At its most basic, the health care industry will begin to see consumers playing a more integral role in the purchase of health care benefits and the delivery of health care services in the United States. To create a more informed consumer, technologies and services will be developed, spawning new industries. As the U.S. health care economy adjusts to these changing dynamics, the investment implications will be felt across the sector, creating both winners and losers. The growth companies of tomorrow will be those that can identify and capitalize on these emerging trends.
Opportunity knocks: the consumerism of the health care industry
Personal consumption of health care is now the second-highest household expense after housing/utilities, according to the most recent edition of the Kaiser/HRET Survey of Employer-Sponsored Health Benefits. Shifting health care costs to consumers has affected who pays for care and how treatment options are evaluated. This mega trend is fundamentally changing the way in which consumers receive health care, and will ultimately drive true market forces into this part of our economy.
Historically, the health care industry has emphasized quantity over quality, resisting transparency—but things are changing rapidly. Today, the industry is aligning around openness, quality, and improving outcomes to enhance the patient experience and lower costs. Technology-based tools and services will be at the heart of this transformation. In much the same way as Amazon.com (AMZN) changed consumer purchasing for everything from books to auto parts, health care is undergoing a transformation, with health care organizations trying to adapt to a marketplace that puts the consumer at its center. While this change won’t happen overnight, in the long run the trend will have huge implications.
Employer-driven consumer trends
The concept of consumer-directed care has emerged through high-deductible health plans (HDHPs) and consumer-driven health plans (CDHPs) that are linked to tax-advantaged health savings accounts (HSAs). Employees pay less in monthly premiums but pay more first-dollar expenses for non-preventive services, causing individuals to manage health consumption costs more closely and to scrutinize expenses. More than one in five, or 22%, of large employers plan to offer only CDHPs to employees in 2014.1
Defined contribution (DC) models are the great hope for controlling premium health care costs. In a DC health care model, an employer gives employees a set amount of money to spend on health benefits and a list of available plans to choose from. Employees shop for benefits online using decision-support tools and selecting coverage that most closely meets their needs and usage patterns, while tracking their costs through shopping cart functionality. Early evidence suggests that a shift to a DC model could be significant, with more than 25% of employers considering this approach in 2014.2
The evolution of health care consumerism provides investment opportunities in many areas including insurance, information technology, diagnostic, pharmaceutical, and biotechnology companies. More specifically, innovative technology companies are making advances in the following areas:
- Distribution: A range of vendors have developed expertise to support payers in member acquisition, retention, and crossselling initiatives.
- Consumer Transparency: Third-party solutions consolidate data from multiple medical carriers, pharmacy benefit managers, and dental providers in one location, making it available to employers and employees to help guide purchasing decisions.
- Patient Navigation: Navigation and advocacy services function as the “help desk for your health” to consumers, offering clinical, administrative, and financial support.
- Benefits Administration: Private health exchanges are changing the way employers provide health benefits to their employees.
- Personal Health and Patient Education: The advent of wellness programs and new patient education tools provides consumers with greater awareness of their condition at all stages of the care continuum.
- New Methods of Care Delivery: Telemedicine, digital medicine, urgent care clinics, outpatient surgery centers, and other nontraditional means of care delivery are more convenient for consumers and cheaper to deliver.
New frontier: health care consumerism
State of the health care sector
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Today, health care consumerism is a meaningful trend, not an interesting fad. Consumer demands will influence how the industry brings forth new solutions to help consumers manage their care and improve the consumer experience. There is no doubt that the door has been opened and we are looking at a new health care consumer landscape that should provide many attractive investment opportunities.