WINNING the '20S in HEALTH CARE

JANUARY 2020

WINNING THE ’20s IN HEALTH CARE

• A Leadership Agenda for the Next • Creating the Critical-Care Service Decade of the Future • Preparing for a New Kind of • Leveraging VR to Transform Shakeup in Health Care Assessment and Treatment of • The New Logic of Competition Disease • The Company of the Future • Rewriting the Rules of the Game in Health Care • The Bionic Company • Women Dominate Health Care— • Medicare Advantage Is Booming. Just Not in the Executive Suite Why Are So Few Payers Winning? • Chasing Value as AI Transforms Health Care

Lessons for Payers, Providers, Systems & Services Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation— inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact.

To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive. Preface Contents

Over the past decade, the health care services landscape FEATURE has shifted significantly. Former pure-play organizations A Leadership Agenda for the have become integrated, diversified businesses, blurring Next Decade 2 the lines between payers, providers, and services (PPS) or ganizations. New entrants from the consumer, retail, and PERSPECTIVE technology spaces are reshaping boundaries as well. Such Preparing for a New Kind of seismic shifts in the competitive environment will continue in the next Shakeup in Health Care 7 decade. What will it take to be a winning PPS organization in the ’20s? WINNING THE ’20s Like organizations in any other industry, PPS organizations must prepare The New Logic to respond to megatrends such as digital technologies and slowing global of Competition 12 growth. Here are five ways to do that: WINNING THE ’20s •• Master the new logic of competition. The ability to scale data- The Company of the Future 19 driven solutions will be key. WINNING THE ’20s •• Design the organization of the future. Reimagine how to finance, The Bionic Company 27 provide, and manage care. PERSPECTIVE •• Apply the science of organizational change. Overcome slowness to Medicare Advantage Is change, and build repeatable transformation capabilities. Booming. Why Are So Few Payers Winning? 35 •• Embrace the business imperative of diversity. Create a culture that welcomes new ideas from diverse sources. PERSPECTIVE Chasing Value as AI •• Optimize for both social and business value. Develop sustainable Transforms Health Care 41 relationships with social, political, and environmental systems. PERSPECTIVE Our feature article delves into these imperatives. We follow that with a Creating the Critical-Care piece looking at PPS organizations’ future challenges; a sharp focus on con- Service of the Future 48 sumer experience will help organizations attract and retain customers. PERSPECTIVE We also explore the advantages of service lines such as Medicare Advan Leveraging VR to Transform tage; the impact of digital technologies; how national health systems must Assessment and Treatment rethink health care governance; and the need for C-suite gender diversity. of Disease 53 Several pieces here come from BCG’s Winning the ’20s series—applicable across industries, but with many interesting links for PPS organizations. INSIGHTS Rewriting the Rules of the Big changes provide plenty of food for thought. In the pages that follow, Game in Health Care 56 we’ve set a table of probing ideas. FOCUS Sanjay B. Saxena, MD Women Dominate Health Managing Director and Senior Partner Care—Just Not in the Global Sector Leader—Health Care Payers, Providers & Services Executive Suite 68

Boston Consulting Group | 1 FEATURE A LEADERSHIP AGENDA FOR THE NEXT DECADE by Rich Lesser, Martin Reeves, Kevin Whitaker, and Rich Hutchinson

he winners in business have shifted •• Technology is beginning to redefine the Tmarkedly in the last decade. When the nature of work, as well as the relationship 2010s began, the world’s ten most valuable between the company and the individual, public companies by market capitalization as both employee and customer. were based in five countries, only two of them were in the tech sector, and none was •• The rise of China is challenging the global worth more than $400 billion. Today, all of economic order and the institutions and the top ten are in the US and China, the rules that have defined it. majority are tech companies, and some at least temporarily have surpassed $1 trillion in •• Long-term global growth projections have value.1 been falling, driven in part by an ongoing deceleration in working-age population Given the relentlessness of change on multi- growth across major economies. ple dimensions, the keys to success are likely to be just as different in ten years’ time. What •• Society is increasingly scrutinizing the will it take to win in the 2020s? social impact of technology and the sustainability and broader contribution of business. Emerging Challenges Will Reshape Business •• Investor activism and the role of private The future competitive environment will like- capital are rising in many parts of the ly be shaped by multiple trends that are al- world. ready unfolding today: •• The combination of these forces is •• Artificial intelligence is rapidly advancing, producing multidimensional uncertainty, and pioneers are advancing beyond spot which confounds traditional forecasting applications to implement AI at scale. and planning-based approaches for harnessing the future. •• Businesses are increasingly organized into multicompany “ecosystems” that defy To stay ahead of these trends, leaders need to traditional industry boundaries and blur question their current assumptions and re- the distinction between competitors and tool their companies for the coming decade. collaborators, and between producers and This goes for both traditional incumbents and consumers. younger digital giants, who will face very dif-

2 | Winning the ’20s in Health Care ferent but equally critical challenges in the net of Things, and artificial intelligence—will 2020s—and would do well to learn from each turn every business into an information other’s strengths. business. The combination of an exponential increase in data, better tools to mine insights Many of today’s leading tech companies have from that data, and a fast-changing business succeeded by building highly scalable digital environment means that companies will platforms. But as purely digital opportunities increasingly need to, and be able to, compete (especially the opportunity to dominate on the rate of learning. broad, consumer-oriented digital ecosystems) are depleted, new opportunities will come Scale will take on a new significance in the increasingly from combining digital tech learning economy. Instead of the “economies nology with existing physical assets. of scale” that today’s leaders grew up with— based on a predictable reduction of marginal To succeed, digital natives will need to production costs across a relatively uniform embrace the messier world of specialized offering—tomorrow’s leaders will pursue assets and industrial customers. They will “economies of learning,” based on identifying also need to “come of age” by managing and fulfilling each customer’s changing needs leadership transitions, avoiding the bureau by leveraging data and technology. cracy and inertia that generally come with greater size and a longer history, and devel oping new strategies to preserve trust among Tomorrow’s leaders will focus users and society at large—challenges that traditional companies have considerably on “economies of learning,” more experience with. not “economies of scale.” Meanwhile, a new era of competition will provide an opportunity for the resurgence of some incumbents. But the ones that succeed The arenas of competition will also look dif- in the 2020s will look very different than they ferent in the 2020s, requiring new perspec- do today—they will have evolved their busi- tives and capabilities. The familiar picture of nesses to harness new technologies and re- a small number of companies producing a shaped their external relationships, organiza- common end product and competing within tions, and approaches accordingly. well-defined industry boundaries will be re- placed by one where competition and collab- So, how should you prepare your company to oration occur within and between ecosystems. avoid being left behind in the coming decade Because ecosystems are fluid and dynamic, and emerge as a winner in a rapidly evolving and not perfectly controllable even by the or- landscape? chestrator, companies will need to be much more externally oriented, to deploy influence indirectly through platforms and marketplac- A Leadership Agenda to Win the es, and to coevolve with ecosystem partners. ’20s While many aspects of the agenda will vary Orchestrators of ecosystems can leverage the by industry and region, we see five powerful assets of other participants, and ecosystem- emerging imperatives that will cut across based competition tends to have a winner- industries and geographies. take-all nature. These factors are already causing rapidly rising valuations relative to Master the new logic of competition. Internet tangible assets for the top companies, as well and mobile technology ushered in the infor- as an increasing gap between the profitability mation age, profoundly affecting technology- of high and low performers. But there is not intensive and consumer-facing industries yet any playbook for how to harness this such as electronics, communications, enter- premium: practice is racing ahead of theory, tainment, and retail. But the emerging wave and pioneers who can crack the code on of technology—including sensors, the Inter- ecosystems will be greatly advantaged.

Boston Consulting Group | 3 Finally, companies will increasingly compete slow-moving forces, such as social and politi- on resilience. Accelerating technological cal shifts, that are increasingly transforming change, political gridlock, a shifting geopoliti- business. cal power map, the increased scrutiny of business, and the polarization of society all point To learn on multiple timescales, leaders will to an era of protracted uncertainty, in which need to design organizations that synergis corporate life cycles are likely to continue tically combine humans and machines. Algo- shrinking. Companies will therefore need to rithms should be trusted to recognize pat- worry not only about the competitiveness of terns in data and act on them autonomously, their immediate game but also about the du- while humans should focus on higher-order rability of that game and their ability to tasks like validating algorithms, imagining weather unanticipated shocks. new possibilities, and designing and updating the hybrid “human + machine” organization Most of today’s incumbents—which were de itself. This division of labor also requires re- signed for relatively stable, classical business thinking human–machine interfaces so that environments—are not well adapted for this humans can trust and productively interact more dynamic environment. Therefore, with machines. Collectively, these impera- today’s leaders need to fundamentally re tives demand a massive evolution of organi- invent the organizational model in order to zational capabilities and the creation of new become future winners. “learning contracts” between employees and enterprises. Companies will increasingly Many of these principles are already being implemented in isolated domains, such as the compete on their ability to operations of digital marketplaces. But to win the ’20s, the same principles must be applied weather unexpected shocks. to all parts of the organization in order to create a “self-tuning enterprise” that con stantly learns and adapts to the environment. Design the company of the future. Big data Such organizations must be designed with and deep learning have transformed our flexible backbone systems, evolving business ability to learn, and the next generation of models, and, above all, a new model of technologies will undoubtedly bring even management—one that is based on biological more possibilities. History has shown, howev- principles such as experimentation and co- er, that applying new technologies to existing evolution, rather than traditional top-down processes and structures generally yields only decision making and slow cycle planning. incremental gains. To unlock the learning Management needs to shift its emphasis from potential of new technologies, leaders need designing hardwired structures and proce to reinvent the enterprise as a next-generation dures to orchestrating flexible and dynamic learning organization. systems.

Merely applying AI to individual process Apply the science of organizational change. steps is not enough: To increase the ability of Reinventing organizations to compete in the organizations to learn in aggregate, they must 2020s will not be a trivial task. Whether build integrated learning loops that gather in- because of risk aversion or complacency formation from data ecosystems, continuous- stemming from today’s increasingly concen- ly derive insights using machine learning, and trated industries and elevated profitability act on those insights autonomously, all at the levels, leading companies may be under- speed of algorithms rather than the speed of standably reluctant to unleash fundamental human hierarchies. change preemptively. But our research shows that the single biggest factor influencing the But organizations must not learn only on al- success of major change programs is how gorithmic timescales—they must also better early they are initiated. It is therefore critical understand and position themselves for the to create a sense of urgency within the

4 | Winning the ’20s in Health Care — Feature organization to ensure that everyone truly ership, commitment to building diversity in understands the need for change. top management, openness to testing multiple ideas, and other measures to unlock the Even for companies that are committed to full potential of diversity. such transformation, it can be a risky endeav- or: our research shows that most large-scale Diversity also increases resilience. Like bio- change efforts fail. Therefore, leaders need to logical communities and organisms, compa- employ evidence-based transformation— nies that encompass more heterogeneity are understanding empirically what works and likely to withstand unanticipated changes why, rather than relying on plausible asser- better. Enterprises that embrace diverse tal- tions and rules of thumb. In an era when ent, ideas, and sources of growth will have an many powerful forces are revolutionizing advantage in understanding and adapting to how organizations function, building repeat- external shocks—which increasingly threaten able transformation capabilities will be more the survival of individual businesses. important than ever. Leaders also need to de-average and differen- In the long run, diversity tiate their approaches to change. Large-scale transformation programs comprise multiple can make businesses more change challenges, from exploring new fields and approaches, to adaptively refining new effective and more resilient. models, to implementing structured change with clear objectives and means. Leaders will need to diversify their approaches to Optimize for both social and business value. change accordingly, moving beyond the Several trends are fueling resentment toward monolithic programs centered only on PMOs business. The climate crisis and other nega- and Gantt charts. By adopting continuous tive externalities are increasingly visible, change as the default, episodic change pro- automation is sparking fear about the future grams will give way to change as an ongoing of work, trust in technology is falling, in operating imperative. equality has risen markedly within many countries, and the most successful companies Embrace the business imperative of diversity. are becoming larger, more visible, and more Diversity is not only a moral imperative—it powerful. As a result, the role of business in can also make businesses more effective in society is coming under question, risking the the long run. Our study of more than 1,700 sustainability of the current model of corpo- companies around the world shows that rate capitalism. diversity increases the capacity for innovation by expanding the range of a company’s ideas Political institutions are not likely to address and options. And as the speed of change these concerns effectively in the foreseeable accelerates, innovation and reinvention are future. Demographics that portend lower increasingly necessary to stay on top. global growth, massive public debts that limit investment, tensions resulting from inter The most obvious sources of diversity, such as national migration, and a social media land gender, ethnicity, and sexual orientation, are scape that amplifies extreme voices are all indeed important in driving innovation, but likely to continue fueling divisive, populist variety of work experience and educational politics. The rise of China, and the growing background is also meaningful. Importantly, US response, challenge the stability of multi these factors are mostly additive, so compa- national institutions that businesses rely on. nies that are diverse on multiple dimensions In an era characterized by polarization, are even more innovative. Structural diversity everything in business will likely become alone, however, is insufficient. Organizations “political.” also need an environment conducive to embracing new ideas, and they must install open To keep the game of business going, business communication practices, participative lead- needs to be part of the solution. All stake-

Boston Consulting Group | 5 holders increasingly expect companies to Note play a more prominent role in addressing so- 1. Based on market capitalization at the end of 2018 Q3. cial challenges, which will be reinforced as newly adopted metrics and standards make their efforts and impacts more transparent. Rich Lesser is the president and CEO of Boston Leaders need to focus on their companies’ Consulting Group. You may contact him by email total societal impact—in other words, they at [email protected]. need to make sure that their businesses create social as well as economic value. Not only Martin Reeves is a managing director and se- can this increase financial performance in the nior partner in the firm’s New York office and long run, but it can strengthen the social con- the director of the BCG Henderson Institute. You tract between business and society, ensuring may follow him on Twitter @MartinKReeves and that the relationship is able to endure. Lead- contact him by email at [email protected]. ers will need to master the art of corporate statesmanship, proactively shaping the criti- Kevin Whitaker is a lead analyst in BCG’s New cal societal issues that will increasingly York office and a member of the Strategy Lab at change the game of businesses. the BCG Henderson Institute. You may contact him by email at [email protected].

inning the present is challenging Rich Hutchinson is a managing director and Wenough, but the more essential task of senior partner in the firm’s Atlanta office and leadership is winning the future. The fast- the global leader of BCG’s Social Impact practice. changing world will test our status quo as- You may contact him by email at hutchinson. sumptions, and it is critical to look forward in [email protected]. developing an agenda for the next decade. Here we’ve offered a starting point for that journey, presenting themes that we will further elaborate in subsequent publications. We invite all leaders who aim to win the ’20s to join the conversation.

6 | Winning the ’20s in Health Care — Feature PERSPECTIVE PREPARING FOR A NEW KIND OF SHAKEUP IN HEALTH CARE by Sanjay Saxena, Nate Holobinko, Cristian Liu, and Amika Porwal

magine this: You have a health crisis. You the landscape, but their disruptive power Ipull up the health app on your phone and could bring dramatic changes. And if adversity dictate your symptoms to an AI assistant. strikes the market, it could create just the Then you are quickly connected via video opening these formidable companies need to chat to a coordinator in your health system gain a foothold over sleepy incumbents. who consults with specialists and comes back Meanwhile, medical advances and new forms to you with a customized prescription on the of treatment will demand alternative business basis of your medical history and personal and reimbursement models. True, a handful genomics. Your tailored treatment is “manu- of savvier existing players—such as those in factured” at a nearby lab and delivered to the US Medicare Advantage market—have your workplace via drone—all before you’ve been building up capabilities to meet these left the office for the day. Far-fetched as it may new disruptive forces, establishing models that seem to many incumbent payers, providers, will be hard to dislodge. and health services companies, this scenario could soon be a reality. Yet many others are asleep at the wheel or, worse, sinking vast amounts of time and Of course, industry shakeups are nothing capital into capabilities that do little to new. But this time the disruptive forces future-proof their businesses and instead put barreling toward the health care sector are them in an even more vulnerable position. different. In the past, incumbents could rely on the fact that new entrants faced high bar riers to entry: the extreme complexity of Not Your Usual Adversity managing the cost of care and the highly reg Historically, adversity in the health services ulated, capital-intensive, and very low-margin industry has been caused by economic down- nature of the sector. Players with strong local- turns and changes in the regulatory and legis- market positions and relationships with key lative environment—which in turn have driv- stakeholders—from employers and physi en bad debt, led patients to defer elective cians to regulators and policymakers—largely procedures (and sometimes even preventive won out regardless of the challenge. Entering care), and increased the number of unin- this space used to be akin to scuba diving sured. These threats will not disappear. But without a tank. Not anymore. as medical advances and the growing presence of tech giants reshape the sector, what it Consumer-friendly tech giants have set their takes for incumbents to weather the next sights on health care. They don’t yet command storm will look very different.

Boston Consulting Group | 7 In the future, the impact of recession and pure plays by lines of business, survival will legislative changes may be more muted and be all but impossible. profit pools will shift. As an example, we see new profit pools, such as data and analytics, Weathering adversity will be made harder by supplanting the more traditional insurance the advent of expensive new treatments and segments. (See Exhibit 1.) In a recession, we care that the traditional system will struggle to expect government to be the key source of pay for and supply. Only a few providers are funding for the sector. In the US, for example, currently able to deliver these types of treat- this puts at a relative disadvantage those ments. As more come online and demand for payers and health systems whose strategy is them grows, those who can’t provide this new to chase commercial business for the higher type of care may be left by the wayside. fees, while players pursuing members of government-sponsored health plans will Over the long term, new treatment paradigms, likely see a boost to their business. Sweeping such as cell and gene therapy and customized legislative changes such as Medicare for All treatments, will disrupt the demand for and or the creation of Medicare buy-in options delivery of care. Some will require a break for older adults who have not yet reached from annual insurance cycles and a shift to Medicare eligibility age could accelerate this population-based drug and therapy reimburse trend, resulting in a substantial expansion of ments. Indeed, the advent of expensive but government-funded health care. life-altering treatments—costing from hun dreds of thousands to, in some cases, millions Of course, while legislative changes could be of dollars per patient—will require new highly disruptive, the direction they take will constructs that enable payment to manufac depend on the outcome of the 2020 US elec- turers over many years, pooled risk sharing tion. Regardless of political shifts, however, across multiple payers (given the churn medical advances and changes in the nature among customers), and outcomes-based and cost of cures will have a significant im- guarantees from biopharma companies. pact on health care business models, threat- ening to upend the viability of year-to-year Another existential threat to the payer busi- care financing, disrupting the essence of what ness model is the rapidly advancing under- payers and providers do. For local plans and standing of genomics. This means payers will

Exhibit 1 | Data and Analytics Will Take on a Larger Share of Profit Pools by 2023

Share of proﬁt pool (%) 00

oerc rou 0

Iu 0 Mecre te Me Mec 0 Pharmacy beneﬁts eet 20

Data and analytics 0 207 20 20 2020 202 2022 202

Sources: BCG Healthcare Profit Pool Projection Model; BCG analysis. Note: Data and analytics include systems that perform the following for payers and providers: population health management, imaging analysis, clinical decision support, patient engagement, administrative-processing solutions, risk-based analytics, plan design and financial analytics, claims processing, and member engagement.

8 | Winning the ’20s in Health Care — Perspective likely have to fund—and providers will have customers with new entrants to the market. to treat—patients who are in a state of “pre- Yesterday’s playbook will still have a role— disease.” The Centers for Disease Control and but it won’t be enough on its own. Prevention has already certified three Tier 1 conditions for which advanced screening and In a world where employer-sponsored insur even surgery can be performed in the absence ance is shrinking in volume and becoming of any indication of illness, on the basis of an more susceptible to negative economic forces, individual’s genetic makeup. These include cost cutting will no longer work as a backstop hereditary breast and ovarian cancer syn- during a recession. Shifting insurance pools drome, Lynch syndrome, and familial hyper from private health insurance to government cholesterolemia. As such conditions multiply, insurance results in lower industry profits, the year-over-year funding mechanism that even when the overall pool of enrollees and fuels payer profits may begin to break down. revenue grows larger. (See Exhibit 2.)

Then there’s the power of the tech giants to Achieving scale will become more important disrupt. As these companies make a rapid en- as cost pressures increase. And while some in trance into the sector, they bring with them the business of financing care and delivery new business models and access to diverse have attained scale, their margins are razor sources of capital. Moreover, given their abili- thin. Diversification will therefore require ty to build trust with consumers and harness moving into new markets, even those beyond their data to create scale—something that care delivery. payers and providers have struggled with— they are well positioned to compete in the business of health care delivery. Achieving scale in health care It’s easy to imagine the scenario. A large tech will become more important giant invests in building a consumer-directed electronic health record (EHR) on its digital as cost pressures increase. platform and offers it to payers, providers, and patients free of charge. As this platform becomes the primary method by which con Part of this shift involves forming partner- sumers choose health care, the company ships and making acquisitions. Providers will starts buying payers to round out its finan need to integrate hospital and physician cing and actuarial capabilities. It then part groups and diversify into outpatient settings ners with a leading online retailer’s drone and such as ambulatory surgery centers and infu- drug distribution division to deliver treat sion services (walk-in outpatient centers treatments to consumers. Traditional payers, pro ing acute and chronic disorders). Payers and viders, and health systems cannot compete. providers will need to move outside their comfort zone and start to deliver what are becoming the essential building blocks of Your Playbook Needs an Upgrade health care, from analytics and genomics to Medical advances and the presence of tech real-world evidence. giants are not the only reason health care incumbents need to reexamine their strategies. Transforming the cost base will take more In the past when adversity hit, usually be- than incremental changes. It will require a cause of an economic downturn, the standard fundamental shift in the way both care and playbook of incumbent responses was well the business itself are organized. This means known: cut costs by 5% to 10%, centralize and rationalizing administrative and delivery modernize functions to increase efficiency, infrastructures to enable scale and aligning and use those who can pay to subsidize low- service lines and care settings to minimize margin populations. When payers and provid- redundancy. Moves to lower-cost settings ers were competing only with one another, should also be considered, particularly for these tactics worked. In the next downturn, patient-facing clinics, where these are essen however, they are likely to be competing for tial to maximize throughput and quality.

