The pricing of healthcare is creating pressure for those who innovate and drive both the science and new business models of it. Accordingly, such pressures may have the ability to transform the industry, research by Lazard's Global Healthcare Leaders Study points out.
The question is, will the pressure lead to coal or diamonds?
Pressure is being applied to the sector in the form of value-based care business models. These new business models are a response to the "intense pricing pressure that is challenging healthcare companies across sectors and geographies," the organization said in a statement.
According to Aetna: "In value-based models, doctors and hospitals are paid for helping keep people healthy and for improving the health of those who have chronic conditions in an evidence-based, cost-effective way. This is a departure from the traditional fee-for-service approach."
Lazard's research included responses from C-level executives and investors in the U.S. and Europe across three sectors:
- pharmaceuticals and biotech
- medical device technology and diagnostics
- healthcare services
The Lazard Group healthcare leaders study surveyed 213 C-level executives and 87 healthcare investors. C-level executives included CEOs, CFOs, and senior executives involved in strategic decision-making.
Accordingly, these health leaders' responses suggest that nontraditional pricing models may transform healthcare more than science over the next decade. About half (47 percent) of healthcare C-level executives say the adoption of value-based or risk-sharing pricing models will be transformative over possibly the next decade.
Also, about one-third of the leaders in medical devices/tech/diagnostics and in healthcare services think that nontraditional competitors will have a transformative impact on the industry in the next three to five years. For example, technology firms may play a greater role in the disruption of the industry.
Likewise, healthcare executives feel mergers and acquisitions, industry partnerships and collaborations will greatly impact the transformation of the industry in the near term. What's not surprising is that most of these healthcare thought leaders think the M&A activity is likely to continue at a strong pace, perhaps even with ramped-up efforts with currently public companies.
"Healthcare business leaders told us that their single biggest challenge is pricing pressure, and this is driving innovation, both in science and in new business models," said David Gluckman, global co-head of Lazard's Healthcare Group, in a statement. "They also expect to meet the challenges with greater levels of M&A, partnerships and collaboration, including with nontraditional competitors."
Finally, the survey seems to suggest that the move to value-based care in the U.S. will continue to take place under the Donald Trump administration. Most of these folks even said they expect the majority of U.S. healthcare payments will be value-based before 2020.
There's a good chance all this change and pressure is going to lead to some fuel (coal) or some gems (diamonds), likely both good for the industry.
