A November 18 McKinsey & Company article by Akshay Kapur and Shubham Singhal reveals a larger “storm” than they originally predicted on the horizon for healthcare. Resulting challenges impact costs for health systems, payers, and employers.
McKinsey attributes the storm to four main culprits: Healthcare regulatory and legislative pressure, tariffs, larger clinical supply and demand shifts, and medical technology advances. The company predicts that these things could cause margin pressures to jump 1.0 to 5.5 percentage points for payers and nearly about 2.0 to 13.0 percent for health systems. However, Kapur and Singhal note that, “This magnitude of margin impact is unlikely because it would make healthcare markets unviable. In practice, payers and health systems would take pricing actions to mitigate these headwinds. Actual financial impact on any specific company would depend on its specific business mix, local market conditions, customer affordability, and competitive responses of other players.”
The article warns of a potentially poorer healthcare system in the future if federal and state budgets and funding for government health insurance continue to decline. This would cause the weight of insurance costs to eventually fall on individuals, possibly making healthcare unaffordable for them.
Kapur and Singhal listed three main ways health systems can navigate these challenges:
- Utilize artificial intelligence (AI) to reduce costs.
- Re-analyze “all activities, functions, and businesses of low value-add or weak competitive differentiation and consider outsourcing, divesting, and partnering with other organizations.”
- Upgrade current business models
They concluded with a call to action for organizations and participants to strategically stay ahead by making logical decisions and following through with them. “The level of industry uncertainty about how and to what extent the forces noted above will manifest, the impact on insurance coverage will shift, and the financial impact on the sector will be unprecedented.”