Boston Consulting Group | 9 Exhibit 2 | As Enrollment Shifts to Government Insurance, the Downturn Will Affect Primarily Private Insurers’ Profit

roet os eeue os Proﬁt ($billions)

.7 . . . 2. 07. . . .

207 2020 202 207 2020 202 207 2020 202

. 20. . 2. 2. . 0.0 . . 207 2020 202 207 2020 202 207 2020 202

Private insurance Medicare Medicaid Tricare Uninsured

Sources: BCG Healthcare Profit Pool Projection Model; BCG analysis. Note: The downturn case assumes an economic downturn in 2020, leading to a population shift from private insurance to Medicaid and uninsured populations.

In making this transformation, no stone the largest cost components of the system, should be left unturned, from developing and health care companies are also often best-in-class procurement to embracing the among the biggest employers in their market. digital age, integrating EHRs with clinical As such, while having a strong local-market decision-making processes, and creating an position has historically benefited incum- agile workforce. Anything that lies outside bents, the double-edged sword of local the enterprise’s core competency can be strength is that it frequently makes imple- outsourced. menting much-needed changes slow, arduous, and politically charged. Over the past decade, This means rethinking capital allocations. It incumbents have also invested hundreds of involves moving away from making heavy millions—even billions—of dollars in areas investments in underperforming capabilities, like EHR systems, proprietary IT platforms, legacy systems, and physical IT infrastructure and new buildings. Choices about scaling —and away from investing in areas where the back on some of these investments will be enterprise has no expertise, such as hospital hard to make, and rethinking assumptions systems building software. It’s also wise to will be challenging. avoid investing in retail and physical locations without a clear strategy on how to compete in a world where consumers increasingly pre It’s All About the Consumer fer to access services online and on demand, Tackling tomorrow’s adversity will demand whether at home, at work, or on the road. new business models. For example, payer and provider organizations can consider These core transformations will be not only cross-sector partnerships to pool their risk. expensive but also organizationally difficult And because a significant part of the shift is for incumbents to execute. Labor is one of to value-based payments, companies can

10 | Winning the ’20s in Health Care — Perspective experiment with models such as population- Nate Holobinko is a managing director and based pricing—in which a provider receives a partner in the firm’s Seattle office. He has more set amount of money and accepts responsi than 15 years of experience helping companies bility for a specific group of patients over a develop new strategies and transform their busi- fixed time frame—charging for new treat ness models across the health care industry, in- ments only when they are successful. cluding national insurers, Blue plans, integrated health systems, academic medical centers, bro- Payers, providers, and health systems must kers, and private equity investors. He also co- also steep themselves in data and focus on leads BCG’s Center for US Health Care Reform consumer relationships. This means making and Evolution. You may contact him by email at sufficiently high levels of investment in digi- [email protected]. tal and analytics capabilities and potentially transforming the cost base to allow them to Cristian Liu is a principal in BCG’s Seattle of- remain profitable enough at government re- fice with a focus on health care across topics in- imbursement rates. cluding care redesign and value-based care. He has broad experience in the health care industry, Investments need to reflect the fact that the including corporate strategy, operations, and consumer landscape is shifting. Digital pro- public policy. You may contact him by email at viders from online retailers to ride-hailing [email protected]. apps have led customers to expect instant, on-demand, customized services. And since Amika Porwal is a knowledge expert in the this is an area open to attack from companies firm’s Chicago office and a member of BCG’s outside the sector, the development of con- Health Care practice. She leads the North Ameri- sumer relationships should be given a razor- can payers, providers, and services (PPS) knowl- sharp focus. In a world where cross-year edge team, which comprises dedicated industry treatments are becoming more common, hav- analysts with expertise across a variety of topics ing “stickier” customers also makes the eco- and industries. In this role, she coordinates the nomics more favorable. analytical and knowledge support of BCG’s PPS case teams, including development of products Payers, providers, and health services that fail and intellectual capital for the sector. You may to foster and manage relationships with their contact her by email at [email protected]. customers will lose them to the high-tech new comers. But those that can preserve and deep- en these relationships will be able to fend off competition from the disruptors and build a future-proofed business that can withstand adversity, no matter where it comes from.

Sanjay Saxena, MD, is a managing director and senior partner in the San Francisco - Bay Area office of Boston Consulting Group and the global leader of BCG’s payers, providers, and services work within the Health Care practice. He also co- leads BCG’s Center for US Health Care Reform and Evolution. You may contact him by email at [email protected].

Boston Consulting Group | 11 WINNING THE ’20s THE NEW LOGIC OF COMPETITION by Ryoji Kimura, Martin Reeves, and Kevin Whitaker

any of today’s business leaders also look beyond today’s situation and under- Mcame of age studying and experiencing stand at a more fundamental level what will a classical model of competition. Most large separate the winners from the losers in the companies participated in well-defined next decade. We see five new imperatives of industries selling similar sets of products; competition that will come to the forefront for they gained advantage by pursuing econo- many businesses. (See Exhibit 1.) They are: mies of scale and capabilities such as efficiency and quality; and they followed a process of •• Increasing the rate of organizational deliberate analysis, planning, and focused learning execution. •• Leveraging multicompany ecosystems The traditional playbook for strategy is no longer sufficient. In all businesses, competi- •• Spanning both the physical and the digital tion is becoming more complex and dynamic. world Industry boundaries are blurring. Product and company lifespans are shrinking. Technologi- •• Imagining and harnessing new ideas cal progress and disruption are rapidly transforming business. High economic, political, •• Achieving resilience in the face of and competitive uncertainty is conspicuous uncertainty and likely to persist for the foreseeable future. In short, the logic of competition has Accordingly, in addition to the classical advan changed—from a predictable game with sta- tages of scale, companies are now contending ble offerings and competitors to a complex, with new dimensions of competition—shaping dynamic game that is played across many di- malleable situations, adapting to uncertain mensions. Leaders who understand this, and ones, and surviving harsh ones—which in turn re-equip their organizations accordingly, will require new approaches. And the stakes are be best positioned to win in the next decade. higher than ever: the gap in performance be tween the top- and bottom-quartile companies has increased in each of the past six decades.1 Competing on the Rate of Learning Today’s business leaders are dealing with Learning has long been considered important complex competitive concerns in the short in business. As Bruce Henderson, BCG’s run. But as the 2020s approach, they must founder, observed more than 50 years ago,

12 | Winning the ’20s in Health Care Exhibit 1 | Five New Imperatives of Competition

Competing on the

Competing on Competing in

Competing on Competing in a hybrid

Source: BCG Henderson Institute. companies can generally reduce their margi For example, Netflix’s algorithms take in be- nal production costs at a predictable rate as havioral data from the company’s video their cumulative experience grows. streaming platform and automatically provide dynamic, personalized recommenda- But in traditional models of learning, the tions for each user; this improves the product, knowledge that matters—learning how to keeping more users on the platform for long make one product or execute one process er and generating more data to further fuel more efficiently—is static and enduring. the learning cycle. (See Exhibit 2.) Going forward, it will instead be necessary to build organizational capabilities for dynamic However, there is an enormous gap between learning—learning how to do new things, and the traditional challenge of learning to im- “learning how to learn” by leveraging new prove a static process and the new imperative technology. to continuously learn new things throughout the organization. Therefore, successfully com- Today, artificial intelligence, sensors, and digi- peting on learning will require more than tal platforms have already increased the op- simply plugging AI into today’s processes and portunity for learning more effectively—but structures. Instead, companies will need to: competing on the rate of learning will become a necessity by the 2020s. The dynamic, •• Pursue a digital agenda that embraces all uncertain business environment will require modes of technology relevant to learning— companies to focus more on discovery and including sensors, platforms, algorithms, adaptation rather than only on forecasting data, and automated decision making. and planning. •• Connect them in integrated learning Companies will therefore increasingly adopt architectures that can learn at the speed of and expand their use of AI, raising the com- data rather than being gated by slower petitive bar for learning. And the benefits hierarchical decision making. will generate a “data flywheel” effect— companies that learn faster will have better •• Develop business models that are able to offerings, attracting more customers and more create and act on dynamic, personalized data, further increasing their ability to learn. customer insights.

Boston Consulting Group | 13 Exhibit 2 | Netflix Leverages a Learning and Data Flywheel

Numer of suscriers of streams originating from (millions) AI recommendation 0 0 00 7 0 0 70 20 207 20 207

More users ore t Avg. usage per More eﬀective algorithms suscrier (hryr) 00

200 20 207

Better customer experience

Sources: Company reports; Wired; Business Insider; BCG Henderson Institute analysis. 1Based on company releases and news reports.

Competing in Ecosystems tion between collaborators and competitors: Classical models of competition assume that for example, Amazon and third-party mer- discrete companies make similar products chants have a symbiotic relationship, while and compete within clearly delineated indus- the company competes with those merchants tries. But technology has dramatically re- by selling private-label brands. duced communication and transaction costs, weakening the Coasean logic for combining A few digital giants have demonstrated that many activities inside a few vertically inte- successfully orchestrating ecosystems can grated firms.2 At the same time, uncertainty yield outsized returns. Indeed, many of the and disruption require individual firms to be largest and most profitable companies in the more adaptable, and they make business en- world are ecosystem-based businesses.3 One vironments increasingly shapable. Companies example is Alibaba, which leads China’s mas- now have opportunities to influence the de- sive e-commerce market not by fulfilling velopment of the market in their favor, but most functions directly but by building plat- they can do this only by coordinating with forms that connect manufacturers, logistics other stakeholders. providers, marketers, and other relevant service providers with one another and with end As a result of these forces, new industrial users. By decentralizing business activities architectures are emerging based on the coor- across large groups of firms or individuals, dination of ecosystems—complex, semifluid the Alibaba ecosystem is rapidly adaptive to networks of companies that challenge several consumers’ needs and also highly scalable— traditional business assumptions. Ecosystems resulting in 44% annualized revenue growth blur the boundaries of the company: for ex- for the company in the past five years. ample, platform businesses such as Uber and Lyft rely heavily on “gig economy” workers The playbook for how to emulate these eco- who are not direct employees but rather tem- system pioneers has not yet been fully codi- porary freelancers. Ecosystems also blur in- fied, but a few imperatives are becoming dustry boundaries: for example, automotive increasingly clear: ecosystems include not just traditional suppliers but also connectivity, software, and cloud •• Adopt a fundamentally different perspec- storage providers. And they blur the distinc- tive toward strategy, based on embracing

14 | Winning the ’20s in Health Care — Winning the ’20s principles like external orientation, Early signs of “hybrid” competition at the common platforms, co-evolution, emer- physical-digital intersection are already gence, and indirect monetization. emerging. Digital giants are moving into physical sectors: for example, Amazon has opened •• Determine what role your company can new retail stores in addition to its acquisition play in your ecosystem or ecosystems— of Whole Foods, while Google has entered not all companies can be the orchestrator. automotiv e and transportation through its Waymo subsidiary. Meanwhile, incumbent •• Ensure that your company creates value companies are furiously pursuing digitization. for the ecosystem broadly, not just for For example, John Deere has invested heavily itself. in IoT technology by adding connected sensors to its tractors and other equipment. The company collects and analyzes data from Competing in the Physical and each machine, using the insights to provide the Digital World updates to its equipment or suggestions to Today’s most valuable and fastest-growing users. “Our roadmap is calling for machine businesses are disproportionately young learning and AI to find their way into every technology companies, which operate piece of John Deere equipment over time,” ecosystems that are predominantly digital. said John Stone, the senior vice president for (See Exhibit 3.) But the low-hanging digital Deere’s Intelligent Solutions Group.4 fruits in consumer services, including retail, information, and entertainment, seem to These trends point to a new battle between have been plucked. New opportunities are younger digital natives and traditional physi- likely to come increasingly from digitizing cal incumbents. But unlike in the past dec the physical world, enabled by the rapid ade, in which upstarts unseated many legacy development and penetration of AI and the leaders with purely digital models, the next Internet of Things. This will increasingly round is likely to be a more balanced contest. bring tech companies into areas—such as Technology companies no longer have a lim- B2B and businesses involving long-lived and itless social license; in the next decade, they specialized assets—that are still dominated will have to navigate thorny issues like user by older incumbent firms. trust, data privacy, and regulation, which will

Exhibit 3 | Young Tech Companies Were the Biggest Winners of the 2010s

DEMOGRAHICS O TO TEN GLOBAL COMANIES BY MARKET CAITALIATION

Primary sector Median company age2

7 7 4

200 20 202 200 20 202

Financials Materials Consumer staples Health care Energy Technology

Sources: S&P Capital IQ; BCG Henderson Institute analysis. Note: Based on market capitalization at beginning of year. 1Based on GICS classifications; Technology includes information technology, communications services, and internet services & retail. 2Years since company founding.

Boston Consulting Group | 15 likely be even more critical in the context of business models. Long-run economic growth hybrid competition. And incumbents will still rates have declined in many economies, and have to fight against institutional inertia and demographics point to a continuation of that the long odds of disruption, but they will be pattern. Competitive success has become less able to better leverage existing relationships permanent over time. And markets are in- and expertise in the physical world. There- creasingly shapable, increasing the potential fore, the next wave of “natural selection” in reward for innovation. As a result, the ability business is likely to test both digital natives to generate new ideas is more important and incumbents—and winners could emerge than ever. from either group. However, creating new ideas is challenging What will make the difference? To succeed in for many companies. Inertia increases with hybrid competition, companies will need to: age and scale, making it harder to create and harness new ideas: our analysis of companies •• Build strong relationships with actors on around the world shows that older and larger both sides of the ecosystem—customers companies have less vitality, the capacity for and suppliers. sustainable growth and reinvention. (See Ex hibit 4.) And business and managerial theory •• Rethink existing business models in order has emphasized a “mechanical” view—one to win the battle for new hybrid markets. dominated by easily measurable variables like efficiency and financial outcomes—rather •• Adopt good practices for governance of than focusing on how to create new ideas. data and algorithms to preserve users’ trust. To overcome these challenges, companies need to compete on imagination. Imagination Competing on Imagination lies upstream of innovation: to realize new Companies can no longer expect to succeed possibilities, we first need inspiration (a rea- by leaning predominantly on their existing son to see things differently) and then imagi-

Exhibit 4 | Older Companies Are Generally Less Vital

BCG vitality score

0 0 00 00 Company age (log scale)2

Information technology Consumer discretionary Health care Financials Industrials Other

Source: BCG Henderson Institute analysis. Note: Shows 1,083 companies worldwide (companies with $10 billion+ revenue or $20 billion+ market cap through year-end 2017); excludes energy, metals & mining, and commodity chemicals. 1Based on 18 metrics weighted by ability to predict future long-term growth; see “The Global Landscape of Corporate Vitality,” BCG, 2018. 2Years since company founding.

16 | Winning the ’20s in Health Care — Winning the ’20s nation (the ability to identify possibilities threat from social divisions and political grid- that are not currently the case but could be). lock. Society is increasingly questioning the Imagination is a uniquely human capability inclusivity of growth and the future of work. —artificial intelligence today can make sense And planetary risks, such as climate change, only of correlative patterns in existing data. are more salient than ever. As machines automate an increasing share of routine tasks, individual managers will need Furthermore, deep-seated structural forces to focus on imagination to stay relevant and indicate this period of elevated uncertainty is make an impact. likely to persist: technological progress will not abate; the rise of China as an economic How can companies compete on imagination? power will continue to challenge international institutions; demographic trends point to- •• Focus on anomalies, accidents, and ward an era of lower global growth, which analogies, rather than averages, in order will further strain societies; and social polar- to spark inspiration. ization will continue to challenge governments’ ability to effectively respond to na- •• Enable the open spread and competition of tional or global risks. (See Exhibit 5.) ideas—for example, by limiting hierarchy and empowering employees to experiment Under such conditions, it will become more and make imaginative proposals. difficult to rely on forecasts and plans. Busi- ness leaders will need to consider the larger •• Become a “playful corporation” that is able picture, including economic, social, political, to effortlessly explore new possibilities. and ecological dimensions, making sure their companies can endure in the face of unanticipated shocks. In other words, businesses will Competing on Resilience effectively need to compete on resilience. Looking ahead to the 2020s, uncertainty is high on many fronts. Technological change is Survival is already challenging for many disrupting businesses and bringing new so- businesses today. Building resilience is often cial, political, and ecological questions to the at odds with traditional management goals forefront. Economic institutions are under like efficiency and short-run financial maxi

Exhibit 5 | Global Risks Are Elevated Across Many Dimensions

Future of Work Growth Plastics AI governance Inequality Uncertainty Gloal warming Data privacy Inclusion Trade regime Water Trust US vs. China Cohesion

Source: BCG Henderson Institute.

Boston Consulting Group | 17 mization. But to thrive sustainably in uncer Notes tain environments, companies must make 1. Based on the average difference in EBIT margin between companies ranking in the top quartile and resilience an explicit priority: those in the bottom quartile in each of 71 industries (among US public companies with at least $50 million •• Prepare for a range of scenarios to ensure in revenue). that strategy is robust and risks are 2. Ronald Coase, “The Nature of the Firm,” Economica, November 1937. survivable. 3. At the start of 2019, seven of the world’s top ten companies by market capitalization leveraged multi- •• Build an adaptive organization that can company ecosystems: Apple, Amazon, Microsoft, Alphabet, Facebook, Alibaba, and Tencent. rapidly adjust to new circumstances—for 4. Scott Ferguson, “John Deere Bets the Farm on AI, example, by constantly experimenting to IoT,” Light Reading, March 2018. identify new options.

•• Proactively contribute to collective action on the biggest issues facing global econo- Ryoji Kimura is a managing director and senior mies and societies, in order to maintain a partner in the Tokyo office of Boston Consulting social license to operate. Group and the global leader of BCG’s Corporate Finance & Strategy practice. You may contact him by email at [email protected]. The New Significance of Scale These new forms of competition are highly Martin Reeves is a managing director and se- intertwined. For example, companies that nior partner in the firm’s New York office and orchestrate ecosystems will have an advan- the director of the BCG Henderson Institute. You tage in competing on learning, because eco- may follow him on Twitter @MartinKReeves and systems are a rich source of real-time data contact him by email at [email protected]. and digital platforms facilitate experimentation. Many companies will integrate physical Kevin Whitaker is a lead analyst in BCG’s New and digital assets by leveraging partnerships York office and a member of the Strategy Lab at in hybrid ecosystems. Machine learning and the BCG Henderson Institute. You may contact autonomous action will increase humans’ him by email at [email protected]. need for and ability to focus on imagination. And those shifts will collectively create further unpredictability for business, necessitat- ing strategies for resilience.

These five emerging aspects of competition point to a new logic for “scale.” No longer will scale represent only the traditional value of achieving cost leadership and optimizing the provision of a stable offering. Instead, new kinds of scale will create value across multiple dimensions: scale in the amount of relevant data companies can generate and access, scale in the quantity of learnings that can be extracted from this data, scale in experimen tation to diversify the risks of failure, scale in the size and value of collaborative ecosystems, scale in the quantity of new ideas companies can generate, and scale in resilience to buffer the risks of unanticipated shocks.

18 | Winning the ’20s in Health Care — Winning the ’20s WINNING THE ’20s THE COMPANY OF THE FUTURE by Allison Bailey, Martin Reeves, Kevin Whitaker, and Rich Hutchinson

n the coming decade, companies will dynamic pricing, and real-time customized Iincreasingly need to compete on the rate of product recommendations are already a learning. Technology promises to play a reality in many businesses. But it is perhaps critical role: artificial intelligence (AI) can underappreciated that slow-moving forces detect patterns in complex data sets at are also becoming more important. For extreme speed and scale, enabling dynamic example, trade institutions, political learning. This will allow organizations to structures, wealth stratification, and social constantly adapt to changing realities and attitudes are slowly changing in ways that surface new opportunities, which will be could have a profound impact on business. increasingly important in an uncertain and Gone are the days when business leaders fast-changing environment. could focus only on business and treat these broader variables as constants or But for companies to compete on learning, it stable trends. But such shifts unfold over is not enough to merely adopt AI, which many years or even decades. In order to alone can accelerate learning only in indi thrive sustainably, businesses must learn vidual activities. As with previous transforma on all timescales simultaneously. tive technologies, unlocking the full potential of AI—and of humans—will require funda •• Combining Humans and Machines mental organizational innovation.1 In other Optimally. Machines have been crucial words, to win the ’20s, leaders will need to re- components of businesses for centuries— invent the enterprise as a next-generation but in the AI age, they will likely expand learning organization. rapidly into what has traditionally been considered white-collar work. Instead of merely executing human-directed and Reimagine the Organization designed processes, machines will be able The next-generation learning organization to learn and adapt, and will therefore have will need to be redesigned to fulfill several a greatly expanded role in future organi- key functions. (See Exhibit 1.) The functions zations. Humans will still be indispens- are as follows: able, but their duties will be quite different when complemented or substituted by •• Learning on All Timescales. The growing intelligent machines. opportunity and need to learn on faster timescales, driven by technological innova •• Integrating Economic Activity Beyond tion, is well known—algorithmic trading, Corporate Boundaries. Increasingly,

Boston Consulting Group | 19 Exhibit 1 | The Next-Generation Learning Organization

ECOSYSTEM

MIN MNS COMPANY

INDIVIUAL TDITIN NITINS

MSEC DAYS YEARS DECADES

Source: BCG Henderson Institute.

businesses act in multicompany ecosystems the next decade will require embracing five that incorporate a wide variety of players. imperatives. (See Exhibit 2.) The imperatives Indeed, seven of the world’s largest are as follows: companies, and many of the most profitable ones, are now platform businesses. 1. Integrate technologies for seamless learning. Ecosystems greatly expand learning potential: they provide access to exponen- 2. Migrate human cognition to new, higher- tially more data, they enable rapid level activities. experimentation, and they connect with larger networks of suppliers of customers. 3. Redesign the relationship between Harnessing this potential requires redraw- machines and humans. ing the boundaries of the enterprise and effectively influencing economic activity 4. Nurture broader ecosystems. beyond the orchestrating company. 5. Rethink management and leadership •• Evolving the Organization Continuously. accordingly. The need for dynamic learning does not apply just to customer-facing functions—it also extends to the inner workings of the Integrate Technologies for enterprise. To take advantage of new Seamless Learning information and to compete in dynamic, As powerful as today’s emerging technolo- uncertain environments, the organizational gies are, they will yield only incremental context itself needs to be evolvable in the gains if organizations use them simply to en- face of changing external conditions. hance individual steps of existing processes. The effective rate of an organization’s learn- Today’s organizations, which were designed ing is gated by its ability to act on new infor more stable business environments, are sights. And classical organizations act slowly, not well suited to perform these essential owing to their reliance on human decision functions. Reinventing the organization for making and hierarchy.

