no longer requiring a provider organization to go it
alone risk-sharing schemes are increasing in availability.
Government organizations are also looking beyond their
traditional health care models for innovative ways to
manage and deliver care. In countries including the United
States, health plans are also defragmenting via mergers
and acquisitions (M&A) and collaborative relationships with
providers to create powerful data-sharing networks that help
drive integration across the continuum of care.
Defrag
men
tat
ion
Pop
ula
tio
n
Financial
Govt. spending
Health reform
Alt. financial/
business models
Public/private
partnerships
Innovation
Medical advances
Digital connected health
Data/analytics
he
Demographics
Aging population
Chronic diseases
Communicable diseases
Access
Consumer engagement
Cost
Regulatory
Patient and
product safety
Cybersecurity
Fraud & abuse
alue
to v
e
lum
/vo
th
al
Operational
Infrastructure
Waste
Alt. care delivery/
operational models
Talent
M&A
re
ca
ble
a
t
i
qu
Effect
ive, efficient, e
2016 Global health care outlook | Battling costs while improving care 3
Population health
Health care providers and payers, both public and private,
are seeking to address the cost curve with innovative
approaches to managing the health of a population.
Providers responsible for the full spectrum of health needs
for a population (as opposed to those delivering episodic
procedures or illness-focused care) realize they need to
know about their populations risks and requirements even
before they get sick. They also need to measure and improve
care processes for their overall population. However, if
stakeholders are going to be successful at managing
population health, then health and social care systems will
need to join forces, and the public and private sectors will
have to transition financial incentives from the break-fix
model of care to prevention, predictive maintenance, and
outcome optimization. While a philosophical shift has
occurred in countries like the United Kingdom, Mexico,
Japan, and Germany, for instance balancing the potential
benefits of population health management with the
practicalities of implementing, funding, and delivering such
models remains in the early stages.
Volume to value
Regulatory and market changes are disrupting business as
usual and making the concept of value top-of-mind for
the health care sector and consumers alike. The traditional
fee-for-service (FFS)-based payment model incentivizes
health care providers to increase the volume of services
without much thought to cost. Although providers have
professional goals of improving health outcomes, the FFS
model does not reward them for this. Due to concerns
about rising costs and wide variations in performance on
quality indicators, employers, health plans, and governments
are pushing for a transition to outcome- or value-based care
(VBC) payment models. The premise of VBC payments is to
align physician and hospital bonuses and penalties with cost,
quality, and outcomes measures.6
Demographics
Aging population
Population aging is accelerating rapidly worldwide.
Increased life expectancy up from an estimated 72.3
years in 2014 to 73.3 years in 2019 will bring the
number of people aged 65+ worldwide to over 604
million, or 10.8 percent of the total global population.
That number is anticipated to be even higher In Western
Europe (nearly 21 percent) and Japan (28 percent).9 Among
factors contributing to increased life expectancy in low- and
middle-income countries are declining infant mortality,
enhanced living conditions, improved sanitation, better
prevention of communicable diseases, and growing access
to medicine. In higher-income countries, increasing life
expectancy is mainly due to declining mortality among
those who are older.10 Unfortunately, health quality is not
keeping pace with longevity, nor is the development of ageappropriate health policies and services.
The potential impacts of an expanding, aging population
on countries health care systems, workforce, and budgets
are profound. Yet, existing systems are poorly aligned
to the care that older populations require.11 In addition,
many common misperceptions and assumptions about
older people exist the inevitable deterioration of
mental and physical abilities, for instance that hinder
progress. Although many older people will experience
health problems at some point, older age does not imply
dependence.12 Rather, increasing numbers of informed,
active, and affluent seniors are willing to pay for new health
care services and technologies. Undoubtedly, changes will
be required in the way health policies for aging populations
are formulated and services are provided to encompass
the great diversity of older populations and address the
inequities that lie beneath it.13
Contrary to common assumptions, aging has far less
influence on health care expenditures than other factors,
including the high costs of new medical technologies.
World report on aging and health, World Health
Organization, 2015
2016 Global health care outlook | Battling costs while improving care 5
2016 Global health care outlook | Battling costs while improving care 7
2016 Global health care outlook | Battling costs while improving care 9
Bundles
Arrangement with
predetermined
reimbursements for
clinically defined
episodes/bundles of
care instead of separate
payments to hospitals,
physicians, etc.
