Foreword

A new wave of change is poised to disrupt the way health care is delivered in the United States. This time around, the disruption is coming not from lawmakers or the president, who have struggled to repeal or improve upon Obamacare. Rather, it is coming from a wide variety of both new entrants and established players. Some hope to make meaningful improvements, while others are seeking an entirely new approach.

Rising costs are a key driver and persistent health care inflation is by no means a new story. But it has arguably gotten out of control – health spending accounted for 17.9 percent of GDP in 2017. That's more than $10,300 per person and rivals the tax receipts of the federal government. Warren Buffet has called health care costs "the major problem of our economy."

Some of the nation's most powerful and innovative companies are stepping up to tackle what the government has been unable to do, shifting the balance of health care problem solvers. Google, Apple and others have announced initiatives. Perhaps the highest-profile upstart is a joint project by JPMorgan Chase, Berkshire Hathaway and Amazon, led by prominent surgeon and best-selling author Atul Gawande.

Many of these would-be problem solvers want to cut costs by eliminating intermediaries and providing services directly to patients. Amazon recently purchased online pharmacy PillPack and now has pharmacy licenses in 49 states. Another venture, a nonprofit initiative to address the high costs and shortages of generic medications, was launched by four major health systems (Intermountain, SSM, Ascension and Trinity) and the Department of Veterans Affairs. At least 70 hospital systems, representing a third of the hospital market, have expressed an interest in joining.

As tech companies enter the health care ring, new technologies are bringing advances to the way health care is managed and delivered. In particular, artificial intelligence (AI) is touching virtually every aspect of the business, improving efficiency, patient care, supply-chain management and profitability (see our 2017 Telemedicine & Digital Health Survey for information about providers and patients embracing technology).

On the regulatory front, with Congress repeatedly failing to improve on Obamacare, state governments have started to confront the challenge. They are fighting costly care by passing initiatives to bring greater transparency and price management – and some states are even imposing price controls. Health care was the standout issue in midterm campaigning. After the elections, drug stocks rallied on the idea that congressional gridlock would lower the likelihood of price-control legislation. With the Democrats in the House, Obamacare is likely safe, and the "Medicare for all" debate will persist. State election results support the continued expansion of Medicaid, with three conservative states adopting initiatives to expand access.

The Centers for Medicare and Medicaid Services (CMS) is also actively innovating. CMS is experimenting with direct to primary care provider contracting. It is also revamping initiatives, such as the Medicare Shared Savings Program's Accountable Care Organization program, to make providers more accountable and to take on additional risk. There is also speculation CMS has mandatory bundled payments in the pipeline.

A long-awaited demographic trend is adding urgency to the cost crisis. As baby boomers reach old age, the country faces new challenges, some of which will present opportunities for health care organizations, particularly in the area of Medicare Advantage. Obamacare, an attempt to expand coverage to population sectors that may have had difficulty securing coverage under existing systems, is currently being challenged in the courts, and has continued to attract criticism and unsuccessful attempts at improvements or rescission. Meanwhile, as the opioid crisis ravages younger populations, the health care system is looking to prevention to help patients recover and to reduce the burden posed by this epidemic.

In this report, we have assembled secondary-source research detailing these developments and the effect they are expected to have on the industry.

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