20 | Winning the ’20s in Health Care — Winning the ’20s Exhibit 2 | Five Imperatives for the Company of the Future

NT TIN ECOSYSTEM BD SSTMS DSI DIN

COMPANY NI T MNMIN TINSI

INDIVIUAL INTT TNIS MIT MN NITIN SMISS NIN T I TIITIS

MSEC DAYS YEARS DECADES

Source: BCG Henderson Institute.

In order to truly accelerate the speed of And these systems are interconnected, so new learning to algorithmic timescales, organiza- data or insights from one part of the business tions will need not only to automate but also cascade through all other functions, which re- to “autonomize” significant parts of their act accordingly.2 businesses. In traditional automation, machines execute a predesigned process repeat- In contrast, traditional organizational edly and consistently. In autonomization, ma- approaches—for example, unchanging rules chines use continuous feedback to act, learn, or hierarchical decision processes—can im- and adapt on their own—without the bottle- pede companies’ ability to harness the rapid neck of human intervention. learning potential unlocked by technology. As BCG’s research on Smart Simplicity has Autonomous systems are designed by com- shown, today’s organizations already face the bining multiple technologies into integrated need to reduce bureaucracy and complicated- learning loops. Data from digital platforms ness in order to promote fluid collaboration. automatically flows into AI algorithms, which With the introduction of AI and other new mine the information in real time to facilitate technologies, leaders need to redouble their new insights and decisions. These are wired efforts to simplify their organizations to en- directly into action systems, which continu- able autonomous learning as well as more ously optimize outcomes under changing con- effective human-to-human collaboration. ditions. These actions produce yet more data that can be fed back through the cycle, clos- Actions that companies can take to harness ing the loop and allowing the organization to autonomous learning include: learn at the speed of algorithms. •• Gather real-time data on all aspects of the Some organizations are already implement- business by leveraging platforms, the ing autonomous learning systems. For exam- Internet of Things, and other new ple, Amazon’s pricing and product recom- technologies. mendation engines, among dozens of other functions, are operated by AI systems that •• Deploy AI at scale, integrated with data learn and adapt as new information emerges. and decision-making systems.

Boston Consulting Group | 21 •• Take human hierarchy “out of the loop” Apple provides a prescient example. When of routine, data-based decision making. Steve Jobs returned to Apple as CEO in 1997, he made design the core of the company’s culture, instead of previously dominant func Migrate Human Cognition to New, tions like engineering and finance. By focusing Higher-Level Activities on design—which leverages human creativity The widespread adoption of autonomous and imagination to generate new ideas— learning machines naturally raises the ques Apple was able to produce the novel products, tion of what role human workers will play in including the iPhone, that eventually helped the organization of the future. Today, there is it become the world’s most valuable company. already widespread concern about the speed at which technology will disrupt the future of work. To shape this future—as well as to max Despite all its power and imize organizational learning capabilities— businesses need to focus human cognition on potential, AI is still inherently its unique strengths. limited in its cognitive scope. For all its power and potential, AI is still inherently limited in its cognitive scope. It can analyze correlations in data (“what is the In addition to imagination and making sense case”) at extreme speed, on extreme scales, of nonrepeated events, there will be many with extreme complexity. But it cannot rea- other activities where humans are advan- son at higher levels, such as causal inference taged, including organizational design, algo- (“why is it the case”) or counterfactual think- rithmic governance, ethics, and purpose, to ing (“what is not the case but could be”).3 name a few. In these domains of human activity, organizations will need to become Humans should increasingly focus their efforts more effective at dynamic collaboration to on these higher-level activities. For example, get the most out of their teams. This requires while correlative analysis is generally suffi emphasizing self-organization and experi- cient for learning about repeated actions on mentation by creating an organizational con- fast timescales, it is less useful for learning text in which responsive decision making and about slow-moving forces, such as political, learning can thrive, rather than by relying on social, and economic trends. direct instructions.

These shifts are unique and depend on the Finally, organizations must recognize that the historical context and trajectory, which means new activities are cognitively demanding— there is no repeated data set in which to find which is particularly challenging in an age of patterns. Human abilities, such as understand exploding inboxes, endless meetings, and ing causal relationships and generalizing from ubiquitous information. Organizations will limited data, are necessary to decode these have to allow humans to cultivate the art of forces and adapt the organization accordingly. reflection and avoid cognitive overload.

Counterfactual thinking is also critical, as How can organizations help humans maxi- businesses need increasingly to compete on mize their value? imagination. Existing business models are being exhausted faster, and long-term growth •• Expose employees to unfamiliar or is declining, which means companies must anomalous information, in order to inspire continually generate new ideas to grow imagination. sustainably. But businesses today, which are often implicitly designed for efficiency and •• Schedule and protect time for unstruc- the maximization of short run financial tured reflection. outcomes, are not conducive to imagination. Organizations will need to better facilitate •• Promote new ways of working that enable individual and collective imagination. dynamic learning and adaptation.

22 | Winning the ’20s in Health Care — Winning the ’20s Reconceive the Relationship augment the capacity for creativity and Between Humans and Machines imagination. For example, Maurice Conti, The first two imperatives call for a hybrid an expert in innovation and technology, learning organization, one that combines the describes “generative design tools” that comparative advantages of machines and hu- automatically create new possibilities mans: machines’ ability to rapidly identify based on a set of predefined parameters, complex patterns in big data and humans’ abil- which can spark new ideas for human ity to decode complex causal relationships and designers. imagine new possibilities. Together, these will enable the organization to learn on an expand- •• Finally, in jobs that require both creativity ed range of timescales—faster and slower. and social interaction, humans will have many of the same core responsibilities But in hybrid organizations, humans and ma- that they do today, but targeted AI chines will increasingly have to collaborate in applications will help them maximize new and more effective ways. This includes their skills. For example, Google and a tasks that require thinking on multiple levels startup led by former Google employees or timescales simultaneously, as well as tasks have developed the Nudge Engine, which that demand social interaction, another di- uses AI to provide personalized sugges- mension in which humans are currently far tions to employees or managers that more effective. Organizations will thus need enhance their effectiveness.6 to reimagine the relationship between humans and machines to bring the best out of For these new types of human-machine rela- both and maximize synergies. tionships to succeed, organizations need to develop effective human-machine interfaces Different types of jobs and tasks will require that allow for seamless collaboration. Today’s different types of human-AI relationships:4 AI models tend to be “black boxes” that are not designed for interpretability and may •• In jobs that are based predominantly on therefore impede trust. Organizations will optimization or pattern recognition, need to overcome these hurdles by develop- especially at high velocity and scale, ing and implementing interfaces that provide humans will likely be substituted by transparency into how AI makes recommen- machines. For example, many tasks done dations, allowing humans to understand and today by retail loan underwriters can be validate machines’ actions. Similarly, humans performed by AI; in these cases, humans and algorithms are rarely matched for band- will need to shift their focus to new width and complexity. higher-level tasks to add value. •• In jobs that also require social interaction, Humans and machines in machines may take over optimization- related aspects, but a “human layer” will hybrid organizations will have still be critical to deliver messages with empathy and compassion. For example, to collaborate in new ways. MIT developed a robot to match nurses with patients and allocate scarce resources in maternity wards, based on patient Choosing the right level of abstraction and histories, scheduling constraints, and compression for communication between previous experience.5 As a result, nurses humans and computers is critical: too much and doctors can spend more time interact- compression will suppress subtlety and pre- ing with patients directly to provide vent the tinkering through which human empathy and personalized care. innovation proceeds, while too little will over- whelm human overseers. •• In jobs that require more creativity than optimization, humans will likely be For example, Google’s DeepMind designed complemented by intelligent machines that an AI system that can detect eye diseases by

Boston Consulting Group | 23 means of a two-stage process—first identify- be successfully managed with deliberate ing what features of the image are associated planning and control. Instead, organizations with eye diseases, and then diagnosing dis- need to be adaptive in order to respond to eases on the basis of those features. This signals that emerge from the ecosystem—for structure allows doctors to see what in the example, by implementing internal processes image led to each diagnosis, increasing their that are flexible and responsive. And they trust in the system.7 need to develop shaping capabilities to indirectly influence the ecosystem in more bene- ficial directions—for example, by designing Companies must leverage platforms that incentivize other stakeholders to act in certain ways. collaborative human-machine Ecosystems are not only a new method of relationships more intensively. developing and delivering products; they also provide new opportunities for the “back office” of organizations. The “gig economy” The frontier of human-machine relationships is becoming more prominent, allowing com- is still uncertain, but a few imperatives are panies to leverage external, freelance talent emerging: at scale—thereby enhancing flexibility and giving them access to a wider variety of skills. •• Segment tasks and jobs according to the But harnessing labor-sharing platforms simi- challenges they entail and deploy the larly requires indirect forms of management right configuration of humans and instead of traditional command and control machines against each. techniques.

•• Leverage collaborative human-machine For example, the Dutch technology company relationships more intensively. Philips orchestrates ecosystems in many areas of its business. On the product side, its health •• Develop explainable algorithms that care division participates in ecosystems at humans can trust and understand. several stages of value creation—including an innovation ecosystem that involves academic labs, robotics companies, and startups; and a Nurture Broader Ecosystems sales and servicing ecosystem based on its In traditional models of production, compa- tele-health app that connects many digital nies operated in a linear value chain to de health care partners. The company also cre liver a narrow range of products. However, ated a labor-sharing platform, Philips Talent economic activity is increasingly organized Pool, which maintains a pool of freelancers within ecosystems—complex, semifluid net- familiar with the company and monitors the works of companies that cross conventional quality of their work. industry boundaries. By reconceiving the external and internal Ecosystems combine information and capabil- workings of the organization as a flexible, ities from a wide variety of players, increasing evolving ecosystem, businesses can handle their collective ability to explore new paths much greater dynamism and complexity. This and learn about the market. They also enable requires subjecting all aspects of the organi- the rapid development of new offerings in re- zation to market forces, enabling it to learn sponse to emerging opportunities that could and adapt in response to new opportunities. not have been foreseen. These benefits will And it requires internal systems that adjust be essential in future business environments, automatically to new information, allowing which will likely be more complex and less learning and resource reallocation to occur at predictable than those of the past. algorithmic speed. When combined, these capabilities can create a “self-tuning enterprise” However, realizing those benefits requires a that constantly learns and evolves according new organizational logic. Ecosystems cannot to its environment. (See Exhibit 3.)

24 | Winning the ’20s in Health Care — Winning the ’20s To harness the power of ecosystems through- fast. But as social scrutiny of technology out and beyond the organization, leaders must: increases, questions about governance, trust, and ethics are coming to the forefront. And as •• Engage external partners to create a AI is adopted more widely, all businesses will shared vision of the future. have to deal with these difficult questions.

•• Develop capabilities for collaboration and Some organizations are already beginning to information sharing at scale—for example, address them. For example, Microsoft created platforms and APIs. a new leadership position to help companies learn how to deploy ethical principles, includ- •• Redesign internal processes to be more ing fairness, accountability, and transparency, adaptive and data-driven, allowing the when implementing AI systems.8 organization to become “self-tuning.” Unlocking Continuous Human Learning Capabilities. As humans increasingly focus on Rethink Management and higher-level thinking, they will need to learn Leadership and practice new skills. This shift will not be Collectively, the above imperatives point to a “one-shot” learning—the required abilities very different way of designing and operating will continue to evolve unpredictably. Learn- organizations—which in turn will significant- ing will therefore need to be embedded in ly change the role of leadership. In particular, the workflow, and responsive to changing managers and leaders will need to focus on needs, rather than being batched at the several new challenges. beginning of careers. Organizations will also need to invest in “learning contracts” with Developing Governance Principles for AI and employees, mutually committing to continu- Autonomous Machines. As machines play a ously develop new skills for new roles. greater part in learning and action, the role of leadership in setting guardrails and priorities Leading in Ecosystems. As the organization’s will take on greater importance. In the last scope expands to encompass broader ecosys- decade, tech companies could sidestep these tems, leaders need to adopt a new approach. topics, as the promise and potential of new Traditional “mechanistic” approaches rely on technologies gave them a license to move the assumption that organizational actions

Exhibit 3 | The Self-Tuning Organization Embraces Dynamism and Complexity

Marketplaces Self-Tuning organization

Experiments

Digital platforms COMPLEITY Scenarios Algorithmic organization Automated organization Classical Agile organization organization

DYNAMISM

Source: BCG Henderson Institute.

Boston Consulting Group | 25 can be perfectly planned and controlled, Notes which is no longer valid. Instead, leaders 1. T. Bresnahan, E. Brynjolfsson, and L. Hitt, “Informa- tion Technology, Workplace Organization and the need to adopt a “biological” mindset, which Demand for Skilled Labor: Firm-Level Evidence,” The recognizes that businesses are embedded in Quarterly Journal of Economics, MIT Press, 2002. complex systems that evolve unpredictably. 2. V. Granville, “21 data science systems used by This involves managing with an experimental Amazon to operate its business,” Data Science Central, 2015. approach that seeks to learn about and adapt 3. J. Pearl and D. Mackenzie, The Book of Why: The New to the environment, rather than assuming that Science of Cause and Effect, Basic Books, 2018. current knowledge is sufficient. And it involves 4. Kai-Fu Lee, AI Superpowers, Houghton Mifflin prioritizing resilience in order to prepare for Harcourt, 2018. 5. S. O’Brien, “MIT robot helps deliver babies,” CNN, outcomes that cannot be anticipated. July 2016. 6. D. Wakabayashi, “Firm Led by Google Veterans Uses Orchestrating an Adaptive Organization. A.I. to ‘Nudge’ Workers Toward Happiness,” New York Similarly, running a self-tuning enterprise Times, December 2018. requires a different perspective on the role of 7. J. Kahn, “Artificial Intelligence Has Some Explaining to Do,” Bloomberg Businessweek, December 2018. organizational leadership. Instead of exerting 8. S. Castellanos, “Microsoft AI Ethicist Guides Business- control over teams and intervening directly es on Responsible Algorithm Design,” Wall Street in operations, leaders should reframe their Journal, October 2018. mandate as orchestrating a complex, dynamic system of individuals and machines, and guiding it to productive outcomes. This can Allison Bailey is a managing director and se- be considered an extension of the shift in nior partner in the Boston office of Boston Con- leadership mindset from “classical music sulting Group. She is the global leader of the composer/conductor” to “improvisatory jazz firm’s People & Organization practice. You may group leader,” as was presciently laid out by contact her by email at [email protected]. former BCG CEO John Clarkeson in 1990. Martin Reeves is a managing director and se- As a result, the day-to-day activities of man- nior partner in the firm’s New York office and agers will change. Traditional management, the director of the BCG Henderson Institute. You in the form of direct decision-making, will be may follow him on Twitter @MartinKReeves and reduced—because fewer aspects of the orga- contact him by email at [email protected]. nization can actually be “managed.” Instead, managers need to think of themselves as Kevin Whitaker is a lead analyst in BCG’s New coaches rather than decision makers, and shift York office and a member of the Strategy Lab at their activities to higher levels, such as shaping the BCG Henderson Institute. You may contact the conditions and context of the enterprise. him by email at [email protected].

Rich Hutchinson is a managing director and he organizations that will win the 2020s senior partner in the firm’s Atlanta office and Twill look much different from today’s: the global leader of BCG’s Social Impact practice. they will use different capabilities; they will You may contact him by email at hutchinson. operate at different speeds and scales of influ [email protected]. ence; they will contain different structures and responsibilities; and they will embody different leadership models to enable all of the above.

Actually making the transition from here to there will not be easy, however. In the next installment of our series on winning the ’20s, we will expand on how leaders can master the science of complex change in order to execute the necessary transformation of their organizations.

26 | Winning the ’20s in Health Care — Winning the ’20s WINNING THE ’20s THE BIONIC COMPANY by Rich Hutchinson, Lionel Aré, Justin Rose, and Allison Bailey

Bionic: having normal biological capability or Not all of the answers are known, but the performance enhanced by or as if by electronic organizations, business models, and processes or electromechanical devices (Merriam-Webster) of so-called digital natives—such as Alibaba, Amazon, Google, Netflix, Salesforce, Tencent, echnology has ushered in the age of and Tesla—offer a clear sense of direction. Tthe bionic company. Organizations that So, too, do older companies in the midst of combine the capabilities of humans and bold transformations, including Inspire machines will develop superior customer Brands, L’Oréal, Recruit, and Renault. experiences and relationships, more productive operations, and dramatically increased rates of innovation. The chief barrier to progress Customers are demanding the relationships today is not technology itself and innovation, while competitors are driving the push for productivity through automation. but finding the right design. Companies across industries are embracing artificial intelligence (AI) and machine learning. The combination of these capabilities— What the company of the future will look like along with low-cost data sensors, computing is becoming clear. At the center is its purpose power, storage, mobile connectivity, and and strategy: the reasons it is in business and robotics—means that customer relationships how it brings those reasons to life. Four en and business processes will become radically ablers allow companies to operate as bionic augmented, if not fully automated, in the organizations: two have to do with technol next few years. ogy and data, while the other two address talent and organization. Three outcomes The primary barrier to progress today is no about how these companies do business are longer technology itself. Rather, it is finding the result. (See the exhibit.) We explore all of the right design for a company so that it can this below. unleash the power of technology. Business leaders need to ask two questions: What does the bionic company look like? And what is Purpose and Humanity the practical path for traditional companies For all that machines will change us, humans to take when converting their organizations will remain the essence of companies. In fact, to the new model? the real power of a bionic company lies in

Boston Consulting Group | 27 The Company of the Future Is Bionic

OUTCOMES

Personalized customer experiences and relationships New oﬀers, Bionic services and operations usiness models

S ND Dynamic Data platform and AI STT organizations

TECHNOLOGY HUMAN Data and digital Modular Digital Organization platforms technology talent talent and ways of working

ENABLERS

Source: BCG analysis.

further unleashing the power of human cre- Outcomes ativity. Machines are only enablers. Three types of outcome will shape bionic companies. As companies move toward more bionic operations, purpose and strategy become more Personalized Customer Experiences important than ever. They are the essential and Relationships elements that inspire and align rapidly mov- Digital technologies are already profoundly ing autonomous teams. Bionic companies will changing how both B2B and B2C companies be very effective at establishing “an unbroken relate to their customers—and we’re just chain of why” that links business outcomes getting started. with the work that individual teams are charged with delivering. To date, the most obvious changes have been in customer channels and experiences. As people shift from operating processes to Thanks to technologies such as the internet, designing them, companies need to pay huge e-commerce, and mobile devices—powered attention to how they reskill their managers by increasingly personalized analytics— and employees and motivate them during a customers today expect companies to under time of such major disruption. Attracting tal- stand them and know their preferences. They ent will be, in part, a function of whether look for seamless, 24-7, personalized service companies are able to deliver on purpose and across physical and digital channels. strategy in such a way as to create high levels of employee engagement. We can also expect At the same time, search engines, recommen- society—that is, customers and shareholders— dation features, and social media have trans- to demand more than ever from business. formed marketing from outreach to dialogue. The company of the future will want to meet A heretofore unknown level of transparency their expectations because companies that for customers requires that companies be play a positive role in society deliver superior authentic, deliver great products and services, shareholder returns. and engage with customers on their preferred

28 | Winning the ’20s in Health Care — Winning the ’20s social media sites. The ones that do it best get to convert to its brand. Companies are build loyalists who amplify the organizations’ thinking about customers throughout each brand reputations. customer’s lifetime—from attraction and engagement to providing maximum value to Still, customer experience is in its adolescence, building long-term loyalty and advocacy. and the state of the art will continue to evolve. What’s more, pursuing a relationship busi- Increased connectivity and bandwidth, voice ness model doesn’t change only customer recognition, and augmented, virtual, and engagement. It also shifts such fundamentals mixed reality will lead to further changes in as pricing, metrics (for instance, lifetime val- preferred communication modes. We are also ue and cost of acquisition), product strategy, seeing customer experience blur across digital and the profit model for the business. and human lines. Digitally supported in-store staff are providing customers with superior Industries are at very different points on this service and assisting them in the virtual world. journey. Some companies, such as those that Companies in China, for example, ask retail provide software as a service, have substan- staff to engage local customers continually tially completed this shift. But many more, through social media—and have increased such as consumer and industrial-goods com- revenues by 10% to 30% as a result. Over time, panies, and even businesses in finance and the human and digital distinctions of chan- telecommunications, have a long way to go. nels will recede, becoming bionic. Bionic Operations The most important shift, though, goes deep- The vast majority of business processes today er. Business models in many industries are are operated by human beings. In the not- undergoing a metamorphosis as companies very-distant future, almost all business pro- move from a focus on product or service sales cesses and operations will be heavily aug- to a business model built on cultivating cus- mented, or even operated, by machines, tomer relationships—the ultimate manifesta- many of which will be running AI algorithms. tion of customer centricity. It was not possible a few years ago for a consumer goods company to know very much, beyond broad- A relationship business model based geographic and demographic facts, about the people who purchased its products. shifts such fundamentals as Nor was it feasible for a B2B company to know all of its small- and midsize-business pricing, metrics, and strategy. customers. Today, a tire distributor can accurately predict the demand for tires in major cities block by block, which allows the com- Machines can do much of what humans do, pany to optimize its entire supply chain and although they are best suited to singular tasks never miss a sale. rather than multifunction jobs, and they can often perform faster and more efficiently. Ma- With digital engagement and 24-7 connectivi- chines can sense (with cheap data sensors), ty, personalized “segment of one” relation- remember (with cloud servers and data lakes), ships at scale are not only practical but im- make decisions (with AI and advanced ana- perative. Businesses that simply used to sell lytics, as well as mobile connectivity), and products are now building databases that take action (using robots and autonomous house information about every customer who vehicles). More and more of these functions could possibly want their products. Compa- can be accomplished at reasonable cost; and nies engage customers in context—at the when machine- and AI-automated or aug- right time and in the best location. For exam- mented processes are well developed, they ple, the financial-services arm of an equip- have lower marginal costs and are robust. ment manufacturer knows every piece of equipment coming off lease among its own Most important, machines learn steadily. customers and those of its competitors, and it Once machine-assisted performance passes is learning to predict which customers to tar- human capability, these processes climb

