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.
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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 busi- ness, 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 multi- ple 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 em- bracing 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 cre- ate 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 fur- ther 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 pres- ence 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