Host (00:01):
Welcome to Insight Exchange, presented by LEK Consulting, a global strategy consultancy that helps business leaders seize competitive advantage and amplify growth. Insight Exchange is our forum dedicated to the free, open, and unbiased exchange of the insights and ideas that are driving business into the future. We exchange insights with the brightest minds of the day, the most daring innovators, and the doers who are right now rebuilding the world around us.
Frazer Dorey (00:40):
Welcome. The US healthcare delivery landscape has evolved significantly over the past two decades. A large portion of care has shifted from hospitals into outpatient, home, and digital settings. New payment models have launched and are beginning to gain traction. New technologies have emerged, and longstanding workforce shortages have persisted and worsened. The system has been strained and forever changed by a global pandemic. And despite all of this, the US spends nearly twice as much per capita as other developed nations on healthcare, and healthcare expenditures consistently outpace inflation. With all this pressure is mounting for a bend in the “cost curve”. Further change is needed and expected, but how will this change play out?
(01:25):
In this episode, we'll dive into insights unveiled in the first of L.E.K. Consulting’s multi-part assessment of how the US provider landscape - the organizations directly involved in the delivery of healthcare services - might change by 2035. In its first installment, L.E.K. explored how the broader financial environment in which provider organizations operate is likely to evolve by 2035 and found that 30 potential spend reducing initiatives including value-based payments, adoption of new technology, and others are already in discussion.
(01:57):
These 30 initiatives could theoretically yield a roughly $500 billion reduction in annual US healthcare expenditure, but when they are probability adjusted, the total impact of these initiatives is closer to $75 billion. With no significant bend in the cost curve coming, the large and growing market will continue to attract investment, innovation, and public and government scrutiny, raising new risks, but also presenting new opportunities, for organizations that can rise to the challenge.
(02:26):
My name is Frazer Dorey, and I'm a Managing Director in L.E.K. Consulting's Healthcare Services practice, focused on provider organizations. To dive into these findings and implications for provider organizations in more detail, I'm joined by three experts in the US healthcare provider landscape, Dr. Stephen Mansfield, Rozy Vig, and Kevin Grabenstatter. Steve, Rozy, Kevin, would you all please take a moment to introduce yourselves.
Dr. Stephen Mansfield (02:52):
Dr. Stephen Mansfield. I'm a 47-year veteran of healthcare, primarily leading large healthcare systems as the CEO.
Rozy Vig (03:02):
Hi, my name is Rozy Vig. I am a Partner in L.E.K.'s Provider Practice and spend most of my time thinking about how to drive growth for health systems, academic medical centers and physician groups, as well as post-acute and long-term care providers. Excited to have this opportunity to speak to the "Provider 2035” landscape alongside Steve and Kevin.
Kevin Grabenstatter (03:23):
And I'm Kevin Grabenstatter, Partner with L.E.K.'s Healthcare Services Practice. I lead our work for healthcare providers across North America and work extensively with health systems, academic medical centers, physician groups, and the like on growth strategy, operational improvement, and transaction support. And in a former life, I worked at Kaiser Permanente for a number of years and have been inside a health system and have been working in this role for many, many years. Good to be here.
Frazer Dorey (03:54):
Thank you all for joining us. Well, let's dive in. And Steve, value-based care is undeniably gaining traction and driving change. What have you seen these programs achieve, what challenges do they face in driving total cost of care reductions, and what should provider organizations be thinking about as the volume to value transition continues?
Dr. Stephen Mansfield (04:13):
I'm excited about the prospect of value-based care and the potential that it has to have a positive impact on pricing in healthcare and quality and maybe even access as well. I think that the challenge is that it is coming as part of a backdrop to a healthcare system that's just grown astronomically over the last 50, 60 years, despite everything we've thrown at it. And there's a lot that we've thrown at it. I teach a class called Essentials of Managed Care and the number of things that we have tried, all of which have been good, that have had a positive impact, have not bent the cost curve, multi-billion dollar impact in some cases, and yet the overall cost just continues to escalate. And now we're at a point where some sources would say we're over $4 trillion in annual spend, which is around 19.7% of GDP. It just feels unsustainable.