Boston Consulting Group | 29 learning and experience curves, giving the of data, technology (including AI), and talent organizations that adopt machine-augmented will enable bionic companies to develop and operations first-mover and powerful, long- bring to market an ongoing stream of new term competitive advantages. (There is a products and services, many of which will tradeoff: because machines do not adjust well also involve new models for business and to unforeseen or changing circumstances, customer interaction. Consider recent history. companies need to decide where and how Over a few decades, Amazon evolved from an they can best be applied.) online book retailer to an online marketplace to a cloud computing leader to a home enter- We are already seeing this evolution play out tainment force to a feared disruptor in health in simple processes (back-office robotic pro- care and a major investor in industries as dis- cess automation, for example) as well as in parate as automotive and food delivery. higher-value, more complex processes. The latter include both internal operations—such But perhaps no company illustrates the po- as sales force optimization, production fore- tential for growth and expansion through in- casting, maintenance optimization, and man- novative new offerings better than Alibaba, ufacturing automation—and customer en- which in 20 years has launched the Taobao gagement, such as e-commerce offer selection online marketplace, Tmall, Alibaba Cloud, and dynamic pricing and promotions. AliExpress (online retail aimed at international buyers), the Cainiao logistics network, Ant As machines and AI take over more of any Financial Services Group, and Credit Sesame given company’s operations, the role of hu- (a credit scoring agency). mans inevitably will change. Many new jobs will be created for people to design augmented and automated processes and improve Successful companies will not them over time. Indeed, over the medium to longer term, we expect to see a fundamental shy away from going outside shift in the nature of work—from processes operated by humans to processes designed their traditional core markets. and audited by humans. Capturing value from this shift will require a massive redesigning of legacy business processes to enable Over the next decade or two, we expect many humans and machines to work together. This more companies to transform their new offer- is where many traditional businesses strug- ings capabilities, from: gle, while digital natives can design for this sort of collaboration from the get-go. •• Centrally driven R&D functions to hundreds of innovative, empowered It is critical to understand that building and product-building teams managing bionic processes require a fundamentally new way of working. These processes •• Top-down direction of ideas to a directed are most rapidly created and built by multi- portfolio of rapid experimentation, where disciplinary teams that are tasked with a goal senior executives can see and rapidly or an outcome and are empowered to find the scale winning propositions best way to achieve it. These teams have a product owner and a clear mission, and they •• Deliberate, paced sequencing of new work with an agile methodology. As we will offerings to a more rapid pace of change see later, the economics and ways of working used by these teams and processes will cas- The most successful companies will not shy cade through the full organizational structure. away from going outside their traditional core markets or product offerings. They will lever- New Offers, Services, and Business age their corporate assets—including custom- Models er access, distribution channels, brand, and Continuous innovation will be a hallmark of capital—to arm their new ventures with for- the company of the future. The combination midable advantages.

30 | Winning the ’20s in Health Care — Winning the ’20s Technology Enablers that master the art of embedding advanced Technology used by the company of the fu- analytics into their most important processes ture will look very different from today’s in and decisions will gain a second, even greater, two critical ways. advantage.

Data and AI Modular Technology The blood of bionic companies is data: it Bionic companies must make two related brings machines and AI to life. As companies shifts with regard to their technology. The first move from a system in which decisions are is from a mix of legacy technology systems made by humans to a system in which deci across business units to a company-wide, sions are made jointly by humans and AI, common, next-generation technology stack. they will have to build up their ability to The second is from technology systems as a collect, manage, and use data from multiple way to execute basic processes to fully modu sources as an input and feedstock for their lar, horizontally layered technology platforms advanced analytics. This means being able to: (such as those used by digital natives) that enable rapid innovation and the customization •• Create data on almost every aspect of of key processes and experiences.1 Many will customer experiences and operations go through an interim step as well: transform ing their core systems by gradually moving to •• Construct data lakes, which hold data digital-native, modular technology—including, from all sources in a ready-to-use for example, microservices, containers, cloud- condition based infrastructure, data and platform services, and APIs—to make data accessible •• Embed data science skills and technology and able to support key use cases. In this throughout the organization phase, companies will also deploy agile and DevOps at scale, if they haven’t already. •• Track outcomes in order to train algorithms Companies must identify the •• Build ongoing learning and innovation into machine-AI operations use cases for which data can

Critically, companies will need to identify the create the most value. use cases for which data can create the most value. There’s no shortage of potential exam ples: they include predictive maintenance or Fully digital companies—such as Amazon, machine control in manufacturing; advanced Salesforce, and Uber—have common, fully production flows or inventory management decoupled, next-generation technology plat- or transportation in supply chains; and next- forms that allow access to standardized oper- best-offer, pricing, promotions, and marketing ating processes across their businesses. They messages in commercial functions. Success also tend to include capabilities such as deep starts with picking the top use cases, accessing data, sophisticated analytics reporting, work- the data, leveraging AI and advanced analyt flow management, and easy linkage to inter- ics, adapting the organization and process, nal and external consumers of such processes turning insight into business actions, tracking and resources. These modular technology outcomes, and creating learning loops. platforms are easily leveraged to create deliv- erables and outputs for both internal and ex- For the bionic company, two huge competi- ternal processes and experiences. As a result, tive benefits can result. First, those creating innovation is fast. For example, HR teams at or accessing unique data will gain an advan- Salesforce were able to put out an onboard- tage, at least in the near term. Digital natives ing app for new employees (which tracks are working tirelessly to create such advan- when they are coming, who will greet them, tages today—while many traditional compa- where they will meet, the order for their com- nies haven’t really started. But the companies puter, and so forth) in just a couple of weeks.

Boston Consulting Group | 31 The challenge and cost of transforming the customers and then work with technology technology stack and function shouldn’t be engineers to find technical solutions to re- underestimated. Organizations will find that solve the problems. Data scientists and engi- they can make greater, faster progress by neers will be equally critical to deliver new moving away from a systematic, wholesale data features and outcomes. Companies will rejuvenation and toward a more flexible data- see substantial talent shifts in key functions and transaction-driven approach, leveraging where new technologies are already having a the advantages of full next-generation tech- big impact on necessary skill sets. Marketing, nology stacks from day one. This approach for example, is rapidly becoming a dramati- can create value quickly and early on, eventu- cally more analytical function, and traditional ally developing an architecture that can sup- creative and brand-building skills, while still port the desired rapid adaptation. important, are now only part of the mix.

Since many employers today do not have the Human Enablers required skills for a bionic future, the chal- As bionic companies organize around autono- lenges of transition will be dramatic. Compa- mous teams and learn to work in new agile nies will need to employ multiple levers. The ways, talent and organization will be more most important will be retraining current important than ever. staff: a number of companies in traditional industries have already shown how retraining can be more effective than replacement. The The most important lever for main alternative will be letting current employees or contractors go and then rehiring or companies to employ will be accessing capabilities from other sources for retraining current staff. new needs. Dynamic Platform Organizations Some of the most profound changes for bionic Digital Talent companies will involve organizational struc- Much of the discussion to date around bionic ture, new ways of working, and leadership. companies has centered on prospective job losses as machines take on more processes Organizational Structure. Companies today and operations. The transition will be disrup are often designed around well-defined tive, no doubt about that. But for managers, business units and practices: individual the first question—before tackling any market profit and loss statements or manu- transition—is, what kind of talent will their facturing and operating facilities, for exam- companies need in the future? ple. And despite the presence of central functions and centers of excellence, most Our view is that human talent will be more processes are managed by business unit important than ever. As human capacity is heads, national or regional executives, and deployed more for designing, auditing, and plant managers. innovating processes (as opposed to operat ing them), the need for people with design As a result, processes are customized by the and technical skills, already acute, will soar. organizational unit and its top management, Employees who are flexible, adaptable, and and differences often outnumber commonali- able to learn will also be at a premium. ties. This structure has worked well for dec ades as companies put smart people close to Good product managers and designers of the business mission and let them run those user experiences and interfaces (think cus- business units effectively. tomer journey mappers) will become table stakes requirements as the configuration of In a bionic company, digital-human processes digital processes and products gains in impor- will, by necessity, have many more standard- tance. All companies will need people who ized elements. There are a few core economic focus first on the frictions and pain points of drivers. First, AI needs mass data to train al-

32 | Winning the ’20s in Health Care — Winning the ’20s gorithms, and software needs standardized traditional model, in which leaders hire data to be broadly effective. Second, talent people for specific roles and then manage scarcity means that companies can’t build their teams’ operations directly. And, not dedicated technical capabilities in every mar- surprisingly, a new operating system of ket and business unit. And third, while costs processes to deploy teams, plan expenditures, have dropped, technology needs to be suffi- manage strategy, determine incentives, and ciently standardized and modular for invest- oversee modes of collaboration will be ments to be efficient. Put another way, you required to harmonize these new structures typically can’t train a pricing algorithm using and ways of working. the sales data from a single sales unit alone. Nor does it make sense to invest in different Leadership. There are big implications for systems that do the same thing in each unit leadership. Gone are the days of traditional of a company. hierarchies where leaders directed managers who then distributed the direction. In bionic Because bionic processes require greater stan- companies, middle management shrinks, and dardization and new ways of working, a plat- three modes of leadership emerge. First, and form organization structure will emerge. Our most obvious, are those who lead by doing— experience shows that companies can typical- taking on product owner roles in the agile ly identify 30 to 50 major units of work or bi- teams. These leaders act as player coaches. onic processes. These can be customer-facing Second, the chapters (of capabilities) have processes, frontline support, operations, or leaders who are accountable for bringing in back-office processes. and developing the best talent—creating communities. Bionic processes will no longer be owned, either fully or partially, by business units. Rather, they will be built and managed by You can’t use the sales data agile teams that have business missions and service commitments. Taken together, they from a single sales unit alone form platforms that support the frontline and operations teams as well as customers. Done to train a pricing algorithm. right, the go-to-market and operations teams are freed from much of their internal focus; they can be even more intensely committed Finally, senior executives must adapt to a to their core missions of sales, marketing, Silicon Valley leadership style—setting service, or operations. company goals, translating those goals into work to be done, deploying teams with the In a more modular economy, bionic organiza- right capabilities, aligning the organization, tion structures even extend beyond traditional and removing roadblocks. These leaders are employment walls. Companies will fill capa- much less involved in daily decisions. Rather, bility gaps by tapping into ecosystems (think they step back to allow greater speed. They Salesforce’s customer relationship manage- steer the organization by setting goals, adding ment or Amazon Web Services). More people resources for teams that are succeeding, and will work atop a platform without joining the redeploying resources when teams finish sponsoring company (as Uber and Lyft driv- work or when initiatives fail. ers do today).

New Ways of Working. Bionic companies also echnology is no longer an impediment need to work in new ways. We call this model Tto huge leaps in customer engagement, agile at scale. The teams that design and growth, efficiency, and value creation. Rather, manage bionic processes will leverage agile most companies face barriers in their legacy methodologies. To staff agile teams, the hiring operating models, including human processes, and development of people will be separated old-school organizational models, fragmented from the teams in charge of actually doing systems, insufficient data and inability to the work. This is a dramatic change from the access it, and lack of design and digital talent.

Boston Consulting Group | 33 The transformation to a bionic operating Lionel Aré is a managing director and senior model will be a massive challenge for most. partner in the firm’s Paris office and is in charge CEOs need to start with a vision of the future of the development and deployment of BCG’s dig- as they design a new way of operating. We ital and analytics offer. You may contact him by hope that this article provides a blueprint email at [email protected]. and key design principles for that vision. Justin Rose is a managing director and partner The second critical issue CEOs face is how to in BCG’s Chicago office. You may contact him by undertake such a transformation. In our ex- email at [email protected]. perience, the traditional companies that move the fastest do several things. They start by Allison Bailey is a managing director and se- selecting a few big use cases at the heart of nior partner in the firm’s Boston office and the their businesses. Then, they pursue all of the global leader of BCG’s People & Organization capabilities and enablers described above to practice. You may contact her by email at bailey. make a step change. They insist on three out- [email protected]. comes: real business value, increased customer benefit, and a truly changed organization. (L’Oréal took this approach in marketing; Tata Steel adopted it to digitize its supply chain.) When a company can fully see what a bionic organization looks like and what its benefits will be, the road to broader scale becomes clear and necessary.

Note 1. In some conglomerates or diversified companies, different systems will be needed for fundamentally different types of businesses.

Rich Hutchinson is a managing director and senior partner in the Atlanta office of Boston Consulting Group and the global leader of the firm’s Social Impact practice. You may contact him by email at [email protected].

34 | Winning the ’20s in Health Care — Winning the ’20s PERSPECTIVE MEDICARE ADVANTAGE IS BOOMING. WHY ARE SO FEW PAYERS WINNING? by Sanjay Saxena, Ashish Kaura, Daniel Gorlin, and Jon Kaplan

t’s a vast market—projected to reach penetration in comparison with fee-for-service Imore than $360 billion a year by 2023—with plans (Medicare Advantage is expected to attractive growth baked in. Below the surface, reach 40% penetration by 2025), and a con though, lie difficult dynamics and increasing- tinued favorable regulatory climate. Current ly tough competition. Medicare Advantage— government policies—including support for the insurance programs that private compa- strong rates, considerable latitude for private nies offer through Medicare—has established payers to add benefits (such as food assist itself as a hot market segment that shows no ance, transportation assistance, and social signs of cooling, and lots of health care payers support) beyond core health services, changes are eyeing it. But they should look carefully in Medicare Part D plans, and initiatives from before they leap. Large incumbents such as Centers for Medicare & Medicaid Services United Health, Humana, CVS Aetna, and (CMS) for increased transparency—will add Anthem, along with powerful regional players fuel to the engine. such as WellCare, have built strong defenses. New entrants must develop a compelling Behind the growth, however, lies a fiercely value case if they are to gain a foothold, competitive market. The number of plans much less seize significant share. Here’s what available per eligible member has increased companies need to know to get into the over the past four years at a rate of 8% per market or increase their current share. year, from 19 in 2016 to 24 in 2019. Accord ing to Deft Research, switching rates have dropped from more than 20% for 2015 (and Size and Growth—and Fierce for each of the three years before) to 11% for Competition 2018 and 14% for the 2019 plan year. And in According to our analysis, Medicare Advan- many instances, consumers are simply mov tage enrollment will increase at an annual ing from one plan to another while keeping rate of 4% to 6% from 2017 to 2023, and reve- the same carrier, making the effective switch nue will grow at a rate of 7% to 9% annually. ing rate even lower than the reported level. By 2023, available annual profit pools will This combination of factors has made it dif range from $11 billion to $13 billion, making ficult for individual companies to accurately Medicare Advantage the single biggest driver report consistent year-on-year growth. of profit growth for health care payers. Big national players (including Anthem, CVS Significant tailwinds are propelling this Aetna, Humana, and United Health) hold the growth, including an aging population, rising largest share of the market. (See Exhibit 1.)

Boston Consulting Group | 35 Despite the industry’s attractive macro condi- time, and they are leveraging their scale for tions, new entrants—be they venture-backed price advantage, investing in plan value (mak- plans, provider-sponsored plans, or tech-based ing their benefits richer for members), and provider transformations—have found Medi- offering more $0 premiums and Part B give- care Advantage a tough market to crack, even backs (through which insurers actually put with strong backing and deep pockets. We money back into members’ social security analyzed some 3,000 cases of new market accounts). For example, the newly merged entrants, which we defined as new company CVS Aetna has devised a strategy to leverage offerings in new Medicare service areas, over its retail footprint to reach more than 75% of the past five years—and we found only about all Medicare Advantage–eligible members in 100 instances (3.3%) in which the payer the near term, and it has already instituted a achieved growth of 10,000 members or more. product strategy that uses a $0-premium local Even more daunting, in only 12 cases (0.4%) preferred provider organization to achieve did new entrants in a Medicare service area share gains. National players are also explor- grow from a starting point of zero members ing avenues that may enable them to differ- to 10,000 or more. (See Exhibit 2.) entiate themselves on attributes other than price, by innovating their plan designs, invest- Cracking the Medicare Advantage market has ing in brand campaigns, expanding their net- proved equally challenging for existing health works of care providers, and integrating clini- plans, such as regional Blue Cross Blue Shield cal assets to maintain and grow share. For plans, which have often found it difficult to example, United Health, which already has translate their historical strength in employer- one of the largest provider networks, is build- sponsored commercial insurance into success ing local market depth by acquiring clinical in Medicare Advantage. Similarly, Medicaid assets, and it is using advanced analytics to plans—which have largely focused on the better understand its members and costs. “duals” population (typically, seniors who are also eligible for Medicaid)—have found it difficult to capture traditional Medicare- Operational Excellence Is the eligible seniors. Price of Entry To compete in Medicare Advantage, health Even the national players face challenges in plans must have operating capabilities that their efforts to deliver consistent growth over can deliver superior processes and service,

Exhibit 1 | Large National Players Have Captured Most of the Growth to Date

Total Medicare Advantage Medicare Advantage growth enrollees (millions) 2020 (millions)

2 20 4 4 7 4 7 0 4

8 7 7 4

0 20 20 20 207 20

CAGR 2020 ()

.2 . .7 .2 . 2.7 . . National Other local Blue Cross Provider Anthem Regional National Other Blue Shield specialty provider

Sources: Centers for Medicaid and Medicare Services enrollment data; BCG analysis.

36 | Winning the ’20s in Health Care — Perspective Exhibit 2 | New Entrants Have Found Growth Challenging

Total numer of new entrants VENTURE-BACKED in past ﬁve years PLANS

Numer of cases with memer growth of 10,000+ in ﬁve years cases (3.3%) PROVIDER-SPONSORED PLANS Numer of cases of such growth starting with fewer than 0000 memers cases (1.1%)

TECH-BASED PROVIDER TRANSFORMATIONS Numer of cases of such growth starting with 0 memers cases (0.4%)

Sources: Company press releases; CMS enrollment data for July 2014–2018 and January 2019. Note: “Cases” are calculated as Number of players × Number of Medicare service areas. maintain margins and price competitiveness, care facilities and physicians to investing and fund differentiating characteristics. For all in insight engines designed to identify the players, this level of operational excellence highest-performing providers and develop depends on four critical elements: helpful data for primary-care physician to use in adapting their practice or referral •• Robust Utilization and Care Manage- patterns. ment. The traditional care management approach focuses on intervention at a •• Accurate Risk Stratification. Payers point in time. Payers need to step back and need to conduct risk assessments in take a long-term view of patients’ health concert with providers, incorporating data needs, including social determinants of from external sources to achieve as full health, and apply predictive analytics to and accurate a view as possible (consis- anticipate care demands and, if possible, tent with privacy laws and regulations) of avoid adverse outcomes. For example, the member’s risk and needs. Newer Humana has developed robust predictive models incorporate self-learning technolo- models and invested heavily in home care gies enabled by machine learning algo- assets (its investment in Kindred, which rithms that increase predictive accuracy provides care for people recovering from over time, and they connect the patient’s illness or injury, is one case in point) to be risk stratification with provider treatment on the front lines of care. plans. Having best-in-class risk stratification capabilities enables payers to address •• Efficient and Effective Network Design. potential gaps in care for members and To achieve high-quality outcomes, payers also to capture important patient risk must identify high-value providers and use factors, thereby ensuring accurate scoring incentives and other means to direct care of the risk adjustment factor and, where appropriately. Leading payers are not only appropriate, additional payment revenue pursuing value-based contracts (including from CMS. full-risk contracting with primary-care providers) but also taking a more strategic •• Improving Performance in the Context approach to shaping the primary-care of Medicare’s Stars Rating System. Most network for members. Strategies range payers have already invested heavily in from owning or partnering with primary- robust analytics and a dedicated organiza-

Boston Consulting Group | 37 tion to manage and predict Stars scores. Consumers, including seniors, have learned Health plans should align their network from the likes of Amazon, Netflix, and Apple design and their Stars strategies to create to expect a high degree of personalization the foundation for a high-quality provider and customization in the products and ser partner base. For example, co-designing vices they buy. To win in Medicare Advantage, incentives with provider partners can help payers must develop a consumer-centric plan create alignment along the care continuum. design with offerings tailored to meet the needs of subsegments within the patient community. BCG’s 2019 Medicare Advantage Medicare Advantage requires Innovation consumer survey reveals a series of emotional and functional needs that a very different operating companies can use as the basis for product design that goes beyond conventional seg model and set of capabilities. mentation. For example, the top three areas of emotional reassurance that consumers seek when selecting a Medicare health plan Payers need to recognize that Medicare Ad- are as follows: vantage requires a fundamentally different operating model and set of capabilities than 1. Getting the care they need those they have developed for their commercial group and individual lines of business. 2. Being prepared for the unexpected

While many of the competencies may seem 3. Feeling free to live retirement well similar and scalable, they have proved not to be. Health plans that have tried to transfer With respect to a plan’s functional compo- existing care management, network, and risk nents, 49% of Medicare Advantage–eligible stratification capabilities as is, or with limited consumers prioritize having access to all of tailoring, have struggled to effectively man- the care they may require with the best possi- age and profitably serve Medicare Advantage ble providers. Another 29% want to under- members. As a result, many predominantly stand all of their options, maintain control of commercial plans—including a number of their health care, and keep their indepen- Blues—have become trapped in a pattern of dence. These varying priorities offer health rapid growth, followed by pruning to address plans avenues for differentiation that extend mounting losses. Only a few such plans have beyond benefits and network coverage alone. been able to escape this cycle. Innovative Care Delivery. Baby Boomers have the same high expectations for their senior Winning Requires Differentiation years as for most of the rest of their lives. In Besides depending on operational excellence, particular, they expect to continue to live on achieving long-term growth through consumer their own terms. Payers can drive growth and differentiation requires investing in improve- improve overall care, consumer convenience, ments in three high-impact areas: tailored and experience by integrating innovations products and services, innovative care deliv- that appeal to this generation of Medicare ery, and listening to members. consumers. These include incorporating high-touch, convenient, easy-to-schedule Tailored Products and Services. Conventional primary-care models and providing in-home consumer segmentation has not yielded care management support for consumers strong positive results in Medicare Advantage. who prefer to age in place and maintain their Products have lost their distinctiveness, with daily routines. Some payers are investing in too many me-too attributes; they often in-home care and wellness programs de- overlap in benefits and vary only in price and signed to help people return home more network. Payers need a better segmentation quickly after hospitalization or live more model—one rooted in an understanding of easily at home when managing long-term seniors’ emotional and functional needs. illnesses or chronic conditions.

