Future US Healthcare Visions 2023Reading time: about 20 minWhen we last looked at the trajectory of the US healthcare industry in our July 2022 article, “The future of US healthcare: What’s next for the industry post-COVID-19?,” we had emerging concerns about what persistent inflation could cause. It is now clear that inflation is not transitory and that the economic outlook has meaningfully darkened. These economic troubles, combined with 4 minSummary The US healthcare industry is facing challenging economic conditions with high inflation rates, a healthcare-worker shortage, and endemic COVID-19, are clouding which is causing concerns about the industry outlook. Below, we update how these changes could affect payers, providers, healthcare services and technology (HST), and pharmacy services. 1) Commercial and Medicare Advantage segments, physician offices, HST and specialty pharmacy segments may grow most quickly. Based However, based on updated and expanded projections, we estimate that healthcare the industry's profit pools will are expected to grow at a 4 percent CAGR CAGR (Compound Annual Growth Rate) of 4% from $654 billion in 2021 to $790 billion in 2026 ; in our previous article, we estimated a 6 percent growth from 2021 to 2025. The industry faces difficult conditions in 2023, primarily because of continuing high inflation rates and labor shortages. However, we expect improvement efforts to help the industry overcome these challenges in 2024 and beyond. Several segments can expect higher growth: Several segments, such as Medicare Advantage within payers ; care settings such as , ambulatory surgery centers within providers ; , software and platforms (for example, patient engagement and clinical decision support) within HST within healthcare services and specialty pharmacy within pharmacy services . These assessments generally align with our earlier article’s conclusions. , can expect higher growth. On the other hand, the outlook for some segments has worsened compared with our previous analysis, including , such as general acute care and post-acute care within providers and Medicaid within payers . Image Removed
Going forward, a number of factors will likely influence shifts in profit pools. These include: Change in payer mix:A substantial shift toward Medicare will continue, has worsened compared to previous analyses. The industry also faces a shift towards Medicare, led by growth in the over-65 population of 3 percent 3% per year projected over the next five years and continued popularity of Medicare Advantage among seniors, as reflected in the latest Centers for Medicare & Medicaid Services (CMS) enrollment data. However, based on our models, Medicaid enrollment , but Medicaid enrollment could decline by about ten million lives over five years given due to recent legislation that will allow states to begin eligibility redeterminations, which were paused during the federal public health emergency that was declared at the start of the COVID-19 pandemic. Commercial segment margins in 2021 were about 200 basis points lower than 2019 levels, resulting from the return of deferred care. We expect profit pools in this segment to rebound and grow at a 15 percent CAGR as EBITDA margins will likely return to historical averages by 2026. The growth will be partially offset by enrollment changes in the segment, prompted by a shift from fully-insured to self-insured businesses that could accelerate as employers facing recessionary pressure seek to cut costs. Endemic COVID-19: Since the publication of our last article, COVID-19 has moved more and more toward an endemic stage. Based on our estimates, endemic COVID-19 could result in healthcare costs of about $200 billion annually in the United States. The majority of these costs would be related to the prevention and treatment of COVID-19 cases as well as long COVID. The industry faces difficult conditions in 2023, primarily because of continuing high inflation rates and labor shortages. 2) Government segments expected to be 50 percent larger than commercial segments by 2026. In July 2022, we estimated 2021 payer profit pools to be $40 billion, however, actual 2021 profit pools were $5 billion higher. Higher Medicaid EBITDA margins due to the extended public health emergency accounted for the majority of the increase, although it was partially offset by lower-than-expected commercial margins with the return of deferred care. Also, we previously forecasted a 9 percent CAGR in 2021 to 2025 payer profit pools. In our updated and expanded estimates, this profit pool is expected to grow faster at an 11 percent CAGR from 2021 through an additional year to 2026, reaching $75 billion in the latter year. This is underpinned by inflation-driven incremental premium rate increases and accelerated Medicare Advantage penetration. Nonetheless, we expect that growth will be slower than normal between 2022 and 2023 due to inflationary pressure and provider reimbursement rate increases, both in-year margin pressures. Image Removed Based on our revised estimates, the mix of payer profit pools will shift further toward the government segment. Overall, the estimated profit pools for this segment are expected to be about 50 percent greater than the commercial segment by 2026 ($33 billion compared with $21 billion) as Medicare Advantage penetration is expected to reach 52 percent in 2026. Profit pools for the commercial segment declined from $18 billion in 2019 to $11 billion in 2021 as margins compressed with the return of deferred care. We expect the commercial segment’s EBITDA margins to return to historical levels by 2026, and profit pools to reach $21 billion, growing at a 15 percent CAGR from 2021 to 2026. Within this segment, a . Overall, the estimated profit pools for the government segment are expected to be about 50% greater than the commercial segment by 2026, as Medicare Advantage penetration is expected to reach 52% in 2026.
