What You Should Know:
– The US healthcare industry, after weathering a storm of inflation, labor shortages, and lingering COVID-19 impacts in 2023, is now showing signs of a promising rebound, according to a new report by McKinsey & Company.
– The McKinsey report predicts accelerated transformation efforts and strategic shifts will unlock new growth opportunities in key segments, while others face continued challenges. Let’s delve into the projected trajectory of different healthcare players in the coming years:
Healthcare Profit Pools
Healthcare profit pools will grow at a 7% CAGR, from $583B in 2022 to $819B in 2027. The report finds profit pools continued under pressure in 2023 due to high inflation rates and labor shortages; however, we expect a recovery beginning in 2024, spurred by margin and cost optimization and reimbursement-rate increases.
Payers:
- Medicare Advantage on the Rise: Expect a surge in the Medicare Advantage population, particularly among duals eligible for both Medicare and Medicaid. This shift fuels a 5% CAGR for payer profit pools, reaching $78 billion by 2027.
- Commercial Segment Recovers: Commercial market margins are projected to reach pre-pandemic levels by 2027, buoyed by inflation-driven premium increases and cost-cutting measures. However, a potential economic slowdown could lead employers to shift towards self-insured plans, impacting fully insured enrollment.
Health Systems:
- Transformation Fuels Recovery: Cost containment efforts and revenue diversification strategies implemented by health systems are expected to propel an 11% CAGR in profit pools, reaching $366 billion by 2027. Reimbursement rate increases are anticipated to further bolster financial health.
- Post-Acute Care Lags: Skilled nursing and long-term care facilities could face continued profit pool contraction due to labor shortages, particularly in nursing roles.
- Site-of-Care Shift: Outpatient settings like physician offices and ambulatory surgery centers are poised for growth as healthcare delivery moves away from traditional acute care settings.
Healthcare Services and Technology (HST):
- Tech Champions Growth: HST profit pools are predicted to be the fastest-growing segment, with a 12% CAGR between 2022 and 2027. Software and platforms, data and analytics solutions are at the forefront of this expansion due to their measurable efficiency improvements.
- Payers and Systems Drive Demand: Continued demand from payers and health systems seeking to boost efficiency and adopt new technologies like generative AI will fuel HST growth.
Pharmacy Services:
- Specialty Pharmacy Soars: This booming subsegment is expected to account for nearly 50% of prescription revenue by 2027, driven by utilization increases, expanding treatment pipelines, and higher pricing.
- Retail and Mail Challenges: Traditional pharmacies face margin pressure and profit pool contraction due to reimbursement challenges, labor shortages, and plateauing generic dispensing rates. Increased focus on alternative service offerings like healthcare provision could be key to their future success.
Overall Outlook:
While some segments like post-acute care and retail pharmacies face hurdles, the healthcare industry as a whole is poised for a period of growth and transformation. By embracing technology, adopting value-based care models, and diversifying revenue streams, healthcare players can navigate the evolving landscape and unlock new opportunities for financial stability and improved patient care.