38 | Winning the ’20s in Health Care — Perspective Listening to Members. Payers in general pricing that builds on their strengths, but receive low trust scores from consumers. To they should not lose sight of their other struc- improve their members’ experience, they tural advantages. They can invest in care de- need to increase their transparency and pay livery and other network assets on a national closer attention to the qualities and attri- scale and apply advanced analytics to reduce butes that Medicare buyers are looking for. costs, curate networks, predict risks, and offer BCG’s 2019 survey identifies the following timely interventions. They can also partner functional product attributes (contributing to nationally with digital companies to develop a seamless end-to-end member experience) innovative user experiences. that respondents who are 60 to 70 years old frequently cite: Large national incumbents •• Online collateral information as part of the process for choosing a Medicare can use their scale, share, and Advantage plan (84%) expertise to make inroads. •• Full-coverage lump-sum premium payments (64%) Blue Cross Blue Shield plans can draw on •• In-home (versus nursing home) care at their considerable strengths, including long- affordable cost (62%) standing relationships with members, robust commercial books of business, established •• A cash-back plan if annual health care provider partnerships, and presence in other costs fall below a certain threshold (58%) government-sponsored business segments (such Medicare supplemental plans and •• Ability to sign up online directly with Medicaid). We recommend that they consider insurance company (22%, second only to leveraging these attributes into avenues of “in person with an insurance broker,” at entry into and growth in the Medicare Advan- 26%) tage market. The following opportunities seem especially promising: Payers can also explore deepening customer relationships through concierge-like models, •• Capturing a disproportionate share of whole-person approaches, lifestyle and well- age-ins by capitalizing on the strength of ness programs and incentives, consumer- their brand, commercial market position, friendly tools that offer members transparen- and local provider relationships cy about their care choices, and a customer service team supported by a technological •• Creating new, transitional Medicare back end that the team can leverage to help Advantage products for employee and members navigate the maze of the health retiree subsegments care system. Differentiation in service can help smart payers position themselves as part •• Expanding insight into network perfor- of the answer, not part of the problem. mance to create networks tailored to seniors’ needs and priorities

How You Play Depends on Where •• Building more-affordable joint plans with You Start provider partners How each company—or type of company— should approach the Medicare Advantage mar •• Launching new drug distribution channels ket depends in large part on its starting point. Large national incumbents can use their scale, •• Expanding service to include Medicare share, and expertise to protect share and Advantage–based rewards and navigation make new inroads. They can push the operational excellence and differentiation levers •• Converting Medicare supplemental described above to offer further-advantaged members to Medicare Advantage plans

Boston Consulting Group | 39 •• Moving into Medicare special needs plans here’s plenty to attract payers to Medi- by leveraging Medicaid expertise Tcare Advantage. But playing the game at a winning level requires a defined strategy Regional plans, which typically have less that is consistent with the organization’s mature government businesses than national core competencies, a substantial degree of carriers, should assess whether entering commitment—and perhaps some patience as Medicare Advantage makes sense as part of well. In this competitive arena, management their overall business strategy. If it does, they teams must assess their opportunities with should probably focus their plans on opera- eyes wide open. tional excellence and partnerships to build Medicare Advantage capabilities, as opposed to trying to go it alone. Some regional players can leverage their local market positions and Sanjay Saxena, MD, is a managing director and existing provider relationships, especially senior partner in the San Francisco - Bay Area with a Medicare preferred-provider organiza- office of Boston Consulting Group and the global tion offering. leader of BCG’s payers, providers, and services work within the Health Care practice. He also co- Other, smaller plans—such as new analytics- leads BCG’s Center for US Health Care Reform driven entrants, provider-sponsored plans, and Evolution. You may contact him by email at and pure-play Medicare Advantage plans— [email protected]. can bring unique differentiating capabilities to the market, but they will need to focus on Ashish Kaura is a managing director and part- delivering outsize value through an improved ner in the firm’s Chicago office. You may contact customer experience and network curation him by email at [email protected]. because they probably cannot compete effec tively on price and scale. These entrants may Daniel Gorlin is a managing director and part- also be able to take a page from disruptors in ner in BCG’s Chicago office. You may contact him other industries and leverage digital distribu by email at [email protected]. tion to promote new marketplace buying behaviors. In the auto retailing market, for Jon Kaplan is a managing director and senior example, one digital disruptor created a partner in the firm’s Chicago office. He leads million-user marketplace for purchasing and BCG’s transformation initiative for the future financing vehicles online by introducing a evolution of health care in the US and the im- mobile app that reduced buying time from pact globally. You may contact him by email at more than five hours to just ten minutes. [email protected].

40 | Winning the ’20s in Health Care — Perspective PERSPECTIVE CHASING VALUE AS AI TRANSFORMS HEALTH CARE by Alexander Aboshiha, Ryan Gallagher, and Lauren Gargan

usiness leaders no longer think sectors and technology companies—while the Babout artificial intelligence in terms of second scenario sees much of the value flow- future impact—they’re seeing the impact ing directly to consumers. today. AI is appearing in all corners of business, transforming the way companies operate. Health care is no exception. Health Care Enters the AI Age AI is an amalgam of novel methods for Health care players are using AI to address gathering data (including machine vision, significant inefficiencies and open up power- speech recognition, and natural language ful new opportunities. These include every- processing), new processing techniques (such thing from the delivery of remote health care as machine learning), and innovative inter services to the early diagnosis of disease and faces with the real world (including speech the hunt for new life-saving medicines. Today, generation and 3D navigation). While the the technology is incorporated into heart term AI is often used to encompass a broad monitors, smart glucose pumps, and other re- array of technologies, it should not be con cently FDA-approved diagnostic devices. Bio- fused with traditional business intelligence or pharma companies are already using AI to business analytics, both of which typically improve the efficiency of R&D; one notable rely on structured data—applying classical example is through identification of better statistics such as variances, correlations, and drug targets. regressions to produce insights for business. AI does more. It harnesses diverse and The ongoing rapid development of AI will unstructured data sets and employs novel trigger a major shift in the value pools across methods such as neural networks to adapt health care. This has serious implications not and learn. only for the industry’s four major traditional sectors—biopharma, providers, payers, and AI is taking off in health care today for three medtech—but also for consumers and tech- reasons. First, in developed markets there is nology companies. Boston Consulting Group mounting pressure to contain or reduce has conducted an in-depth analysis of the health care costs and improve outcomes. Sec- potential impact of AI on health care, identi- ond, there has been an explosion in the avail- fying two prospective scenarios for how value ability of health care data, including genom- will shift among stakeholders. Under one sce- ics data, electronic medical records, and nario, much of the value unlocked by AI is information from monitoring devices, such as retained by players in the four health care pacemakers and wearables. Third, advances

Boston Consulting Group | 41 in software and hardware make it possible to can help doctors identify conditions such harness that data in new, powerful ways. as breast cancer, brain injury, or heart disease earlier and more accurately. One As AI-driven innovations take off, providers recently FDA-approved medical device, for will be able to diagnose disease earlier with example, uses AI to analyze retinal images, greater accuracy—and ultimately manage it allowing early diagnosis of retinopathy. more effectively. Such advances will be criti- Such tools can not only improve patient cal drivers that help deliver the best patient outcomes, but also save money. Earlier outcomes at the lowest possible cost—what is diagnosis and treatment of many cancers, known as value-based health care (VBHC). for example, can cut treatment costs by more than 50%. And given that some 20% of diagnosis costs are related to salaries, What AI Can Do for Health Care there is a tremendous payoff if AI can There are major opportunities to increase ef- improve the utilization and efficiency of ficiency in seven areas across the health care highly paid radiologists and other profes- value chain. Players in the four traditional sionals. By 2022, health care players will health care sectors, as well as technology com spend about $1.2 billion annually on panies, are already deploying AI tools and ap- AI-related diagnostics support. proaches in order to seize those opportunities. •• Treatment Pathways and Support. Health care professionals can use AI tools By 2022, annual spending on to create individualized treatment plans that support VBHC by reducing risk, AI-related tools across seven improving outcomes, and cutting costs. Case in point: the direct costs of medical areas will top $8 billion. errors, including those associated with readmissions, account for about 2% of health care spending in the US. Those By 2022, spending on AI-related tools will top errors ultimately take a toll on the $8 billion annually across the following seven broader economy with indirect costs— areas: including lost productivity—estimated to total nearly $1 trillion. By 2022, about $2.8 •• Remote Prevention and Care. AI can be billion will be spent annually on AI tools used to serve patients outside their to improve treatment and support. doctor’s office or the local hospital. Virtual agents, for example, can be used to •• Drug Discovery and Development. conduct an initial consultation with a Biopharma companies invest roughly 60% patient, screen out those who do not need more in R&D than companies in almost to see a doctor, and provide important any other sector, spending half of that information to physicians about those investment in clinical development. But who do need treatment. In addition, the payoff is declining. Over the past 60 wearables or other devices can trigger years, the number of new molecular alerts and interventions based on data entities from the biopharma industry per such as anomalies in patient vital signs. dollar of R&D spent has declined about Goldman Sachs estimates that the use of 9% annually, according to Bernstein such tools could save roughly $200 billion Research. AI can begin to reverse that annually in the US alone. Given that trend, leveraging past screening results potential, BCG expects that by 2022 the and clinical data to help companies health care industry will spend roughly identify and develop promising drugs, $2.1 billion annually on AI tools in remote while also accelerating trial design and prevention and care. recruitment. Though AI will certainly not be a silver bullet, with the right data •• Diagnostics Support. AI applications in infrastructure and industry partnerships, medical imaging and other clinical tests biopharma companies can harness it to

42 | Winning the ’20s in Health Care — Perspective make headway against declining R&D automation of standard tasks and process- productivity. Total spending on AI-related es a reality. Chatbots, for example, can drug discovery and development tools in answer consumers’ questions related to 2022 is expected to hit $1.3 billion. bills or password resets. Those AI tools, in combination with advances in robotics, •• Operations. AI—including natural can enhance support function perfor- language processing (NLP)—can help mance across all four health care sectors. automate the writing and reviewing of many health care–related records. This has major implications for providers and Value Pools Shift payers. Physicians, for example, spend AI will cause shifts in health care value one-third of their time on paperwork— pools—reflected in revenues and profits—by and payers have a significant administra- exposing inefficiencies, improving medical tive burden in handling claims. In bio- decision making, and increasing the quality pharma and medtech, AI can help of care. (See Exhibit 1.) Value will shift not streamline operations, including areas only among the health care sectors but also such as the global supply chain, beyond to players traditionally outside the industry, the gains created by traditional analytics. and to consumers. By 2022, spending on AI tools in this area is projected to hit $500 million. Impact on Health Care Players. There are three primary categories of value pool shifts. •• Marketing and Sales. AI can allow both The first category includes changes created biopharma and medtech companies to by applications that will reduce costs within a identify providers who are likely to be sector and therefore unlock additional value receptive to the company’s products and within that sector. These are net positives for create highly effective, personalized the sector. The second are AI shifts yielded by marketing messages to reach them. That applications within one health care sector could improve the efficiency of sales that will threaten revenue or profits within forces in both sectors, a critical objective other sectors. In such cases, value will flow in industries where marketing and sales from one health care sector to the other. The expenses frequently top R&D spending. third includes shifts driven by AI applications within one of the four health care sectors that •• Support Functions. Computer vision, cause value to flow from that sector to either voice recognition, and NLP are making the technology companies or consumers.

Exhibit 1 | Value Pools Within Four Health Care Sectors Will Be Impacted by AI

Value pools that AI can inﬂuence EBIT Revenue Proﬁt margin

Metec B B

Bor B B

ers B T

roers B T

Sources: Expert interviews; Economist Intelligence Unit; BMI Research; Insurance Information Institute; IMS Institute; S&P Capital IQ; BCG analysis. Note: All figures are approximate for 2017. Profit margin calculated using average EBIT of public companies with revenues greater than $10 million.

Boston Consulting Group | 43 •• Biopharma. In the first category of value fraud, waste, and abuse detection. That pool shifts, biopharma will benefit value will be retained by payers. AI-driven significantly thanks to AI-driven efficiency enhancements to population health improvements in areas such as R&D, sales, management are likely to keep patients marketing, and manufacturing. Some healthier and reduce claims. In addition, companies are already using AI to predict improved efficiency and clinical decision bottlenecks in manufacturing, allowing for making, reflected in reduced hospital adjustments that prevent stock-outs on readmissions, for example, will create critical products. In the second category of savings. As noted above, providers will shifts, value will move from biopharma to retain some of those AI-driven savings— payers and providers as AI tools identify but payers will capture much of it. Payers optimal treatment pathways and change will also capture some of the value prescribing patterns, or implement previously garnered by biopharma, as AI preventive measures. In addition, with drives more efficient utilization of medi many providers operating under contracts cines and enables more aggressive that reward them for better outcomes formulary negotiations. Payers will, achieved at lower cost, the savings from however, see the third (negative) category more efficient use of biopharma products of shifts. Market competition and will cause some of the value previously regulatory pressure, including minimum captured by biopharma to shift to provid- medical loss ratios, are likely to compel ers. And technology companies will payers to pass some value on to con capture some value from biopharma as sumers in the form of lower premiums or their algorithms for things like target enhanced coverage. identification, lead optimization, and patient recruitment become more deeply •• Medtech. AI will improve overall medtech ingrained in the R&D process. efficiency, including within the supply chain and marketing and sales •• Providers. Diagnostic and treatment operations—unlocking value that the selection algorithms improve outcomes industry retains. As noted earlier, the and reduce waste. Providers will retain introduction of intelligent monitoring and some of that improved efficiency, through diagnostic devices will generate treatment fewer hospital readmissions (which often savings—with some of the value previ come with financial penalties) and lower ously captured by providers flowing to hospital overhead costs, for example. As medtech. On the downside, technology noted above, changing drug utilization companies will increasingly offer products will shift some value from biopharma to and solutions that encroach on the providers. Also, AI-driven resource domain of medtech. scheduling, coding, and billing will improve operational efficiency. But there •• Consumers. The primary impact on are negative shifts for providers as well. consumers will be a positive one. As noted Improved monitoring, management, and above, AI-driven efficiency improvements a movement to prevention of chronic in the health care system will unlock value conditions will reduce demand for for payers—and some of that value will provider services, with the value of those be passed on to consumers in the form of savings captured by payers. In addition, cheaper, or better, insurance coverage and some value within the provider sector will improved health. flow to technology companies and medtech players that create AI solutions •• Tech Companies. AI will provide a new and intelligent monitoring systems, opportunity for technology companies to respectively. stake out major positions in the traditional health care landscape. Already, players •• Payers. As in the other sectors, AI will such as Alphabet, IBM, Apple, Amazon, yield major efficiencies in claims handling and Alibaba are making significant and other operations, including improved investments in the health care space.

44 | Winning the ’20s in Health Care — Perspective These companies are developing AI-driven industry. Multiple scenarios are possible. Let’s products and solutions across all four consider two: health care sectors, including clinical decision support for providers, diagnosis •• Scenario 1. Under this outcome, most of tools that medtech companies can embed the value unlocked by AI stays within the in their products, population health health care industry and the technology management for payers, and target industry. (See Exhibit 2.) Players in all four identification for biopharma—to name a sectors keep the value that is unlocked by few. At the same time, smaller technology improvements in their own efficiency (the players are emerging, creating innovative first category of value described above). AI-focused health care solutions. Among In this world, tech, medtech, providers, them: Atomwise, which is developing and payers reap the largest gains, while AI-enabled drug discovery approaches; the impact on biopharma is likely neutral. Babylon Health, which is developing an Consumers, meanwhile, see improved AI-driven system for matching patients outcomes but limited savings. with caregivers; and Zebra, which is building software for automated analysis •• Scenario 2. In this world, a significant of diagnostic imaging. amount of the value is passed on to consumers. (See Exhibit 3.) AI helps drive Two Possible Outcomes. The directional flow VBHC—improved outcomes at lower of the various shifts in value is clear—but the cost—and the value unlocked passes to magnitude is not. It is difficult to predict the consumers in the form of lower premiums extent to which the four traditional health or out-of-pocket costs. Technology compa- care sectors will retain value instead of nies and medtech also benefit significant- passing it on to consumers or the technology ly, while biopharma loses value because of

Exhibit 2 | In Scenario 1, Much of the Value Unlocked by AI Is Shared Among Health Care Sectors and Tech

value shift of value shift Gain To tech companies High and consumers Neutral Between health Medium care sectors Loss Eﬃciency gain Low retained by sector Metec

Tec osuers Bor roers coes

ers

Neutral impact as much of the value Positive impact, due to more efficient unlocked by AI is shared among health care sectors operations and increased demand for AI-related devices and tech companies Neutral impact, as the greater focus on Positive impact due to improved disease prevention and more efficient use of operations and clinical decision making prescription drugs counteract operational and R&D efficiencies Positive impact due to improvements in claims processing; fraud, waste, and abuse detection; Positive impact due to increased and population health management demand for AI expertise and solutions

Source: BCG analysis. Note: Arrow width proportional to estimated impact on value in five to ten years.

Boston Consulting Group | 45 Exhibit 3 | In Scenario 2, Much of the Value Unlocked by AI Is Passed on to Consumers

value shift of value shift Gain To tech companies High and consumers Neutral Between health Medium care sectors Loss Eﬃciency gain Low retained y sector Metec

Tec osuers Bor roers coes

ers

Positive impact such as through lower Positive impact, due to more efficient health insurance premiums operations and increased demand for AI-related devices Neutral impact as payers claw ack savings Negative impact as the greater focus on generated y AI-enaled improvements to operations disease prevention and more efficient use of prescription and clinical decision making drugs outweigh operational and R&D efficiencies Neutral impact as market and political Positive impact due to increased pressures compel payers to pass on savings to demand for AI expertise and solutions consumers

Source: BCG analysis. Note: Arrow width proportional to estimated impact on value in five to ten years.

shifts such as enhanced detection, preven- •• Providers. Hospitals and other provider tion, and earlier treatment. groups should move quickly to embrace AI tools that provide clinical decision support, diagnostic imaging analysis, The Path Forward patient monitoring, and automation of The journey to integrate AI into strategies processes such as resource scheduling, and operations must be a sustained one. But coding, and billing. These steps will help even companies that have yet to invest in AI providers maximize the value they unlock decisively can make some smart, low-risk and retain through improved efficiency. To moves to either enhance the positive value minimize negative value shifts, providers shifts or minimize the negative impacts. should also embrace the evolution toward prevention and remote care by expanding •• Biopharma. To maximize AI’s upside their outpatient, home care, and virtual efficiency boost, biopharma companies consultation offerings. should move quickly to adopt AI in both R&D and sales force management. In •• Payers. Payers should rapidly adopt AI order to limit the loss of value triggered tools that create value for them by by lower prescription drug utilization, boosting overall health care treatment biopharma players must accelerate their efficiency. They could, for example, use AI efforts to “go beyond the pill.” This can to improve their approach to population include developing diagnostics and health management—the collecting and monitoring products and services, includ- analyzing of patient data in order to ing those that can identify patients most better manage important diseases and likely to respond to a drug. It could also health issues within the group—as well as encompass collecting real-world data that back-end automation that can reduce the demonstrates the value of their treat- costs of fraud, waste, abuse, claims ments to payers, providers, and regulators. processing, and customer service.

46 | Winning the ’20s in Health Care — Perspective •• Medtech. Medtech companies should move Having the right talent and data will be table aggressively to develop the AI-enabled stakes in a transformed industry. The organi devices in imaging, diagnosis, patient zations with an edge in both areas will have monitoring, and surgery that will drive enormous advantages. Health care players overall efficiency gains in health care. At must act now to develop and implement the same time, they should adopt AI tools strategies to prepare themselves for this that will improve their internal efficiency future. in R&D and sales and marketing.