(05:20):
So I'm hopeful that of all the things that we have tried that the shift to value-based care perhaps is the most encouraging. And when I think about that, it's described differently by different people. But for me, that's things like Medicare Advantage where we've seen a big difference in the cost per enrollee in Medicare Advantage versus traditional Medicare. Shared savings programs that incentivize physicians around making decisions that reduce the cost of the patients that are ascribed to them. Bundled payments. Global payments. ACOs. All of those things are promising, but they're just against a backdrop, of not very much success really with bending the cost curve. And I think the reason is multifaceted. Obviously it's complicated and not easy or we wouldn't be where we are. But the NIH, NRC, Institute of Medicine came together several years ago to try to assess why is healthcare so much more expensive in America than in other, in this case, 16 highly developed peer companies.
(06:32):
And really their finding was primarily it was lifestyle choices. It was autogenic chronic diseases that are hard to manage and expensive. So a small percentage of the American population drives the vast majority of our spend, and we have to treat that small percentage differently. And that's why I'm optimistic about value-based care because it teases out the medically, chronically ill patients, treats them differently, tries to treat them in different care settings that's a little bit less expensive. So all of these things I know are areas that LEK has a great deal of expertise in, and it's working with a variety of payers and healthcare systems and other providers to try to help them implement. But I am optimistic about value-based care and the place that it has. I just think the challenge is how we take care of this chronically ill patient group differently in our US healthcare system.
Frazer Dorey (07:32):
Thanks, Steve. And you were at the helm of a large health system for a long time. How do you think hospital and health system executives should be thinking about the transition to value-based care and when and how to dive in given that fee-for-service reimbursement will continue to persist as a big chunk of how their revenue flows?
Dr. Stephen Mansfield (07:53):
There's a varied perspective on that obviously, but I mean, there are probably plenty of people out there that maybe would just like to leave it at fee for service and keep going the way we are, but I don't think our economy can afford for us to make that decision or to take that position. So from my standpoint, I would just say embrace the notion of value-based care, help your physicians to understand the role that they play in that it's such a critical component. I didn't mention earlier, but another crucial piece of that is getting your physicians, particularly those that are working on hospitalized patients where care cost is so high to follow care pathways because there are proven higher quality, lower cost ways of treating the same condition and making sure that you're doing that well within your health system is important.
(08:42):
Trying ACOs - information is critical to being able to manage these chronically ill patients differently and making sure you have good IT systems. And in some cases, I think the thing that helped our health system the most with embracing value-based care was implementing an accountable care organization (ACO) because it gave us access to much more information about the patient beyond just what we had from our health system. And information is again, so important.
Frazer Dorey (09:12):
Great. And clearly when we're thinking about taking and managing risk, scale is important and consolidation is a theme that we have seen and heard a lot about in recent years alongside the entry of new players into the healthcare provider landscape. It's maybe to both of you, Kevin and Steve, what impact has consolidation had on expenditures and how should provider organizations think about the entry and expansion of new entrants?
Kevin Grabenstatter (09:42):
Great question, Frazer. And we understand the thrust too generally when we get this question, which is we've seen a lot of activity and consolidation on the provider side and where are the benefits to the healthcare system, where are the benefits to the patient and the consumer and the taxpayer? And it's been challenged, but what we've learned over our extensive experience in this space is to have an allergy to the general term consolidation and to unpack that into what it really means because we're seeing many, many different flavors of consolidation and integration these days. The traditional horizontal consolidation of two provider entities that are in close geographic proximity to each other. We still see that. But we also see vertical integration, “payviders” emerging, combinations that bring together retail players, new types of entrants into the healthcare landscape with traditional provider players.
(10:51):
And we even see cross-regional plays. And there have been a few of these in recent years, including Advocate Aurora, combining with Atrium. What Kaiser is doing and Geisinger to start with, and their longer term vision around Risant. And some of that is pretty new still. And we'll have to see how that plays out in terms of, to use your term, bending the cost curve. But we see a lot of opportunity there. And I think the important point is to understand that consolidation strategies, integration strategies span a broad spectrum and finding the right forward solution for an organization requires a thoughtful approach because there are many options. And we do believe that some of those have a great potential to benefit society, but also continue to put forward thinking health systems in particular on solid economic footing for the long term.