Includes upside potential
and downside risk
Full-risk arrangement
with provider receiving
PMPM payment
regardless of services
used and bearing the full
impact of any upside or
downside
Could be condition- or
population-focused
models with risk across
multiple populations
Requires mature
capabilities
10
Figure 4: Providers are investing in new capabilities as they reconfigure around VBC models
Population health and opportunity assessment
of cost drivers and opportunities across settings and conditions
Performance monitoring
reporting and analytics tools
to measure outcomes and
identify opportunities
Patient engagement
tools to support patient
knowledge, empowerment,
and adherence
Care coordination
to manage conditions,
intervene when and how it
is needed, and drive total
cost and quality outcomes
Risk stratification
of the various stages of
disease/severity and identification
of those at risk based on clinical
and lifestyle factors
Care planning
leveraging evidence-based
protocols to develop new
clinical pathways, utilizing
multi-disciplinary teams and
looking across continuum of care
Risk stratification
of the various stages of disease/
severity and identification of
those at risk based on clinical and
lifestyle factors
2016 Global health care outlook | Battling costs while improving care 11
FROM
TO
Multidisciplinary-, multispecialty-driven
organization of care
Provider-centric experience
Patient-centric experience
Figure 6: Hospital beds per 1,000 as compared with regional population, 2011-2019E
2014
2019
Asia and
Australasia
Latin
America
World
North
America
Western
Europe
Transition
economies
Source: DTTL LSHC Industry Group analysis of EIU database (accessed July 6, 2015).
*Transition economies include Russia, Ukraine, and East-Central European countries.
14
Talent
As their populations and health care needs grow, countries
all over the world struggle to match the demand for
trained medical professionals, mainly physicians and nurses.
Workforce shortages are a major contributor to health care
access problems in developing countries and increasing
health care costs in developed countries. The problem is
anticipated to persist well beyond 2016, as the number of
doctors per 1,000 population is projected to remain almost
the same globally between 2014 and 2019 (Figure 7).
5,357
5,405
5,449
5,493
5,536
4
3
5,300
5,200
1.7
1.7
1.7
1.7
1.8
1.8
5,100
5,000
2
1
World population
5,600
5,577
4,900
4,800
2014
2015
2016
2017
2018
2019
Source: DTTL LSHC Industry Group analysis of EIU database (accessed July 6, 2015)
2016 Global health care outlook | Battling costs while improving care 15
M&A
Spurred by market competition, reform-driven financial
challenges, and persistent regulatory pressures, increasing
numbers of health care providers, particularly in the United
States, are using M&A to consolidate hospitals and form
large health systems that offer economies of scale and
broader service reach. Health systems are also acquiring
independent physician groups and/or directly employing
physicians to plug gaps in service offerings and support
new models of care delivery. Organizations are leveraging
their acquisitions by implementing integrated technology
platforms which give the newly expanded entity the
capabilities to run population health initiatives, assume
greater levels of risk, and for some launch their
own health plans. In fact, one in five U.S. health systems
anticipates offering health plans by 2018.89
M&A among global health care providers increased
dramatically in both volume and value between mid2014 and mid-2015 (Figure 8). U.S. health care providers
generated the majority of top deals during the first half
of 2015. These included UnitedHealth Group Inc.s (UHC)
acquisition of Catamaran Corp. for $13.2 billion and CVS
Health Corp.s purchase of Omnicare Inc. for $12.6 billion.
In other global regions, AMP Capital Investors Ltd. of
Australia acquired Royal North Shore Hospital for $.9 billion
and Remgro Jersey Ltd. bought a 29.9 percent stake in Spire
Healthcare Group Plc. for $.7 billion.90
Health plan M&A deal volume and value rocketed in
2015 versus 2014 (Figure 9) due, in large measure, to
$70
600
$60
500
$50
400
$40
300
$30
200
$20
100
$10
$0
2010
2011
2012
16
2013
2014
2015
Strategic value
Volume
Value (US$B)
PEI value
Strategic volume
PEI volume
18
$90
16
$80
14
$70
12
$60
10
$50
$40
$30
$20
$10
$0
2010
2011
2012
2013
2014
2015
Strategic value
Volume
Value (US$B)
PEI value
Strategic volume
PEI volume
Personalized care
Widespread adoption of personalized/precision care,
shifting clinical offerings from mass generalization to
mass customization, will likely be made possible through
public and private investments in offerings that integrate
drugs and devices with low-cost diagnostics, disease
management programs, and clinical decision support.