To make the most of the value shifts in these areas, health care players must ensure they Alexander Aboshiha is a managing director have the right talent and the right data. and partner in the Los Angeles office of Boston Consulting Group. He works across a wide range The talent challenge has a number of dif of practices, focusing primarily on health care ferent but interconnected layers. Health care and digital health, corporate development, and players will need to lure data scientists and organizational transformation. He is a member engineers away from the likes of Alphabet, of BCG’s global digital health leadership team, Apple, and Tesla. At the same time, they will acts as a BCG advisor to B-Capital Group on dig- need leaders who understand the AI oppor ital health investments, and leads BCG’s relation- tunity, are conversant with the technical ship with key digital health players. You may issues involved, and can communicate to the contact him by email at [email protected]. wider organization. Companies will also need to figure out where to house and how to Ryan Gallagher is a project leader in the firm’s organize AI talent so that they build a group San Francisco - Bay Area office. His work focuses that is both cohesive and dynamic—but is on health care with particular emphasis on bio- also accessible to, and integrated within, the pharma and payer/provider strategy. He is a overall organization. member of BCG’s Science Network. You may contact him by email at [email protected]. The data issues associated with AI are simi larly daunting. AI requires large amounts of Lauren Gargan is a knowledge expert in BCG’s data—but information in health care is often Boston office. She has industry experience and irregular or poorly structured, and dispersed expertise in technology and digital in health care among players that have different standards and is a team manager for the firm’s Technology and regulatory restrictions. As a result, while Advantage practice. You may contact her by individual players have valuable data sets, email at [email protected]. they often have difficulty pulling information together from across the entire industry. Payers, for example, have claims databases that can yield powerful insights—but they don’t always have access to other informa tion, such as electronic health records, that would give them a system-level view. The bottom line: companies must either invest in generating the data they need internally or strike partnerships with external players to gain access to it.

Boston Consulting Group | 47 PERSPECTIVE CREATING THE CRITICAL-CARE SERVICE OF THE FUTURE by Jonathan Scott and Sahil Sanghvi

emand for critical care (also known However, that approach is both extremely Das intensive care) in the US has grown by costly and unsustainable because it results in around 2% per year recently. This expansion a self-perpetuating build-and-hire cycle. is driven by a growing population that is living longer with more chronic conditions, We have been working with clients to think and by the increasing concentration of more expansively about what the critical-care complex care in hospitals as more care model of the future could look like. With the migrates to nonhospital settings. Those trends rise of artificial intelligence, tele-health, and are all expected to continue unabated. more agile staffing models, health care systems are beginning to implement much more To meet the demand, health systems have targeted ways to meet the growing demand historically invested in more critical-care beds for critical care while improving patient out- and recruited more intensivists (doctors who comes and managing costs. Through our work care for critically ill patients). (See Exhibit 1.) with clinicians, hospital administrators, and

Exhibit 1 | Critical-Care Capacity in the US Is Growing in Line with Demand

Case complexity in CCU ed capacity is Numer of CCU inpatient hospitals is increasing growing year over year days is increasing

Hospital Total CCU case mix Total CCU inpatient days index eds (millions) 2% CAGR 2% CAGR 2% CAGR 2.0 20

. .0 27 . . . 00000 227 . .

.0 0 0000 0.

0.0 0 0 202 20 20 20 20 20 20 20

Sources: Centers for Medicare & Medicaid Services Healthcare Cost Report Information System database; BCG hospital database; BCG analysis. Note: Hospital case mix index = a relative value assigned to a diagnosis-related group of patients in a medical care environment used to determine allocation of resources required for care and treatment.

48 | Winning the ’20s in Health Care medical-technology clients, we have pinpoint- Second, intensivists are in high demand but ed several promising strategies that health short supply, which means they’re becoming system leaders can adopt. These approaches more expensive. (See Exhibit 3.) A recent will help them move away from solutions that survey showed that compensation for ultimately exacerbate the problem and allow intensivists is at the high end of medical them to redesign care in a way that both subspecialties and rising faster than for any serves patients better and sets a more sus- other specialty, at more than 8% per year tainable course for health care systems. since 2014.

Third, intensive care unit costs in the United Breaking Out of the Build-and- States are already very high. The average cost Hire Cycle of one day in a US critical-care unit (CCU) is Although many hospitals have coped with the approximately 35% higher than in Canada growing demand for critical care by investing and 169% more than in Germany. If US health in greater capacity and recruiting more staff, systems stick with the build-and-hire ap this approach ultimately contributes to the proach, this gap will only continue to widen. inflation of health care costs in three ways.

First, the US already has more critical-care Challenges in Today’s CCUs beds per 100,000 people than most other To create a critical-care model that is both countries do: 19, compared with 13 in Cana- affordable and sustainable, health system da, 9 in the Netherlands, and 4 in the UK. executives first need to address four key (See Exhibit 2.) US health systems are in- challenges: overuse, staff shortages and creasingly reluctant to invest in additional in- attrition, fragmented systems, and inefficient patient capacity because growth (and some- management. times margin) is concentrated in the ambulatory setting. Instead, what’s needed is Overuse of CCUs. Overuse of critical-care more effective and efficient use of existing beds puts undue pressure on capacity, in- inpatient capacity rather than expenditure on creases the probability of medical complica- new capacity. tions such as infections and pressure ulcers,

Exhibit 2 | CCU Capacity and Cost in the US Are Higher Than They Are in Most Other Countries

CCU eds per 00000 people 2 2 20

United South China New Spain Netherlands France Canada Brazil United Croatia Belgium Germany Kingdom Africa ealand States

200 00 4 00 patient patient patient patient day day day day

Sources: Direct Cost Analysis of Intensive Care Unit Stay in Four European Countries: Applying a Standardized Costing Methodology, Value in Health Journal, 2012; A Contemporary Assessment of Acute Mechanical Ventilation in Beijing: Description, Costs, and Outcomes, Critical Care Medicine, July 2017; Care in Canadian ICUs, Canadian Institute for Health Information, August 2016; Clinical Review: International Comparisons in Critical Care—Lessons Learned, Critical Care, April 2012; BCG analysis.

Boston Consulting Group | 49 Exhibit 3 | Market Dynamics Suggest an Ongoing Shortage of Intensivists in the US

Supply of intensivists is increasing Intensivist compensation is already high y around per year and is rising faster than in other specialties

Pulmonary disease and critical-care physicians Top recruited 20-207 20000 specialties 207 income CAGR 22 48 8

0000 Internal medicine 2000 .0

Family medicine 2000 .

0 Otolaryngology 0000 . 200 20 20

Sources: CMS Healthcare Cost Report Information System database; BCG hospital database; Association of American Medical Colleges physician data; Merritt Hawkins Review of Physician and Advanced Practitioner Recruiting Incentives 2018; National Center for Biotechnology Information; BCG analysis.

and ultimately raises the cost of a patient’s •• Step-Down from CCU. The decision of hospital stay. Overutilization can occur at any when to move a patient out of the CCU or all of the three steps in a patient’s journey: rests not only on evidence-based criteria but also on a clinician’s judgment and his •• Admission to the CCU. In some cases, or her confidence in the quality of care patients admitted to the CCU aren’t sick that will be delivered elsewhere in the enough to require such a complex level of hospital. Even when a decision is made to care, but physician preferences and a lack transfer a patient to a general unit or to of available non-CCU hospital beds, among another service (such as palliative care or other factors, lead to admissions that long-term acute care), other factors— could have been avoided. In other cases, such as unavailable beds, inefficient bed CCU admission could have been averted allocation processes, and a lack of neces- or minimized if deterioration in a pa- sary services—can delay transfer out of tient’s clinical condition had been predict- CCU. ed, identified, and addressed earlier. Staff Shortages. Most CCUs in the United •• Care Progression. The intensity and pace States report challenges with recruiting and of care delivered to CCU patients can be retaining staff. Many of the new graduates inconsistent across providers. For exam- trained at large teaching hospitals (where the ple, different clinicians can make different number of CCU beds is increasing faster than decisions about intubating and ventilating at other hospitals), for example, leave after a a patient, using invasive versus noninva- few years in search of less demanding work. sive monitoring, the types and degree of Other institutions report that their rigid sedation administered, and the types and staffing approach does not meet the expecta- frequency of diagnostic testing (such as tions of a modern workforce, where employ- labs and imaging) that are ordered. These ees want greater flexibility and opportunities variations, driven by disparities in educa- for lateral as well as vertical career advance- tion, training, and personal preferences, ment. Similarly, the typical unit-specific can contribute to avoidable expense and approach to staffing can lead to misallocation extended stays in CCUs. Operational of resources in the form of mismatches inefficiencies such as sending orders for between the number of staff and the amount testing or consultations in batches rather of work that needs to get done in each unit. than as they occur can lead to undesirable This can lead to dissatisfaction, burnout, and peaks and troughs in workflow. attrition.

50 | Winning the ’20s in Health Care — Perspective Fragmented Systems. CCUs depend on ventilatory support team. The mobile critical- multiple and different systems, many of care team could focus on early and proactive which operate independently, and nurses and intervention with patients at highest risk of physicians report significant frustration with admission to the CCU to prevent avoidable the level of fragmentation that these systems admissions. They could also monitor and create in workflow. For example, a patient’s manage step-down to lower levels of care to monitoring system, ventilator, infusion prevent readmission to the CCU. The vascular pumps, imaging, and electronic medical access team would advise on the best option records may be completely independent and to secure arterial or venous access to prevent disconnected from one another. Therefore, overuse or misuse, and could also insert and physicians and nurses must pull information manage vascular access lines across the from multiple systems, mentally collate and hospital to reduce complications such as interpret that information, and then docu- infections. ment their work or make changes in each separate system. This requires replicating efforts and increases the probability of error. One option is to establish Inefficient Management. At some hospitals, a single point of leadership the major administrative components of each CCU—budgeting, staffing, capacity manage- over all critical-care services. ment, and admissions, for example—are still managed independently. In this model, each new admission requires negotiation among Finally, larger hospital systems may benefit multiple parties, a process that is often from a team dedicated to managing patients coordinated by a clinician. This is not a good who need only ventilatory support, to keep use of the clinician’s time, adding to his or them out of the CCU setting if their clinical her administrative burden and taking time condition allows. away from patients. Optimize management and governance. The model can also limit understanding of Hospital systems should consider establishing enterprise-wide CCU economics because one point of leadership over all critical-care there can be multiple conflicting sources of services, including the services mentioned information. What’s more, it can create per- previously as well as subspecialized critical- verse incentives, whereby clinical depart- care units such as cardiac surgery, neuro ments or specialties try to offload costs onto surgery, and burns. This leadership should be the CCU but keep associated revenue to en- supported by integrated operational and hance their departments’ apparent margins. financial reporting to monitor and manage the performance of those services and also to understand the drivers of demand for them. A Strategy to Unlock Value in This can help optimize the balance of critical- Critical Care care priorities for the institution as a whole To create the critical-care service of the fu- against those for each individual unit and ture, health systems executives should consid- service. er the following five strategies. Standardize and digitize key clinical and Redefine critical care as a set of specialized operational decisions. Hospital systems can services. Hospital systems should concep reduce variability and increase efficiency by tualize critical care as a set of services using advanced analytics, machine learning, delivered by specialists rather than a set of and digital technologies in the following ways: discrete locations. Some of the services delivered within the CCU should also be •• Assign scores to non-CCU patients based made available to patients outside of that on risk of deterioration (over a 12-hour setting through the development of a mobile period, for example) to guide early critical-care team, vascular access team, and proactive intervention by the mobile

Boston Consulting Group | 51 critical-care team, thereby preventing Build flexibility and agility into the operating avoidable CCU admissions. model. There are several ways that hospital systems can deploy staff more efficiently and •• Identify key intervention points along the effectively. patient journey that will drive the most clinical, operational, and financial value. •• Staff can be cross-trained to increase the These can include decision-making and interchangeability of nurses and techni- operational processes related to CCU cians across locations. admission, ventilatory support, vascular access, invasive monitoring, and sedation. •• Employees can be deployed from a central pool to achieve optimal supply-demand •• Develop and drive adoption of best clinical matching if multiple CCUs are located and operational practices at key interven- within a hospital or a metropolitan area. tion points by embedding them into existing clinical and operational workflows. •• Tele-health solutions can provide after- hours support, especially for smaller, •• Evaluate the effectiveness of any clinical community, or satellite locations that or operational changes implemented at cannot justify 24-hour on-site coverage or key intervention points and refine them specialized services. over time. In addition, staff scheduling can be managed Also, when purchasing or upgrading clinical in a more agile way to manage peaks in de- systems and equipment, hospital systems mand or unexpected short-staffing situations should establish minimum requirements for more effectively. For example, hospitals can interoperability, data capture, user experi- experiment with short-term, gig-economy- ence, and workflow compatibility. style staffing systems.

The demand for critical care is only going to Agile staff scheduling can help rise in the coming years, and short-term fixes will become increasingly unsustainable and manage peaks in demand or counterproductive. By taking action in the areas outlined here, health system leaders short-staffing situations. have an opportunity to improve outcomes for patients while controlling costs.

Improve the management of existing hospital capacity. Hospital systems should consider managing bed capacity centrally across all Jonathan Scott is a managing director and CCUs (including those specific to certain partner in the New York office of Boston Con- surgic al subspecialties) to streamline the sulting Group. You may contact him by email at admissions process and optimize for the [email protected]. enterprise rather than for individual units. To increase the efficiency of individual CCUs, Sahil Sanghvi is a managing director and part- patients can be segmented by complexity to ner in the firm’s Minneapolis office. You may better match staffing ratios and capabilities contact him by email at [email protected]. with patient needs. They can also be segmented by likely duration of stay to improve continuity of care.

Hospital systems should also consider adding CCU-level care capabilities to some non-CCU beds to handle unexpected surges in demand such as during flu season or in the case of a major incident.

52 | Winning the ’20s in Health Care — Perspective PERSPECTIVE LEVERAGING VR TO TRANSFORM THE ASSESSMENT AND TREATMENT OF DISEASE by Martin Shapiro, Nate Beyor, and Chris Bergstrom

he practice of medicine has devel- Digital Biomarkers: Future of Toped over centuries in one core way: By Disease Assessment relying on the physician’s interaction with the The proliferation of wearables such as the patient. Physicians ask patients questions, Fitbit, Garmin, and the Apple Watch has led physically examine them, order tests, and set to a new kind of medical information known the corresponding care plans based on these as digital biomarkers. Like general biomark- interactions. ers, digital biomarkers serve as measurable indicators of the presence and/or severity of While new labs, imaging, and medications disease—but through digital means. In other have evolved, the physical exam of the pa- words, they allow us to move beyond tradi- tient and nonpharmacological treatment tional vitals such as heart rate and blood have yet to evolve. Both of these areas of as- pressure, opening up the possibility to discov- sessment and treatment are ripe opportuni- er novel metrics that may provide enhanced ties for change, and virtual reality (VR) is understanding of disease. poised to answer the call. VR is a powerful platform of immersive expe- Digital biomarkers allow us riences that has begun to reach a scale of both technical capabilities and low cost. In to move beyond traditional 2016, estimates showed that less than 1% of computers could run the best virtual reality, vitals such as blood pressure. but, in the past year, introduction of stand- alone headsets such as the Oculus Go allow for virtual reality experiences without relying As a platform, VR captures many quantifi- on computer processing. able data sources showing initial clinical research progress, including: While much of the mass VR adoption excite- ment has been shared in the gaming commu- •• Audio. Headsets with built-in micro nity, the platform’s ability to provide engag- phones can be used to capture audio with ing experiences that incorporate metrics of the potential to quantify data points from how the user interacts with the system are a patient’s breathing, coughing, and voice. also applicable to health. More specifically, Voice, in particular, can serve as a powerful VR is positioned to disrupt both the assess- mechanism for assessing patients’ cogni ment of disease and the future of treatment. tion in their ability to answer questions

Boston Consulting Group | 53 logically, history of symptoms, and disease the combination of these various streams that state through analysis of speech patterns. will lead to profound advancements in the as- For example, a recent study leveraged an sessment of diseases such as Parkinson’s and algorithm analyzing speech to detect associated comorbidities such as depression. Parkinson’s Disease based on kinetic changes. Another recent study explored how we may soon be able to assess VR will play a powerful role depression through voice by observing a patient’s reduced vowel spacing. in defining digital biomarkers

•• Eye Tracking. Eyes serve as a window to and in the delivery of care. the brain and their movements can reflect progression of neurological diseases. Novel techniques are allowing physicians to In this way, VR will play a powerful role not track a patient’s eye movements during a just in defining digital biomarkers, but also in VR experience. For example, The Michael the delivery of care. J. Fox Foundation announced a proposed study to analyze abnormal eye movement to diagnose Parkinson’s Disease. Digital-Enabled Care: The Future of Treatment •• Body Position and Movement. The VR is already proving to be a valuable modal- ability to measure head, hand, and limb ity in health care settings, with uses for prac- movement in virtual reality—tracking titioners and patients. A few archetypes of their position in space as well as how VR is changing care are listed below: acceleration—serves as a proxy for a range of clinical measurements, from gait •• Scaling Existing Care. Telemedicine analysis to tremor. Quantifying tremor has delivered through VR extends the clini- the potential to differentiate and evaluate cian’s engagement outside the office and diagnoses such as essential tremor (ET) or allows an immersive visit at someone’s Parkinson’s disease. home or other preferred location. This flexibility enables access to those in rural •• Visual Display. Gaps in a patient’s ability communities or lacking access or ability to to discern color, visual acuity, or field of transit to appointments. Rehabilitation is vision could be detected through custom an additional area where VR experiences examinations delivered through VR. For can facilitate the workouts, track adher- example, in a 2017 study out of San Diego, ence, and provide feedback at scale. a virtual reality headset augmented with EEG sensors was able to demonstrate •• New Modality for Proven Therapies. In early potential for glaucoma disease. the treatment of phobias such as a fear of heights, psychologists may use exposure •• Product Engagement in a 3D World. As therapy to teach patients how to over- with any digital product, user engagement come their frightened state. Current gold with features can help inform product standard involves a therapist guiding the optimization. In a clinical setting, better patient through a series of ‘immersive’ engagement can lead to better outcomes. exercises from looking at a photo to Unlike an app or a webpage, VR offers a thinking about the experience confronting full 3D environment for user engagement, the fear. VR exposure therapy (VRET) opening up a complex and rich set of data enables opportunities to gamify more to inform designers and engineers and engaging experiences and studies have they build better and better solutions for shown the effectiveness of VRET relative patient care. to therapist only care.

While each of these data streams represent •• Novel Digital Therapeutics. Here we are different digital biomarkers on their own, it is able to unlock opportunities to provide

54 | Winning the ’20s in Health Care — Perspective treatments only possible through the disciplinary teams formed and then built pro- unique capabilities of VR. In lazy eye totypes using VR/AR to address real clinical (amblyopia), children are typically given problems in pediatric care. an eye-patch to allow for their eyes to adjust until they have normal vision. Vivid At BCGDV, we believe in the power of tech- Vision, on the other hand, gamifies nology to change the nature of patient care. treatment and assessment for lazy eye We see VR as one of these potentially trans- delivered through VR modulation of formative technologies—when applied to the different displays for each eye demonstrat- right use cases. Questions remain about the ing preliminary research. scalability of each of these unique use cases and the pace of adoption. However, as digital •• HCP Training. VR simulation can be appetite from HCPs continues to grow, as bet- used as a training tool for surgeons to ter products are tested in-market, and once practice technique and therapists to more clinical data is collected, we anticipate role-model patient interactions. As users that clinical VR will be an integrated element gain comfort with the medium, innovators of the provider toolkit of the future. are experimenting with different types of content delivery to determine how the VR environment can enhance performance in the real world. Martin Shapiro was a senior venture architect at Boston Consulting Group Digital Ventures As VR continues to mature, we will see a con- (BCGDV). fluence of digital biomarkers and enabled care to provide truly unique, engaging experi- Nate Beyor is a managing director and partner ences and outcomes that are increasingly at BCGDV’s Manhattan Beach office, with broad more accessible to patients. The question is: life science experience in medical devices, phar- Who will develop this next wave of solutions? maceuticals, and cutting-edge technologies such Capabilities in clinical subject matter exper- as lab-on-a-chip and regenerative medicine. You tise, VR design and engineering, data science, may contact him by email at nate.beyor@bcgdv. business, and commercial distribution will be com. needed—but no one player alone will have the leading expertise across all of these areas. Chris Bergstrom is a partner and director and head of digital therapy at the BCGDV New York Inspired by this multidisciplinary opportuni- office. He is a digital health and diabetes expert ty, BCG Digital Ventures recently hosted the for BCG’s Health Care practice. You may contact Gamifying Pediatrics Hackathon with the him by email at [email protected]. Children’s Hospital of Los Angeles Innovation Studio. Engaging members throughout the healthcare community from patients, designers, engineers, physicians, and entrepreneurs, the goal was to develop new digital health tools and immersive experiences for pediatric patients. Over the course of a weekend, multi

Boston Consulting Group | 55 INSIGHTS REWRITING THE RULES OF THE GAME IN HEALTH CARE by Jad Bitar, Emile Salhab, Krystelle Hanna, and Stefan Larsson

ational health systems around the the equivalent of legacy systems in the IT Nworld face three interrelated challenges. world. But today, industry and government In the face of persistent cost pressures, they leaders need to go back to square one and need to become more efficient. But they must holistically rethink the design of national do so while improving the health outcomes health systems in order to fundamentally they deliver to their populations and reduc- transform them. ing variation in outcomes across the population as a whole. And finally, they must do all The key to this transformation is a new ap- this in an industry that is subject to enor- proach to health sector governance. To con- mous change and disruption. tinue the IT analogy, governance is the equivalent of a computer’s operating system. By redesigning a country’s governance model for In the face of cost pressures, the health sector, health care leaders can, in effect, replace the old operating system with national health systems need a new one that is better suited to addressing to become more efficient. the challenges that face health systems today. BCG has been working with national health systems around the world to redesign and Innovations and improvements in care deliv- refocus their approach to health sector gover ery are setting new standards for clinical best nance. We have found that, although the practice; new social trends are encouraging specific governance challenges that a country patients to demand a greater say in their care faces differ depending on contextual factors, and more access to information about their nearly all health systems confront a common health; and new technologies such as wear- set of problems. First, the health care envi ables, advanced analytics, and AI are driving ronment is changing so rapidly that even the a revolution in e-health. best-governed health systems suffer from critical gaps in governance. Second, in many Addressing these challenges effectively won’t instances, the incremental evolution of happen through incremental initiatives. Rath- governance systems over decades has created er, it requires comprehensive health system overlapping responsibilities that lead to un transformation. Most national health systems clear accountability, and sometimes conflict have evolved over many decades into a ing directives, from competing regulatory patchwork of organizations and institutions— entities. Third, even in situations where