Image AddedChart from McKinsey & Co article. Click on the image for the complete article or below. Predictions & Opportunities Inflation, healthcare-worker shortages, and endemic COVID-19 are expected to continue to affect the US healthcare industry's outlook. However, commercial and Medicare Advantage segments, physician offices, healthcare services and technology (HST), and specialty pharmacy segments are predicted to grow the fastest. The industry is expected to face difficult conditions in 2023, with continued high inflation rates and labor shortages. The mix of payer profit pools is expected to shift further toward the government segment, with Medicare Advantage and the commercial segment predicted to return to historical levels by 2026 offsetting the shift from fully-insured to self-insured business will likely accelerate as recessionary pressures prompt employers to cut costs. The fully-insured group enrollment could drop by 150 basis points annually from 2021 to 2026, and self-insured increase by 100 basis points annually during the same period. We expect increased businesses. Finally, labor costs and administrative expenses are predicted to reduce payer EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) by about 60 basis points in 2022 and 2023 combined. At the same time CMS is opportunistically primed to deliver on several mission strategies for; addressing healthcare equity, continued access to affordable coverage, delivering human-centered care innovation, managing necessary stewardship of programs and engaging multiple partners across policy and execution processes. Based on the predictions and opportunities outlined, CMS leadership, stakeholders and policymakers may want to consider the following adaptations: - Focus on growth in profitable segments: Given the projected growth in Medicare Advantage, ambulatory surgery centers, HST, and specialty pharmacy segments, leadership may want to strategize and focus on these areas to maximize profitability with providers and beneficiaries given some of the sector's headwinds.
- Address the impact of endemic COVID-19: As COVID-19 becomes more endemic, stakeholders may need to prepare for increased healthcare costs related to COVID-19 prevention and treatment. Additionally, CMS stakeholders may need to proactively address the long-term impact of long COVID on patients and the healthcare system.
- Mitigate the impact of inflation and labor shortages: Given the challenging economic conditions facing the industry, CMS policymakers may need to develop strategies to mitigate the impact of inflation and labor shortages. This could include exploring new models of care delivery and reimbursement, as well as investing in technology ventures and workforce training and development to increase efficiency.
- Monitor & Adapt segment shifts: As the government segment is projected to be 50% larger than the commercial segment by 2026, stakeholders will need to monitor the impact of policy changes and Medicare Advantage penetration on profitability and reimbursement rates. Additionally, CMS may need to adjust its business models and operations to accommodate shifts in payer and enrollment trends, such as a potential shift from fully-insured to self-insured businesses in the commercial segment. This could include exploring new pricing and reimbursement models and developing strategies to retain customers in a competitive marketplace.
- Develop partnerships: CMS can work with healthcare providers, payers, and technology companies to develop innovative solutions that improve patient care and reduce costs. This could include partnerships with hospitals and health systems to create accountable care organizations (ACOs), which are networks of providers that work together to coordinate care for patients, or with technology companies to develop tools that help patients manage their health.
- Invest in technology: CMS technologists can invest in technology to create more efficient and cost-effective systems. This could include utilizing data analytics to identify patterns and make data-driven decisions, implementing telehealth services to increase access to care, and developing mobile apps for patients to manage their healthcare.
For the complete article: https://www.mckinsey.com/industries/healthcare/our-insights/what-to-expect-in-us-healthcare-in-2023-and-beyond
Panel |
---|
|
Column |
---|
| Image Added
|
Column |
---|
| Image Added
|
Column |
---|
| Howard Montgomery Howard is a practicing agnostic Human-Centered Design Thinking expert who thrives across the consumer experience continuum of products, services, digital, brand, strategy, and environments. He has led, collaborated and consulted with multiple Fortune 100 companies: Ford Motor, Unilever, BMW, The Home Depot, Steelcase, P&G and LG Electronics across diverse business sectors; building products, automotive, consumer, food and healthcare. He holds 48 International Patents and has been the recipient of over 25 international awards including IDEA Awards, iF Award and Good Design Award, and multiple publications of his work. He has taught at several schools in the USA and UK. He holds a bachelor’s degree with honors from Kingston University, London, UK and master’s degree from Cranbrook Academy of Art, Bloomfield Hills, USA, both in Design. |
|
Image Added
|