In the United States, for example, the proposed FY2016
budget includes $215 million for the Precision Medicine
initiative, which is focused on building a large research
cohort for longitudinal studies, and ensuring regulations
are appropriate to facilitate sharing of patient data across
institutions and agencies. Ultimately, the goal is to get more
targeted treatments for a variety of diseases to patients
faster.97
Personalizing care based on genetics and individuals health
information has the potential to generate new therapies
that may radically improve outcomes. For example,
approximately 30-40 percent of patients take drugs for
which the adverse effects outweigh the benefits.98 This is
neither cost-effective nor therapeutic. Targeted therapies
paired with genetic diagnostic tests help physicians to select
an optimal treatment the first time, avoiding the costly and
risky practice of trial-and-error prescribing. Other innovations
in personalized care include specialty drugs, which show
potential to improve life expectancy and quality of life.99
When used with biomarkers to target subpopulations, these
drugs could improve outcomes, lower treatment cost, and
even prevent disease.100,101 Although personalized medicine
discoveries are increasing, payer reimbursement currently is
limited and highly variable. Additional research is needed
to demonstrate a return on investment to payers.102 Its likely
these treatment approaches will be slow to evolve in the
next two-to-three years.
18
2016 Global health care outlook | Battling costs while improving care 19
Heart rate
monitor patch
Wrist bands
that monitor
heartbeat,
blood pressure,
calories burnt
Insole sensor
that measures
weight bearing,
balance and
temperature
Source: Healthcare and Life Sciences Predictions 2020: A bold future?
U.K. Deloitte Centre for Health Solutions, 2014
Regulatory compliance
Patient and product safety
Much of health cares regulatory focus is on patient
and drug safety. Regulatory agencies continue to exert
pressure on pharma, biotech, and medtech companies,
with increasing emphasis on off-label marketing, failures
to disclose safety risks, and concerns about the clinical trial
process.
Among recent developments with implications for 2016
and subsequent years is an upward trend in health
authority findings, 483s, and Warning Letters related
to unreported adverse events (AEs) found within third
parties and non-safety departments at pharma companies.
In response, companies are implementing ongoing AE
reporting assurance and monitoring programs, leveraging
technologies with natural language processing capabilities,
to continuously identify AEs in non-traditional sources and
confirm that those AEs were properly reported to health
authorities.
2016 Global health care outlook | Battling costs while improving care 21
22
Stakeholder considerations
2016 Global health care outlook | Battling costs while improving care 23
24
Appendix
Explore the latest health care sector research from Deloitte members or visit:
www.deloitte.com/us/healthsolutions
www.deloitte.co.uk/centreforhealthsolutions
www.deloitte.com/healthcare
Are employers prepared for the Cadillac tax?
Although much of the Affordable Care Act has been implemented, some major provisions are not yet in effect, including
the Cadillac tax an excise tax on high-cost, employer-sponsored health coverage. How might implementation impact
employers and the health care industry? What steps have organizations taken in anticipation of the Cadillac taking effect?
Anytime, anywhere care: Accelerating the adoption of connected health
Prompted by an increased demand for value and connectivity, health care organizations are making services more
accessible and potentially less expensive while enabling anytime and anywhere patient-provider connectivity through
Connected Health (cHealth). cHealth is transforming the patient-provider relationship with technology-enabled, integrated
care delivery that facilitates remote communication, diagnosis, treatment, and monitoring. Are health care providers ready
for this transformation? Will patients adhere to using connected health to monitor their conditions?
Beyond compliance: Leading governance practices for health care cyber security and privacy
Analysts expect the worldwide biosimilars market to reach approximately $35 billion by 2020. While developed markets
will remain important for biosimilars manufacturers, Deloitte analysis indicates that long-term growth may be fueled by
emerging markets. To remain competitive, manufacturers should develop a global biosimilars strategy that includes where
to play and how to win.
Health care fraud and abuse enforcement: Relationship scrutiny
Relationship scrutiny is likely to rise as health care industry collaboration increases. Organizations can follow the lead of
federal regulators by using analytics to identify improper relationships that may present fraud and abuse risks.
The quest for value in health care: A place for consumers
Three key disrupters are driving an increasingly consumer-centric health care system. How are consumers responding?
What are the implications for the industry? And what steps can health care providers, health plans, and life sciences
companies consider to help win in this new marketplace?
Connected health: How digital technology is transforming health and social care
With more than 100,000 health apps, rapid growth in wearables and 70 per cent of the U.K. population now owning a
smartphone, digital technology looks set to revolutionize the future of health and social care.
The road to value-based care: Your mileage may vary
Value-based payment models for health care have the potential to upend traditional patient care and business models.
What can your organization do to effectively make the shift?
Healthcare and Life Sciences Predictions 2020: A bold future?
Healthcare and Life Sciences Predictions 2020 is based on an observation of trends, events, and bold steps that, if
accelerated over the next five years and beyond, will paint a picture of a very different world in 2020. The report aims
to challenge assumptions and provide thought-provoking visions to enable you to have rich dialogue within your
organization about future scenarios and how best to respond.