56 | Winning the ’20s in Health Care accountability is clear, the relevant regulatory 2. Translate the vision into relevant agencies often lack the expertise and capa policies, regulations, and standards, and bilities necessary to cope effectively with then review and update them over time. today’s challenges. 3. Monitor systems performance through Despite these problems, however, a new logic the collection, analysis, and reporting of for health sector governance is beginning to data on the key performance indicators. emerge. More and more countries are re orienting their national health systems on the 4. Strengthen the performance of key principle of delivering improved health care actors in the system by defining roles, value to their citizens. They are aligning designing incentives, and building stakeholders in support of this shared objec capabilities. tive, encouraging innovative ways of orga nizing and paying for care delivery, and embracing advances in health informatics A health sector governance that take advantage of up-to-date digital technology. system’s ultimate goal is to

Governance is a key lever for health care poli- improve overall health. cymakers in pursuing a holistic approach to all of these changes and creating coherent, value-based strategies for the entire national In our work with clients, BCG has extensively health system. In this article, we define what benchmarked health system governance good governance ought to mean in health models around the world. We have identified care, explain how leaders should approach seven design principles that should inform the design of a 21st-century governance sys- any effort to redesign health sector gover tem, and identify four critical design choices nance. (See Exhibit 1.) Some of these prin that will shape any redesign effort. ciples may sound obvious, but the logic underlying the principles and the way the principles work together to create a coherent Defining Good Governance in governance operating model is essential. Health Care What’s more, these high-level principles will In the context of a national health system, serve as a constant reference point in efforts governance refers to the constellation of to design the details of the governance organizational entities, policies, and regula system. tions that define appropriate behaviors for actors in the system and monitor perform Population Centric. The ultimate goal of any ance in order to optimize the health value of health sector governance system is to im- the entire population. Health value encom prove the overall health of a nation’s popula- passes the health outcomes delivered to de tion over time. At a minimum, that goal fined patient groups or population segments entails universal access to care, but access is (for example, all patients suffering from con by no means sufficient in itself. Rather, the gestive heart failure, or members of specific primary objective of any governance system risk groups such as newborns or the frail should be to enable the delivery of continu- elderly). An effective health sector gover ously improving health outcomes to different nance system will accomplish the following population segments in an equitable manner, four things: without major variations in outcomes across different regions (for example, urban versus 1. Set the direction for the entire health rural) or different demographic, ethnic, and system by establishing an overall vision socioeconomic groups. Although the term and strategy, developing short- and population health has grown increasingly long-term plans for each sector of the popular in recent years, its implications for system, and defining key performance health sector governance remain underdevel- indicators. oped. It is the rare national health system

Boston Consulting Group | 57 Exhibit 1 | Seven Principles of Effective Governance Design

Nationally holistic Sector-wide governance of the health system

Strategic Accountale and focused Clear roles and Pragmatic and practical responsibilities, eﬃcient regulation and change allocation of resources and capailities Population centric system-wide monitoring Equitale and compliance and outcome-driven to enforcement empower the population Complementary Trusted and cooperative Data-driven decision Encouragement of making that is collaoration and transparent ojective cooperation Dynamic and properly governed

Agility to respond to needs and requirements promptly and eﬀectively

Source: BCG analysis.

that is explicitly organized to deliver continu- participation of stakeholders across the Dutch ously improving health outcomes to all its health system. citizens and measures its performance in those terms. Accountable. An effective governance system requires accountability, with clear roles and Nationally Holistic. The governance system responsibilities; efficient allocation of resourc- also needs to be holistic. That is, it needs to es and capabilities; and system-wide monitor- cover all key dimensions of the national ing, compliance, and enforcement. The health system and set coordinated and cornerstone of accountability in a population- integrated policies. Although most advanced centric, value-based health system is the health systems around the world have a systematic measurement and reporting of single national regulator at the center of their health outcomes by disease and by popula- governance model, few have a comprehensive tion segment, coupled with incentives that and integrated governance strategy. One reward stakeholders for delivering improved country that has successfully developed a outcomes for the same or lower cost. For holistic approach to governance is the example, Sweden’s extensive infrastructure Netherlands. Recently, the Dutch government of more than 100 quality registries tracks announced a five-year Plan for Outcome- outcomes for leading diseases, procedures, Based Healthcare—in effect, a national and medical conditions. Increasingly, Swedish strategy for value-based transformation of health authorities are leveraging this network the health system. The Dutch Ministry of to introduce value-based approaches for care Health, Welfare, and Sport is leading the €70 delivery and health system management. million initiative, with the active From 2011 to 2015, Sweden’s national and

58 | Winning the ’20s in Health Care — Insights regional governments invested approximately breaking down traditional silos between stake- 1.5 billion Swedish kronor (about €160 holders and on creating more integrated million) to extend the registry network and to models of care. In Slovakia, for example, the develop new tools that use data on outcomes government has recently concluded a nation- to inform clinical decision making, improve wide conversation about health care reform, relevant information available to patients, focusing on how to change the way the nation- and serve as the foundation for value-based al health system manages costs, with the goal payment. of improving health care value. The catalyst for the process was a set of proposals from the Trusted. Clear accountability enhances a trade association of the nation’s three private governance system’s trustworthiness. One key payers. The Ministry of Health picked up the source of trust is transparent decision making proposals and orchestrated a consultation driven by objective data analysis—an ap- process involving key government agencies proach that is becoming increasingly feasible, (such as the Ministry of Finance), private and thanks to the revolution in health informat- public providers, Slovakian municipalities ics, which makes more and more health data (which own some public hospitals), patient available to decision makers. For example, organizations, and the country’s main political Estonia’s national health system has made parties. The reform proposals define mini- significant progress toward creating an mum standards for treatment, suggest policies advanced digital infrastructure for e-health. for concentrating patient volume to encourage The country now requires by law that all the development of national centers of personal health information be stored in a excellence, and outline continuous improve- machine-readable common format within ment processes for provider organizations. five days of service delivery. The health The reforms, which the Slovakian legislature informatics system links data from different recently adopted, will drive a major reorgani- providers and from ancillary stakeholders zation of the Slovakian health system over the such as ambulance services. Individuals have next few years. access to their data through a single point of access. Providers also have access to aggregat- ed data for clinical and research purposes, An effective national health although patients have the right to restrict such access in specific situations. governance system needs to

Dynamic. A country’s health sector gover- be pragmatic and practical. nance system should also be dynamic. Its processes should have the agility to respond quickly to changing circumstances or innova- Strategic and Focused. Finally, an effective tions in clinical practice and care delivery. For governance system needs to be pragmatic example, Singapore has created a dynamic and practical. Planners should temper their health system that emphasizes quality and desire for a holistic system-wide approach access, encourages preventive measures to with a strategic focus on what matters at a minimize expensive care, and creates multi- given moment in time. For example, a US ple incentives for patients to take responsibil- federal health agency recently introduced a ity for their own health. In 2015, Singapore new strategic planning process to identify a invested 20% of its total government health set of focused strategic initiatives to improve spending in social and economic develop- health care value for the patients it serves. ment and in preventive measures. Among the priorities identified by the process: a new strategy for rural health care, a Complementary and Cooperative. A gover- major e-health initiative to help patients nance system needs to encourage cooperation access and share their medical data and use it among the national health system’s many to inform their medical decision-making, and stakeholders. This principle is especially other projects focused on key aspects of important in an era when improvements in value-based health care including price health care value increasingly depend on transparency and innovative payment mod-

Boston Consulting Group | 59 els. The agency created a simple governance consists of a country’s population, and the process to manage these strategic initiatives, system’s overarching goal is to continuously which combined clearly defined owners, mile- improve the health outcomes that it delivers stones, and success metrics, with regular to that population over time. A second circle, engagement between senior leadership and surrounding the one at the center, consists of the initiative owners. three crucial subsystems: the public health subsystem, which aims to prevent disease and promote health; the provision subsystem, Designing the Components of the comprising the medical treatments and other Governance System services provided through delivery organiza- These design principles set the high-level vi- tions that focus on primary, secondary, tertia- sion for health sector governance. But the criti- ry, and quaternary care; and the financing cal challenge is to translate that vision into the and payments subsystem, which organizes infrastructure of the governance system itself the funding of the national health system. —the organizational entities, roles, and responsibilities that will set the national health Surrounding this second circle is a third circle system’s strategy, policies, and regulations. containing four additional support subsystems: the food, drugs, and medical devices It’s useful to think of a modern national subsystem, for assessing the safety, efficacy, health system as a series of three concentric and contribution to health care value of criti- circles. (See Exhibit 2.) The innermost circle cal supplies such as medications and medical

Exhibit 2 | The Components of a Comprehensive National Health System

Preventing disease prolonging life and promoting health through the organized eﬀorts of the pulic and private health sectors Delivering health care services vices de through primary secondary tertiary and al dic P quaternary care and e-health solutions e ro m fe s d s n i Funding the a Pulic o s n g a health care system (providers and u health Provision l r s d suppliers) and monitoring payers

F 4

Securing access to safe and eﬃcient Patient supplies Populations Planning and developing the health care workforce to address the

D nation’s challenges a t h a Financing rc a a Promoting and supporting n e d and payments s e iomedical research and innovation to di R git get the most eﬀective interventions for iza tion the nations population segments Enaling the 7 continuous development of digital infrastructure with extension of services and data while coordinating services across the care continuum to support population health

Source: BCG analysis.

60 | Winning the ’20s in Health Care — Insights devices; the professionals subsystem, for plan- ment, defining the role of the public sector, ning and developing the health care work- and combining enforcement and enablement. force necessary to meet the health system’s goals; the research subsystem, for driving bio- Balancing Centralization and medical and clinical research and innovation Decentralization and identifying the most effective interven- The contributions of centralization to system tions; and the data and digitization subsys- consistency and comprehensiveness are clear. tem, for helping continuously develop the That’s why most advanced health systems health system’s digital infrastructure, includ- around the world have a single national ing creating new data services across the regulator—typically, the Ministry of Health— health care continuum. at the center of their governance model. This national regulator acts as the voice and A national health system doesn’t have good custodian of the entire health care system governance unless it has full coverage across and supports a holistic and integrated this map, with adequate and appropriate re- approach to health sector governance. sources, accountability, and interaction in place for direction setting, policy formation, Within the general concept of a single and ongoing monitoring and enablement. national regulator, however, planners must BCG has identified 33 specific functions decide which regulatory activities the Ministry across the seven subsystems that a compre- itself should perform and which it should hensive health governance design should in- entrust to independent specialized entities. clude. (See Exhibit 3.) No single approach is best for all national health systems. Some countries—Belgium, for In designing a governance model to encom- example—adopt a centralized approach in pass all of these activities, the health system’s which the national regulator does almost leaders must address four critical design deci- everything. Others, such as Canada, pursue a sions: balancing centralization and decentral- more decentralized arrangement. As a rule of ization, integrating prevention with treat- thumb, the larger and more geographically,

Exhibit 3 | The Landscape of Health Sector Governance

Surveillance Safety and Workforce Research Digitization Access to care Budgeting and epidemiology eﬃciency planning agenda setting strategy

Insurance Approval Health Integration and Pulic health Facility Funding licensing licensing and professionals interoperaility interventions licensing and grants and monitoring marketing licensing standards

Emergency Professional Research Research uality Performance Supply availaility preparedness and education regulations regulations improvement management and security response and training and safety and safety

International Guidance for Facility Coverage and Information collaoration professionals accreditation eligiility protection (such as WHO) and pulic

Solution Interagency Payment Adverse event Patient advocacy deployment and collaoration models reporting maintenance

Occupational International safety referrals

Source: BCG analysis.

Boston Consulting Group | 61 socioeconomically, and ethnically diverse a Integrating Prevention with country is, the more suitable a decentralized Treatment approach is likely to be. When most people think about health care, they tend to focus on the treatment of disease Even the most centralized of governance sys- and on the complex network of providers, tems, however, need some independent enti- drug companies, and medical device makers ties to deal with potential conflicts of inter- responsible for delivering treatment to pa- est. Among the activities that should always tients. In a world where major chronic diseas- be at arm’s length from the national regula- es are becoming increasingly prevalent and tor are quality assessment and improvement now account for a major portion of health care (which should be the responsibility of an im- costs, preventing disease is as important as partial body that sets transparency standards treating it. And yet, many important inter- for information and publishes data on health ventions to prevent disease are not typically outcomes and other performance measures) viewed as being integral to medical care. Ex- and patient advocacy (to deal with malprac- amples include efforts to address socioeco- tice issues and other patient complaints). De- nomic determinants of health or patient life- termining the appropriate degree of central- style choices. Too often, budgets for preventive ization and decentralization was a key issue activities stretch across multiple payers and in the design of a new governance system for government agencies, creating obstacles to an emerging-market country. (See “Building a coordination, planning, and more rational New Health Governance System from resource use. The result is systematic under- Scratch.”) investment in prevention and public health.

BUILDING A NEW HEALTH GOVERNANCE SYSTEM FROM SCRATCH

A fast-developing emerging-market When we benchmarked the country’s economy had expanded its health care existing governance system against leading sector significantly and seen substantial health systems, we found it to be relatively improvements in population health. immature. In some areas, multiple agen- Nevertheless, the nation’s health system cies were doing more or less the same remained highly fragmented, with gaps in things, with unclear accountability. In care provision, health care regulation, and others, appropriate governance simply did use of state-of-the-art technology. As a not exist. By incorporating best practices result, the country’s health outcomes from around the world, however, the lagged considerably behind global averages. country could create a best-in-class governance system. To address these shortcomings, the country’s government embarked on a In the new model, the Ministry of Health major reform effort, which included a will function as the single national health reorganization of the country’s Ministry of regulator, working in collaboration with Health. Previously, the Ministry had been independent specialized regulators that responsible not only for financing and will exercise primary responsibility in areas regulating care but also for actually such as regulating food, drugs, and medical providing it through a network of devices; tracking health outcomes and government-run hospitals. The new model system quality; and funding biomedical assigned these three functions to separate research and development. To implement entities. The purpose of the change was to the new model, the country has embarked increase transparency and ensure on a multiyear transformation journey, as efficiency and accountability. But it led to detailed in an implementation roadmap uncertainty about the Ministry’s future consisting of more than 70 separate role. initiatives.

62 | Winning the ’20s in Health Care — Insights Consequently, a second key design issue that ment and reimbursement models, and licens- health care leaders should consider is how to ing requirements that promote more integrat- integrate prevention and treatment, so that ed and multidisciplinary end-to-end provider the system can support explicit tradeoffs be- networks. These dimensions of governance tween the investments in each domain. Key were a major focus of our work with the na- levers for addressing this issue include the de- tional health system of a European country. sign of the budgeting process for the health (See “Creating a More Holistic Approach to care sector, the creation of value-based pay- Health Sector Governance.”)

CREATING A MORE HOLISTIC APPROACH TO HEALTH SECTOR GOVERNANCE

A European country with an advanced efforts to achieve its immediate objectives, health care system and a strong national addressing issues that cut across multiple regulator was struggling with rising health administrative areas was extremely care costs in an aging society where chronic difficult. As a result, the issues tended diseases account for a growing proportion either to fall through the cracks of the of the overall disease burden. To control governance system or—worse—to become costs, the government launched a structural sources of conflict among administrative reform of the health system aimed at units competing for influence and control. improving health care value by more closely integrating the provision of care with public To address this problem, the redesign effort health and the prevention of disease, by focused on creating a new governance shifting the financing system from fee-for- entity overlying the current system. The service to value-based financing, and by new agency will function as a strategic increasing coordination across providers. health care policymaker for the entire health system. It will be responsible for Making these changes required a far more creating an integrated global budget that holistic approach to health sector gover- permits explicit tradeoffs between invest- nance than had previously existed. The ments in prevention and investments in country’s traditional governance system was treatment. It will also introduce fundamen- complex and fragmented. The national tal reforms in key strategic areas—for health insurance system financed the example, the creation of integrated, provision of care, but many different federal end-to-end care delivery networks and the and regional government agencies managed design of new value-based payment different parts of the care delivery system. mechanisms. And it will guide systemwide Meanwhile, an entirely separate public planning for future needs, manage the health system set norms for prevention. systematic monitoring of health outcomes (including the creation of an independent This network of strong, independent center for health data governance), and governance entities was quite good at champion collaboration at the regional, managing the separate components of the national, and international levels. health system. But it was dysfunctional at developing comprehensive and integrated So far, the parties in the national govern- responses to the challenges associated ment’s ruling coalition and key administra- with value-based health care—for example, tive stakeholders have agreed to the new balancing disease prevention and disease governance model. The country is currently treatment, developing a global health in the midst of a national consultation informatics system to track health out- process that aims to translate the princi- comes, and developing end-to-end ap- ples of the new model into legislation and proaches to care delivery. Since each formal health policy. administrative entity tended to optimize

Boston Consulting Group | 63 Defining the Role of the Private Combining Enforcement and Sector Enablement In most countries, health care has tradition The traditional model of regulation in health ally been part of the public sector. More sector governance focuses on enforcement. In recently, however, many countries have been this model, regulators play a relatively hands- exploring various forms of privatization in off role in which their chief responsibility is the hope that introducing market mechanisms to determine whether stakeholders in the into the health system will promote efficiency industry are complying with the rules. and more rational use of resources. In many Although the enforcement model still has its developing countries, the health system place, it needs to be supplemented with a suffers from critical infrastructure and new model of regulation as enablement, in capacity gaps that the government lacks the which hands-on regulators actively engage resources to address adequately. In such with stakeholders to help them build capa situations, the private sector can be an bilities and improve their own organizational important source of investment to build effectiveness and that of the system as a capacity and fill gaps that the publicly owned whole. health system cannot. Therefore, two key decisions that countries must make about the This enablement model acknowledges the design of their health sector governance critical importance of regulatory agencies’ in- involve identifying the precise role of the teractions with stakeholders and of the quali- private sector and designing incentives to ty of service they provide in key areas such as attract private investment while also data analysis and benchmarking, research establishing safeguards to minimize negative and development, and training and continu- market effects. ous education. The goal is to work together to create a more efficient, better-performing national health system. This emphasis on en- Countries must identify the ablement and improved quality of service was a key focus of our work with the Ministry precise role of the private of Health in a Middle Eastern country. (See “Designing a More Agile and Efficient Gover- sector in their health system. nance System.”)

Privatization and market-based competition Four Steps in Redesigning Health won’t automatically lead to improved health Sector Governance care value. As in any market, the impact of Many factors may cause a health system’s market mechanisms will depend on the leaders to revisit the design of their gover design of the rules governing market com nance system. The catalyst might be a reform petition. In both developed and developing in the legal framework governing the health countries, governance systems need to design system, as it was in the case of the emerging- the rules for competition so that all of the market country. Or it might be a desire to system’s stakeholders—public and private— embrace a new strategic focus such as value- have incentives to compete on value and so based health care, as in the case of the that the health system rewards participants Netherlands. Or it might be a growing that deliver the highest-quality outcomes in conviction that after years of incremental the most cost-effective way. A key first step is development, the governance system is due to require all providers to systematically for an extensive refresh. Whatever the measure and report the health outcomes that precipitating cause, the redesign process they deliver to patients. In the absence of involves four basic steps. such information, patients cannot make informed choices among providers, and Assess your starting point. In order to thor- providers cannot understand the relative oughly assess their starting point, health quality of the services they are delivering or system leaders must ask and answer a how to improve those services. number of critical questions:

64 | Winning the ’20s in Health Care — Insights DESIGNING A MORE AGILE AND EFFICIENT GOVERNANCE SYSTEM

A Middle Eastern country already had a initial evaluation and paperwork to a fairly comprehensive governance system, private company that focuses on the but the responsiveness of the responsible logistics of the licensing process. The move government entities was slow and limited. lets Ministry officials focus on defining the Therefore, the redesign effort focused on key criteria and regulatory requirements for getting the existing governance system to licensing and on making the final regulatory operate more efficiently and to provide decision on the basis of the paperwork that more responsive and higher-quality the company assembles. Once a hospital is services to the health system’s stakehold- approved, the company also oversees an ers and the country’s citizens. ongoing post approval auditing process to ensure that the hospital continues to BCG worked with the country’s Ministry of comply with regulatory requirements. Health to develop a three-part strategy. The first leg of the strategy involved transferring For services that the Ministry would nonregulatory services to other entities that continue to provide directly, planning could deliver them more effectively and focused on creating leaner, more efficient, efficiently, so that Ministry officials could and more sustainable processes through focus on their regulatory role. We identified rationalization and automation. Three approximately 20 services comprising about principles guided this effort: adopt the best 100 processes that the Ministry currently technology available, give customers provided, and we determined that about multichannel access (including remote, half of them should be transferred to other web-based access), and develop a fee entities. Some services were moved to other structure in keeping with the Ministry’s government agencies that were more appro- mandate as a public entity. priate homes for them. For example, the issuance of birth and death certificates In parallel with these rationalization shifted to the Ministry of the Interior, which efforts, the Ministry is developing new already managed the country’s personal value-adding services to improve the registry, and the development of regulations national health system’s performance. For for occupational health went to a newly example, it is developing an integrated created Center for Public Health. health information system to allow the country’s public and private hospitals to Other services were outsourced to the compare health outcomes, develop a private sector. For example, hospital deeper understanding of key patient licensing—the process by which new segments, and predict trends in supply and hospitals are approved to operate in the demand. country’s health system—was traditionally a slow and cumbersome process involving The Ministry is currently implementing an initial evaluation of a hospital’s opera- these extensive changes. When the trans- tions, as well as large amounts of paper- formation is complete, we estimate that work requiring approvals and signoffs from the Ministry will be able to improve its various Ministry officials, before a final efficiency by almost 40%, increase revenues regulatory decision could be made. Because by 15%, improve client satisfaction, and licensing was just one of many services that streamline decision making. The result will the Ministry provided, it rarely received the be a more efficient, more responsive focused attention of Ministry officials. governance system that provides high- quality service to industry stakeholders and The redesigned process saves significant to the nation’s citizens. time and resources by outsourcing the

Boston Consulting Group | 65 •• How is our health system performing? address all dimensions of the health system; Where do we stand in terms of global and reflect the seven design principles benchmarks for health outcomes? described earlier in this report.

