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 / Spring 2012 / Issue 66(originally published by Booz & Company)


The Faster New World of Healthcare

Regulatory reform and IT advances are accelerating the “clockspeed” in healthcare. To compete, insurers will need to focus on three key areas.

The healthcare industry in the U.S. is on the brink of unprecedented change. Wide-scale reform, a response to soaring costs and increasing demand, is forcing healthcare providers and insurers to rethink their value propositions and business models. It is also stimulating an equally unprecedented investment in IT. The health IT market is expected to experience a compound annual growth rate of 24 percent through 2014, according to RNCOS, a market research company. This overdue investment in IT is aimed squarely at the construction of a long-anticipated information backbone that will support improved care quality and cost reduction through enhanced connectivity and data analysis. (For more on improving healthcare, see “Health Reform by the Numbers,” by GE Healthcare CEO John Dineen, s+b, Spring 2012.)

The developing health IT infrastructure, with its host of new applications, is ushering in the most intensely competitive era in the healthcare industry’s history, by sharply accelerating the industry’s clockspeed. Charles H. Fine of MIT’s Sloan School of Management used the term to describe the pace of business evolution within industries. He found that industries with faster clockspeeds, such as computers and entertainment, had higher levels of market experimentation, more competition, and increasingly frequent waves of innovation. This will be challenging for the healthcare industry, and for insurers in particular, who are used to a much slower pace of change. To succeed, they’ll need to look outside their sector for effective business models, and build new capabilities that support rapid product development, a consumer product mind-set, and expansion into adjacent markets.

Healthcare’s Challenge

The leading healthcare insurers will find that IT modernization will either expand their role as information aggregators — making them the primary engine for higher-quality, more cost-effective care — or enable new competitors to supplant them. Historically, insurers have not needed a strategy for responding in a fast-paced environment. Repeated waves of consolidation (which oriented insurers toward scale rather than innovation), complex regulatory requirements that varied by market, the competing incentives and targets of multiple stakeholders, and the slow adoption of information standards have created speed bumps that impeded innovation. The ambiguity in healthcare reform’s implementation may seem yet another reason for insurers to assume that the historical pace of the industry will continue.

However, as health IT becomes more connected, precise, and prevalent, many companies will have to race to realize its potential. Insurers’ products have already begun to be seen as commodities in the more consumer-driven post-reform marketplace, where health-insurance exchanges, bundled offerings, greater transparency, easy comparison of features, and lower switching costs will soon be commonplace. Add in the conditions typical in fast-clockspeed industries, and incumbents and even first movers could suffer competitive erosion, especially when new players and fast followers with deeper capabilities and more flexibility enter their markets.

For instance, greater granularity in claims data and significant investments in electronic health records (EHRs) will provide the raw material for improved analytics and will presumably lead to better medical outcomes. And these data sources are only part of the picture: More sophisticated medical devices and the ubiquity of social media and smartphones will enable faster, more comprehensive data collection and more effective interventions. Existing competitors and new entrants will create real-time decision support tools to help providers and patients better manage care. Microsoft, for example, is exploring virtual care delivery, and medical device manufacturer Medtronic has developed Wi-Fi-enabled cardiac devices that allow doctors to remotely monitor and assist patients. Insurers, who currently control claims data and the valuable insights contained therein, will face a crucial point of reinvention as these advances and the companies that field them engage consumers, influence medical utilization, and seek a proportional share of the healthcare dollar.

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