Frazer Dorey (11:58):
And maybe to draw on that term you just used a little further, Kevin – “forward thinking” - is it fair to say that in an environment of consolidation and new entrants that complacency and standing still is no longer a viable strategy?
Kevin Grabenstatter (12:14):
That's what we hear day in and day out from the health system leaders that we speak with. And we should get Dr. Mansfield's opinion as one of these leaders and one whom we assisted in helping his organization and him think through what their forward options would be. I think that's not something that providers need to hear from L.E.K. That's what they're telling us is that we can't stand still. We see organizations around us in our ecosystem making moves. We see large retailers, large pharmacy chains, big tech, new types of smaller sites of care, access points for patients coming into our market. It's pretty obvious to us that business as usual is not going to continue to work for us. So how do we best position ourselves within this shifting landscape for solid footing, as I said, and for economic success for the long term?
Dr. Stephen Mansfield (13:16):
And I'll really share Kevin's perspective on that. I don't think you can stand still. I think you're either growing or you're dying, but the way you grow is critical and consolidation sometimes gets a bad wrap because if the motivation of the consolidation, be it two providers coming together or two health plans coming together, if the motivation, it's never what's said, but oftentimes what's thought is about increasing negotiating a leverage for pricing as a result. And it only exacerbates our problem of healthcare pricing. But consolidation doesn't have to do that. I think, for example, we consolidated a smaller health system into our larger health system. We were able to bring so many things to the table that advantaged them. For example, our care pathway management, which reduced costs, our ACO, which helped us be able to deal with global payments. So it depends on the kind of consolidation, getting great advice as you go through that process.
(14:23):
But I've absolutely seen consolidation take cost out of the healthcare system in aggregate, and that's what your aspiration should be when you come together. I like the idea of vertical integration of a payer and a health plan coming together because if the health system is large enough and the health plan is large enough to be at scale, then you have the combination of information, you're able to identify the strengths that each partner brings to the new partnership, and you're able to truly take advantage of value-based care in every way that that term infers. And in that case, it's absolutely possible to take aggregate cost out of the healthcare system, which in my view, that should be the driving motivation behind any consideration of consolidation or merger.
Frazer Dorey (15:15):
Thank you both. Maybe we'll switch gears a little bit here. I think we'd be remiss in talking about a labor constrained market without talking about technology and technology innovation. So Rozy, it'd be great to get your perspectives on how the emergence of new technology such as digital care alternatives and artificial intelligence are impacting healthcare costs and operations and might continue to do so over the next 12 years.
Rozy Vig (15:44):
Fantastic. Thanks, Frazer. Great question. Let's start with the digital care alternatives. So there are several digital care alternatives that have emerged during COVID, and the expectation is that they will continue to proliferate based on the convenience that they offer both to patients as well as clinicians. Here we're talking about things like telemedicine and virtual visits, remote patient monitoring using digital devices and wearables and online health platforms that support patients in making informed decisions about their own healthcare. For provider organizations, some of these alternatives may require fewer staff and also potentially less facility space in order to operationalize. And that can certainly help alleviate some cost pressures for those organizations.
(16:35):
However, these digital care alternatives don't come without their own challenges. Let's take virtual care as an example. We have very inconsistent and oftentimes inadequate reimbursement where virtual care is concerned. There are diagnostic limitations as well as limitations in the scope of care that can be provided virtually. And also not everyone has access to the necessary technology or even the digital literacy for digital care, for virtual care, which can further drive disparities in healthcare access.
(17:09):
You also can't talk about healthcare technology without mentioning artificial intelligence, AI innovation is accelerating rapidly. You see healthcare organizations buying and building applications to alleviate workflow pain points, using AI to gain market share or upsell in key verticals. So think about things like digital, front door, personalized treatment plans, patient engagement and education tools. And you also see some more progressive organizations funneling dollars into innovative AI ventures like drug discovery and development and genomic analysis. All of these technologies have the real potential to reduce costs. They have the potential to build competitive advantages for these organizations and, or to address labor shortages. But similar to the value-based care story Steve was referencing, without actions from public plan sponsors, employers or consumers, these savings will likely be redeployed or reinvested into other higher priority organization initiatives rather than truly bending the cost curve.