•• What parts of our current governance Plan for implementation. Finally, while good system are working well, and what parts design is necessary, it is far from sufficient. not so well? Is our governance model Transforming a country’s health care gover sufficiently comprehensive? nance system is usually a multiyear journey, so the implementation requires careful •• What can we learn from benchmarking planning. In particular, planners must pay other health systems’ best practices for close attention to generating buy-in and governance? How can we adapt these supp ort from the system’s multiple stake practices to our national context? holders, including providers, payers, suppliers, and patients. Political leaders and policy •• Do we have the potential to leapfrog past makers can broadly set the rules of the game other global health systems by compre- through the legal and policy framework hensively redesigning our governance governing the health system, but transforma system? tion by top-down mandate rarely succeeds in complex, multistakeholder environments such as health care. A successful transformation Rather, a successful transformation requires requires development of a the development of a broad network of authorization consisting of multiple champions broad authorization network. from different organizations in the system who endorse the new governance model, ad- vocate for it inside their own organizations Define your goals. The assessment exercise and in the community at large, and invest the should establish a baseline for current system resources needed to make it happen. Trans- performance and the existing governance forming health systems through a new ap- model. It should also identify some key proach to health sector governance has the challenges or gaps in need of attention. For best chance of scaling up when health system example, in the emerging-market country, the leaders collaborate in the effort. (For more on goal was to design a new health governance this subject, see “Value in Healthcare: Accel- system from scratch. In the European country, erating the Pace of Health System Transfor- the objective was much narrower: to develop mation,” World Economic Forum, December a holistic approach to tradeoffs between 2018.) investments in prevention and investments in treatment. And in the Middle Eastern country, the aim was to improve the efficiency and he global health care sector is in the effectiveness of service delivery. In each case, Tmidst of a massive transformation. the goal shaped the focus of the redesign Health sector governance must change—not initiative. only to keep up with the latest trends, but also to guide the transformation wisely and Redesign the governance model. Although in a coordinated fashion. Now is the time for the particular emphasis of the redesign effort national health systems to take a fresh look will depend on the specific gaps or issues that at health sector governance and to systemati- leaders need to address, some best practices cally rethink their governance model. hold true for any redesign effort. For example, a good governance system will empower a single institutional voice for regulating the health system; ensure proper allocation of roles by eliminating duplication, filling gaps, and managing potential conflicts of interest;

66 | Winning the ’20s in Health Care — Insights Jad Bitar is a managing director and partner in Krystelle Hanna is a consultant in BCG’s Dubai the Dubai office of Boston Consulting Group and office and a core member of BCG’s Health Care leads BCG Middle East’s Health Care practice. You practice and scientist network. You may contact may contact him by email at [email protected]. her by email at [email protected].

Emile Salhab is a managing director and part- Stefan Larsson is a managing director and se- ner in the firm’s Dubai office and a core member nior partner in the firm’s Stockholm office and of the Middle East’s Health Care practice. You the global leader of BCG’s health systems work. may contact him by email at salhab.emile@bcg. You may contact him by email at larsson. com. [email protected].

Boston Consulting Group | 67 FOCUS WOMEN DOMINATE HEALTH CARE—JUST NOT IN THE EXECUTIVE SUITE by Michelle Stohlmeyer Russell, Matt Krentz, Katie Abouzahr, and Meghan Doyle

he US health care industry is frequent- also spoke with six exemplary female senior Tly cited as the gold standard for gender executives who have spent their careers in diversity. According to the US Bureau of Labor the industry. They served as thought partners, Statistics, 77% of the health care workforce is offering invaluable insights into both organi- female, far higher than other industries. Yet zations and individuals. On the basis of that in the executive suite, the share of women is quantitative and qualitative work, we offer six only on par with other industries—that is, far initiatives that can help health care compa- lower than it should be—and it has not nies create truly balanced leadership teams. changed in the past decade.

Arguably, then, gender diversity is worse in A Bigger Funnel, but a Steep health care—including payers, providers, Drop-Off pharmaceutical companies, and medtech Among payers and providers, women make firms—than in other industries. These com- up roughly 75% of entry-level employees, panies have a wealth of talent to develop into higher than in most other industries. At phar- senior positions, yet the industry still relies maceutical and medtech firms, women make primarily on male leaders. up roughly half of new hires at all levels, higher than for the S&P 500. Women also re- This isn’t an issue of fairness; gender diversi- ceive the majority of graduate and postgradu- ty offers substantial benefits to organizations. ate degrees in health care subjects. According to BCG research, diverse leadership teams perform better: they are more innova- Yet at higher levels of seniority, the number tive and generate higher financial returns. In of women in the industry drops off sharply. the current health care environment, compa- At the CEO level, the share of women essen- nies must innovate faster than ever to con- tially reverts to the average for the S&P 500. tend with disruptive forces such as new pay- (See Exhibit 1.) Payers are an exception, ment models, digital and e-health, and the where 18% of CEOs are women, but that’s a increasing involvement of patients in deci- bright spot only in relative terms: it’s still just sions about their care. Given these pressures, one-fourth of the entering population of companies need to tap all available insights, women at these companies. And the picture ideas, and perspectives. is worse at the biggest health care organizations. Among the 50 largest payers, providers, We recently analyzed the share of women at and pharma companies (150 companies in all levels in the US health care industry. We all), only 18 have female CEOs.

68 | Winning the ’20s in Health Care The situation in medtech is particularly bleak; The data tells a clear story: recruiting isn’t there is just one female CEO among the 50 the problem—it’s retention and advance- largest companies in that subsector. One likely ment. A recent BCG survey supports this find- factor is the importance of a STEM background ing. Retention was the most cited obstacle to in medtech—and women represent only gender diversity, mentioned by 57% of re- around 24% of the STEM workforce overall. spondents. Advancement was also a critical factor, cited by 50% of respondents. These numbers are abysmal. If anything, health care companies should be better positioned to create gender-balanced leadership Putting Women on an Equal teams. The industry has a much larger pool Footing of women across the workforce than others, Despite this challenging reality, we are meaning that there is more talent to assess, optimistic that organizations that commit to develop, and promote into senior roles. It is diversity can turn the situation around. Our especially challenging that men still outnum- research and analysis point to six actions ber women at the top of most US health care that health care organizations can take to organizations, while women make up the increase the retention and advancement of bulk of the decision makers and end users of women. those organizations’ products and services. Highlight senior women as role models. As There are two contributing factors. First, busi- Nancy Schlichting, who spent more than a ness unit heads are still predominantly men, decade as the CEO of the Henry Ford Health while women tend to cluster in administra- System, says, “Women want to work in an tive functions such as HR, marketing, risk, environment with many other women to and legal, as well as in nursing. (See Exhibit emulate as role models.” To help women at 2.) That could push women out of consider- lower levels envision a path for themselves, ation for the most senior leadership roles. In senior women should be prominent, both addition, women have historically tended to internally and externally, and the organiza- bear the brunt of child care responsibilities. tion should publicly celebrate them as We know from previous BCG research that examples of people who have risen to leader- ambition levels among women do not change ship positions. if they have children. However, if companies do not offer flexible work options and other For example, Laura Forese, MD, who is the supportive arrangements to new parents, COO and executive vice president of NewYork- some women may opt out of the workforce Presbyterian and has spent most of her ca- for a period. (This is also an issue for house- reer at the organization, hosts town halls with holds in which both parents work.) the CEO at all of the hospital’s campuses. NANCY SCHLICHTING

“Do you have ideas that are inspiring and drive change? Then jump into the deep end of the pool.”

Nancy Schlichting is the former CEO of the Henry Ford Health System.

Career Highlights • Held senior executive positions at health care organizations for more than three decades • Joined the Henry Ford Health System in 1998 as chief administrative officer • Served as CEO for 13 years before retiring in 2016

Boston Consulting Group | 69 LAURA FORESE

“If you’re the only woman in the room, be the bold voice in the room.”

Laura Forese, MD, is the executive vice president and chief operating officer of NewYork- Presbyterian.

Career Highlights • Specialized in pediatric orthopedic surgery and became an associate professor at Columbia University • Joined NewYork-Presbyterian in 2003 as vice president • Held six roles, both corporate and operating, before ascending to the executive vice president and COO role for the entire enterprise

That kind of frequent presence makes senior also—more critically—served as advocates to leadership visible and accessible. make sure the women received fair consider- ation for promotions, high-profile projects, BCG research shows that if there are no se- and other opportunities. Notably, sponsors nior female role models, women coming up can be men as well as women. through the ranks can’t see themselves reflected in the demographics at the top of the For example, Karen S. Lynch, the executive organization and, as a result, can’t relate to vice president of CVS Health and the presi- those in senior positions. Therefore, they may dent of the Aetna business unit, has received self-select out of promotion opportunities or, professional support from her “personal worse still, out of the company or industry board of directors”—colleagues who have completely. played a crucial role in guiding her decisions throughout her career. The key, says Lynch, is Develop sponsorship programs for high- to maintain these relationships over time, potential women. Many of the successful even when you’re not in a direct working re- female senior leaders in health care we lationship with these people. interviewed benefited from sponsors who helped guide them throughout their careers. All too often, this kind of support happens These sponsors not only provided advice but only informally, by chance and circumstance, KAREN S. LYNCH

“Make sure you have diversity in the roles that matter.”

Karen S. Lynch is the executive vice president of CVS Health and the president of the Aetna business unit.

Career Highlights • Began her career as a CPA at Ernst & Young • Held various executive positions at Cigna and Magellan • Joined Aetna in 2012 and ran various business units before becoming president in 2015

70 | Winning the ’20s in Health Care — Focus rather than through a carefully developed reviews and promotions are a major contrib- and maintained program. By creating formal uting factor to gender imbalance. Even sponsorship programs, companies can reach managers and leaders who believe they are more high-potential women while they are completely objective are not. Forese provides still plotting their careers. (See “How High- an example: “The team was talking about a Potential Women Can Help Themselves.”) talented female executive and an open senior role, and someone said, ‘But didn’t she just Standardize performance reviews and promo- have a baby?’ We would not have had this tion criteria on the basis of hard metrics. The conversation if we were talking about a man unconscious biases that affect performance who might also have just had a baby. Let’s

HOW HIGH-POTENTIAL WOMEN CAN HELP THEMSELVES

While there is much work ahead for “Do you have ideas that are inspiring and organizations seeking to create gender- drive change?” she asks. “Then jump into balanced leadership teams, the senior the deep end of the pool.” women we talked to said that midlevel women in health care can take steps of Forese also points out the value of speak- their own to improve their leadership ing out. “If you’re the only woman in a prospects. room,” she says, “be the bold voice in the room.” During her orthopedic surgery Take risks and be open to new opportuni- residency, she was often the only woman in ties. There are benefits to taking risks in the room among a group of 50 residents. your career. Laura Forese, MD, the executive vice president and COO of NewYork- Because she stood out, she would get Presbyterian, points out that women often called on more frequently than her male don’t go for stretch opportunities. “Some- colleagues. She turned this into a positive, times women see a job description that has using each question from the surgeons as ten things on it and say, ‘I don’t know, I an opportunity to demonstrate that she haven’t done that, I have done this, but I’m belonged in the room. not the best at it,’ which then becomes, ‘I can’t go for this job.’” Focus on long-term success rather than short-term challenges. Several senior To avoid that kind of self-sabotage, women leaders highlighted the value of persever- in health care should push themselves ing through short-term challenges. “You will outside their comfort zones and seek out have setbacks,” says Lynch. “But whether positions that require work across you get up and how you get up are what boundaries. For Karen S. Lynch, the really define your path.” Forese tells young executive vice president of CVS Health and women in health care that making mis- the president of Aetna, this has included a takes in the short term is part of the job. “A rotation in HR, which she pursued at the 100% success rate all the time suggests to suggestion of her sponsor. The experience me that I’m not being bold enough.” gave her a front-row seat to understanding the time and commitment that leaders Mary Jo Williamson, formerly the vice chair need in order to cultivate talented teams— for administration and a trustee of the a lesson that has stuck with her as a senior Mayo Clinic, emphasizes the importance of executive. pushing through these mistakes. “Doing the work matters,” she says. “Results Speak up and let others hear your per- matter. Being a high performer may not spective. Nancy Schlichting, the former always win in the moment, but it will in the CEO of the Henry Ford Health System, long run.” guides women in health care to speak up.

Boston Consulting Group | 71 instead ask, ‘Is this a role that she’d like to ing in people from unexpected sources, who take on, because we think she’s qualified?’” have taken a variety of career paths. Earlier in her career, Steiner of HCSC took a job To address unconscious biases, companies turning around the sales team at Blue Cross must ensure that hiring and promoting man- Blue Shield of Illinois, despite a lack of sales agers make equal comparisons between men experience. Winning the respect of her team and women. They also need objective tools required not only showcasing her analytical and metrics to make sure they’re getting it strengths and her experience leading turn right (such as ensuring that equal percentages arounds but also learning from and relying of men and women are being promoted and on team members with experience in the that shortlists for open positions include field. “Tough challenges like that are great equal numbers of men and women). equalizers,” Steiner says. “The best people will be selected to solve the problem, regard Paula Steiner, formerly the president and CEO less of gender, which promotes equality.” of Health Care Service Corporation (HCSC), which operates five Blue Cross Blue Shield A company culture that provides diverse ex- health plans, worked closely with department periences for employees can push people out- heads and coaches to review the talent and side their comfort zones and prevent them performance profiles of the top 200 leaders at from limiting their options. As Mary Jo Wil- HCSC. The combination of direct involvement liamson, who has held several senior roles at and rigorous measurement help HCSC iden the Mayo Clinic and most recently served as tify and track top talent. As a result, more wo the vice chair for administration and a trust- men have been advancing to the officer ranks. ee, puts it, “Failure often results when someone gets fixated on one path.” At Aetna, leaders regularly review a customized nine-block assessment of each employee, Julie Creamer, a senior vice president at along with feedback about the employee’s Northwestern Memorial HealthCare and the latest assignment, his or her time in role, and president of Northwestern Memorial Hospi- companywide metrics on rotations, promo- tal, uses a similar approach in building proj- tions, and diversity. The key, says Lynch, is to ect teams. “We like to include what we call a make the talent strategy work hand in hand ‘naïve resource,’ someone who has no knowl- with the business strategy. edge on the topic at hand.” Creamer says that those people often have fresh ideas and push Hire and promote talent from unconventional teams to think about things differently, lead- sources. Increasing diversity requires bring ing to better solutions. PAULA STEINER

“Tough challenges are great equalizers. The best people will be selected to solve the problem, regardless of gender, which promotes equality.”

Paula Steiner is the former president and CEO of Health Care Service Corporation (HCSC).

Career Highlights • Began her career at the Blue Cross Blue Shield Association, rising to senior vice president of brand enhancement and extension • Held several leadership roles with Blue Cross Blue Shield of Illinois and HCSC, including chief strategy officer at HCSC • Became president of HCSC in 2015 and added the CEO role in 2016

72 | Winning the ’20s in Health Care — Focus MARY JO WILLIAMSON

“Doing the work matters. Results matter. Being a high performer may not always win in the moment, but it will in the long run.”

Mary Jo Williamson is the former vice chair for administration and a trustee of the Mayo Clinic.

Career Highlights • Started her career as a financial analyst at Andersen Consulting • Held roles in operations, contracting, and payer relations at the Mayo Clinic • Named vice chair for administration at the Mayo Clinic in 2014

JULIE CREAMER

“Bring fresh ideas and push teams to think about things differently.”

Julie Creamer is a senior vice president at Northwestern Memorial HealthCare and the president of Northwestern Memorial Hospital.

Career Highlights • Began with a nursing degree • Worked in frontline staff, manager, and director positions for 16 years • Joined the senior management team at Northwestern Memorial HealthCare in 1996

Companies also need to avoid relegating Provide flexible work arrangements. BCG senior women to nonoperational roles. “Make research has shown that companies make sure you have diversity in the roles that mat progress in gender diversity only if they have ter,” Lynch says. “Have your critical talent, formal programs that help employees man- including women, run P&Ls. Put them in age their work and nonwork lives, such as stretch assignments and support them if they flex time, paid parental leave, and remote struggle. That’s part of the commitment.” work through digital technology. These initiatives should be designed for both men Steiner also points out the complexity and and women, and tailored so that they are a interdependencies that exist with the health regular, accepted part of a career, rather than insurance market and the need to have a disqualifying for the executive track. Steiner well-rounded background. A company culture of HCSC notes that the company’s employees that provides diverse experiences for employ- routinely rank flexible work as important, ees is important. “You can’t just be an expert and it’s an area in which HCSC scores well. in one discipline” says Steiner. “The stakes As NewYork-Presbyterian’s Forese says, are too high when you’re an officer to have “Careers are long, so having flexibility at your first experience outside your comfort various points in your life is critical.” zone. Leaders understand where they fit upstream and downstream, and they have com- Measure what matters. Finally, to understand fort and familiarity across disciplines.” which strategies work most effectively in

Boston Consulting Group | 73 retaining and advancing women, it’s import- capitalize on that resource, it must take spe- ant to track results at a granular level and cific steps to improve the retention and ad- discuss them frequently. As Forese says, “The vancement of high-potential women. Giving traditional performance-development model women an equal shot at the top is only fair. of ‘you’ll figure it out and once or twice a Moreover, greater gender diversity in the ex- year we’ll have a conversation about how ecutive suite will make companies more inno- you’re doing’ is not good enough.” Instead, vative, giving them a clear advantage in a companies need to actively measure how health care environment in which nonstop they’re doing in gender diversity, both at the disruption is the norm. level of individual employees (who’s not advancing fast enough, who’s leaving the organization and why) and at the overall company level (how many women are in Michelle Stohlmeyer Russell is a managing di- specific roles and at specific levels and which rector and senior partner in the Chicago office of business units or functions are not showing Boston Consulting Group. She is the North Ameri enough progress in terms of diversity). can leader of BCG’s People & Organization practice and previously led the Health Care practice Steiner agrees. “Our board made a concerted for the Midwest and Canada. You may contact effort to focus on diversity, and that has been her by email at [email protected]. a part of our culture for decades,” she says. “We’ve reinforced that through a focus not Matt Krentz is a managing director and senior just on performance against goals, but also on partner in the firm’s Chicago office. He is a mem- how leaders achieve those goals. We share in- ber of BCG’s executive committee and serves as formation on every leader’s diversity of new the global people chair, leading the firm’s diversi- hires and of candidates interviewed and in- ty agenda. You may contact him by email at clude diversity of staff and employee engage- [email protected]. ment as part of our bonus compensation.” Katie Abouzahr was a principal at BCG.

he health care industry has a lot of work Meghan Doyle was a principal at BCG. Tto do in creating gender-balanced leadership teams, but in one sense it has a huge advantage: a workforce in which far more frontline employees and managers are women. To

74 | Winning the ’20s in Health Care — Focus NOTE TO THE READER

Acknowledgments Contact the Authors Daniel Gorlin The authors thank Amika Porwal Alexander Aboshiha Managing Director and Partner and Yulia Kracht for their Managing Director and Partner BCG Chicago contributions to this compilation of BCG Los Angeles +1 312 993 3300 content from BCG’s Health Care +1 213 621 2772 [email protected] Payers, Providers & Services topic. [email protected] Krystelle Hanna They thank Miriam Mburu for Lionel Aré Consultant coordinating this publication and Managing Director and Senior Partner BCG Dubai Katherine Andrews, Amy Barrett, BCG Paris +971 4 4480 300 Catherine Cuddihee, David Duffy, +33 1 40 17 10 10 [email protected] Kim Friedman, Jeff Garigliano, Abby [email protected] Garland, Steven Gray, Bob Howard, Nate Holobinko Saarah Murphy, Sarah Murray, Allison Bailey Managing Director and Partner Frank Müller-Pierstorff, Shannon Managing Director and Senior Partner BCG Seattle Nardi, and Amy Strong for writing, BCG Boston +1 206 538 5000 editing, design, and production. +1 617 973 1200 [email protected] [email protected] Rich Hutchinson Chris Bergstrom Managing Director and Senior Partner Health Care Leadership Team Partner and Director, Head of Digital BCG Atlanta Therapy +1 404 877 5200 Adam Farber BCG New York [email protected] Global Leader—Health Care Practice +1 212 446 2800 BCG Boston [email protected] Jon Kaplan +1 617 973 1200 Managing Director and Senior Partner [email protected] Nate Beyor BCG Chicago Managing Director and Partner +1 312 993 3300 Sanjay Saxena BCG Manhattan Beach [email protected] Global Health Care Leader—PPS +1 310 698 1200 BCG San Francisco [email protected] Ashish Kaura +1 415 732 8000 Managing Director and Partner [email protected] Jad Bitar BCG Chicago Managing Director and Partner +1 312 993 3300 Ulrik Schulze BCG Dubai [email protected] Global Sector Leader— +971 4 4480 300 Biopharmaceuticals [email protected] Ryoji Kimura BCG Zurich Managing Director and Senior Partner +41 44 388 86 66 Ryan Gallagher BCG Tokyo [email protected] Project Leader +81 2 6387 2000 BCG San Francisco - Bay Area [email protected] Torben Danger +1 415 732 8000 Global Sector Leader—Medical Devices [email protected] Matt Krentz and Technology Managing Director and Senior Partner BCG New York Lauren Gargan BCG Chicago +1 212 446 2800 Knowledge Expert and Team Manager +1 312 993 3300 [email protected] BCG Boston [email protected] +1 617 973 1200 [email protected]

Boston Consulting Group | 75 Stefan Larsson Justin Rose Kevin Whitaker Managing Director and Senior Partner Managing Director and Partner Lead Analyst BCG Stockholm BCG Chicago BCG New York +46 8 402 44 00 +1 312 993 3300 +1 212 446 2800 [email protected] [email protected] [email protected]

Rich Lesser Michelle Stohlmeyer Russell President and CEO Managing Director and Senior Partner BCG New York BCG Chicago +1 212 446 2800 +1 312 993 3300 [email protected] [email protected]

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