2016 Global health care outlook | Battling costs while improving care 25
Digital Health in the U.K.: An industry study for the Office of Life Sciences
Digital Health is an emerging industry arising from the intersection of health care services, information technology and
mobile technology. Digital health innovations are only just starting to be more widely accepted as necessary for the future
of efficient health care service delivery. As we address the behavior, social, legal and technical challenges, over time,
digital health advances have the potential to help increase access, decrease health care system costs and improve health
outcomes.
The current and future state of companion diagnostics
Companion diagnostics are an indispensable part of personalized medicine and will likely continue to rapidly increase in
number and application to disease areas. The commercial success of some drugs that require testing with companion
diagnostics before they can be prescribed has moved the entire companion diagnostic field forward.
Health care consumer engagement: No one-size-fits-all approach
Imagine a future in which more consumers engage with the health care system a future that holds the promise of more
effective, efficient, and satisfying care experiences and better health outcomes for those individuals and the accountable
care populations to which they belong. Findings from Deloittes 2015 Survey of U.S. Health Care Consumers suggest we
are moving closer to that future as consumer engagement increases in three important areas.
The convergence of health care trends: Innovation strategies for emerging opportunities
The convergence of powerful trends new technologies, the demand for value, a growing health economy, and the
government as an influencer is transforming the traditional U.S. health care market. While this convergence is creating
substantial challenges for health care stakeholders, it is also creating opportunities for innovation in four major areas.
Health system analytics: The missing key to unlock value-based care
Talk of analytics and big data is everywhere in the health care industry these days. Many stakeholders agree that
analytics provide insights that can enable organizations to improve quality and reduce costs, a combination that is
essential to implementing effective value-based care programs. As health systems continue to face shrinking margins,
tightening budgets, and evolving payment models, analytics are being touted as the missing key to unlock new sources of
value.
Next-generation smart MedTech devices: Preparing for an increasingly intelligent future
Exponential technological progress is advancing scientific knowledge, reducing costs, and presenting the health care
and life sciences marketplace with innovative medical devices and procedures that diagnose, monitor, and treat patient
conditions.
26
Contacts
Mitch Morris, MD
DTTL Global Life Sciences and Health Care Industry Leader
DTT Global Health Care Sector Leader
Health Care Provider Sector Leader
Deloitte Consulting LLP (United States)
mmorris@deloitte.com
Yoritomo Wada
Health Care Sector Leader
Deloitte Japan
ywada@tohmatsu.co.jp
Adam Powick
Health Care Provider Sector Leader
Deloitte Australia
adpowick@deloitte.com.au
Jorge Cueto
LSHC Industry Leader
Deloitte Mexico
jcueto@deloittemx.com
Enrico de Vettori
LSHC Industry Leader
Deloitte Brazil
enricovettori@deloitte.com
Adriaan Lieftinck
Health Care Sector Leader
Deloitte Netherlands
alieftinck @deloitte.nl
Lisa Purdy
Health Care Sector Leader
Deloitte Canada
lpurdy@deloitte.ca
Julian Hawkins
LSHC Industry Leader
Deloitte Middle East
julhawkins@deloitte.com
Yvonne Wu
LSHC Industry Leader
Deloitte China
yvwu@deloitte.com.cn
Valter Ado
LSHC Industry Leader
Deloitte South Africa
vadao@deloitte.co.za
Mohit Grover
LSHC Industry Leader
Deloitte Southeast Asia
mogrover@deloitte.com
Charu Sehgal
LSHC Industry Leader
Deloitte India
csehgal@deloitte.com
John Haughey
LSHC Industry Leader
Deloitte United Kingdom
jhaughey@deloitte.co.uk
Rebecca George
Public Sector Health Care Leader
Europe, Middle East & Africa
Deloitte United Kingdom
regeorge@deloitte.co.uk
Greg Scott
Health Plan Sector Leader
Deloitte LLP (United States)
grescott@deloitte.com
2016 Global health care outlook | Battling costs while improving care 27
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responsible for any loss whatsoever sustained by any person who relies on this publication.
About Life Sciences and Health Care at Deloitte Touche Tohmatsu Limited
The Deloitte Touche Tohmatsu Limiteds life sciences and health care (LSHC) industry group is composed of more than 9,000 professionals in more
than 90 countries. These professionals understand the complexity of todays life sciences and health care industry challenges, and provide clients
with integrated, comprehensive services that meet their respective needs. In todays environment, LSHC professionals from across the Deloitte network help companies to evolve in a changing marketplace, pursue new and innovative solutions, and sustain long-term profitability.
For more information about the DTTL LSHC industry group, email dttlshc@deloitte.com or access www.deloitte.com/healthcare.
2016. For more information, contact Deloitte Touche Tohmatsu Limited