Frazer Dorey (18:15):
Thanks, Rozy. One thing that we see and talk about often is the outlook for the clinician capacity in the US and the fact that demand is expected to significantly outpace growth in that capacity. Dr. Mansfield, how do you think about technology's role in alleviating some of those workforce shortages and where are you most optimistic and most pessimistic about the role that technology can play in the delivery of healthcare moving forward?
Dr. Stephen Mansfield (18:48):
I think there are many promising and encouraging technology enhancements coming out or soon to be introduced, which are encouraging. So that's a cause for optimism. The thing I guess that would cause me some pessimism is that healthcare is an industry that is an odd duck as it comes to the implications of technology introduction. What I mean by that is many new technologies that we have introduced into healthcare over time have actually driven the cost of healthcare up, which you do not see in most other cases and tried to assess why is that true. And I think it's because the better we get at extending life, the better we get at keeping people alive who would have in the past not survived, it keeps the ticker running. And the reality is that the only way to drive healthcare costs totally to zero is not to have any human beings.
(19:49):
Conversely, the more we have, the longer we live, the more chronic illness we have in our population, the greater the cost of care is going to be. So that's the dilemma. But I do think there are many technologies out there that I'm optimistic have the capacity to take costs out of the healthcare system, also have the capacity to make the workforce that we have more mobile and also more efficient and with constrained numbers of healthcare workers in the United States, being able to put our healthcare workers that we do have in a position to have more care impact technologically as opposed to what we have to work with now as a positive thing.
Frazer Dorey (20:36):
Great. Thanks, Dr. Mansfield. So lots of challenges and constraints to a significant in the cost curve, but lots of changes coming nonetheless. Kevin, what does this all mean for US provider organizations?
Kevin Grabenstatter (20:51):
Well, no doubt many challenges and risks, but I don't think that's anything new for leaders of provider organizations. What we really get excited about is helping organizations see the opportunities in all of these changes. And oftentimes, they're already there. Depending on the client that we work with, they may already be thinking about how they can best play this shifting landscape for the sustainability of their organization, for the success of their workforce and their patient population. We love those assignments. Thinking about diversification of revenue streams, for example, new sites of care, entirely new care models, which may be virtual these days, helping provider organizations step into product markets, whether that's in the life sciences, in medical technology, in patient or consumer facing technology, remote patient monitoring and the like.
(21:53):
And then again, circling back to partnerships. Sometimes with odd bedfellows that they may not have expected, whether that's in retail or with cross town rivals or otherwise. We've seen many different models. Or indeed as Rozy and Dr. Mansfield spoke about, solving this intractable labor problem. And we do think that there are some cool solutions there, that again, present opportunities for provider organizations. It's hard to predict where the landscape's going to be in 2035. We're trying to do that with this set of installments here. But regardless, I think that medium to long-term outlook is what can really unearth some very interesting, some very compelling growth opportunities for provider organizations. And L.E.K. is well positioned to assist them with those.
Frazer Dorey (22:51):
Hear, hear. Well, Kevin, Steve, Rozy, thank you for joining me to discuss this first installment of looking ahead the US healthcare provider landscape in 2035. Please stay tuned for further installments in the Provider Landscape 2035 series and reach out if you would like to schedule a discussion regarding these topics and potential implications and strategies for your organization. We invite you to connect with us to learn more about L.E.K. Consulting's extensive experience in providing strategic support to US healthcare services organizations. Thanks for joining us.
Host (23:25):
Thank you, our listeners, for joining us today at the Insight Exchange presented by L.E.K. Consulting. Links to resources mentioned in this podcast can be found in the show notes. Please subscribe or follow for future episodes wherever you listen to your podcasts. Also, we encourage you to submit your suggestions for future insights online at lek.com.
