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New Risk, New Business Models

New Health Care Risks Present Opportunities

Blog Post · October 24, 2016

For decades, health care was among the least risky business sectors. Providers were ensured a margin under cost-plus reimbursement. Insurers avoided risk by engaging in massive amounts of underwriting and passing through expected costs, or passing on business altogether if margins were questionable. And drug and device manufacturers found patients and their physicians eager to embrace the latest innovations, as neither faced direct pressure to compare incremental costs with incremental benefits. For years, the drug and device sectors consistently generated some of the highest returns on the stock exchange.

Health care today is a much riskier proposition for all of these parties. Providers are facing bundled payments and shared savings schemes with downside risk. Insurers must take all comers and are losing billions as they try to guess at the health and utilization patterns of enrollees in the public health insurance marketplaces. Investment in devices has ground to a halt, and pharmaceutical companies — which already face tougher negotiations with insurers and PBMs — must now brace for the possibility of heavier regulatory oversight on price-setting, or even government-negotiated prices.

Yet where there is risk, there is opportunity.

The opportunity for new entrants is most apparent. For example, whole industries have arisen to support providers in the transition to fee-for-value. These span the gamut from consultancies focusing on ACO formation to information technology vendors developing products to enable these new ventures. The willingness of state Medicaid programs to shift risk to private-sector plans — specifically for patients with special needs — has also sparked new investment and innovation around caring for these vulnerable populations.

New risks rock boats for existing players, of course, potentially causing dramatic shifts in market position. Academic medical centers, formerly at the helm of the medical care kingdom, now face enormous strategic challenges as customers flee to lower-priced hospitals and outpatient rivals siphon off patients in lucrative service lines, such as diagnostic imaging and infusion therapy. On the drug/device side, manufacturers are struggling to redefine their role in a new world devoted to generating health rather than health care. These firms are trying to develop “end-to-end solutions” and partnerships with buyers, rather than adding bells and whistles and counting on buyers to pay for the shiniest new things.

While there is no one-size-fits-all strategy, there is a one-size-fits-all goal: put patients, who are the ultimate customers of health care, first. When organizations put customers first, they gain clarity on which opportunities to pursue and what operational trade-offs to make. As the critical decisions associated with health care spending shift from the negotiating table (insurers versus providers/vendors) to the kitchen table (customers versus providers/vendors), any health care organization seeking a sustainable market position must recognize that objective requires a singular focus on serving the customer best.

 

This blog post originally appeared in NEJM Catalyst on October 5, 2016.


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