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The U.S. healthcare ecosystem is reorganizing in remarkable ways. You’ve seen the headlines: the retail giants have made big and decisive bets in the industry.1
At the same time, through our interactions in the field, PINC AI™ – the technology and services brand of Premier – has seen the continued emergence of the payvider, a healthcare services entity that owns both health plan and care delivery assets.
What’s behind these market dynamics that’s reshaping competitive strategy, and what’s the impact on traditional health systems? Let’s take a deeper look.
Healthcare is a large and growing market despite efforts to control its expansion. National health spending is expected to grow by 5.1 percent annually through 2030 and is forecasted to remain about 20 percent of gross domestic product in that same timeframe.2
Retail giants (e.g., Amazon, Walgreens and CVS Health) looking for new sources of growth are on a primary care shopping spree.3 But translating primary care assets into favorable financial returns has been elusive for many organizations. Case in point: some of the recent market acquisitions, such as Oak Street Health and One Medical, had yet to turn a profit at the time of acquisition.4,5 This suggests that there’s something else going on.
Our perspective is that these new market entrants are trying to compress the value chain (the set of business activities involved in creating and delivering a product or service) to integrate formerly disparate capabilities, enabling them to get closer to the consumer.
In other words, the retail giants are disintermediating health systems – the traditional owners of the consumer relationship – in the value chain. What’s more, the retailers want to compete on what they know best: the consumer experience. Thus, they are slowly but determinably changing the basis of competition in the industry. And if they execute well, they have the potential to create a better consumer experience and better outcomes.
Why are we seeing the emergence of the payvider? It’s a realization by many incumbents that business models need to change. While payers have been the primary drivers of the payvider evolution, providers have pushed the convergence, too. On the payer side, many health plans realized that the role of the fiscal intermediary was being eroded. In addition, payers have held one of the lowest net promoter scores (NPS) across all industries with an average in the mid-20s.6 NPS measure a consumer’s likelihood to recommend a product or service.
Our interactions in the field have revealed how many health plans and providers have chosen to transform their business models. Many large health plans have elected to diversify their revenue streams by controlling more of the care delivery system. On the provider side, health systems have sought to control more of the premium dollar to unlock additional margin and, most importantly, secure covered lives.
Is the payvider model new? Not exactly. There are health systems that have embraced these strategies for years. The new dynamics are that payviders are becoming more geographically diverse, covering more ground and lives, and thus spreading their competitive wings across more of the nation while using digital approaches to care to further increase convenience and coverage.
We anticipate this phenomenon will reach more populations and become an attractive alternative for consumers who are seeking a better overall experience than they can receive from legacy facility-based health systems.
Our perspective on the impact of the payviders is that they’re stimulating legacy health systems to embrace consumerism and compete on access, which is further facilitated by successful value-based care contracts. But the payviders are also collapsing the value chain by uniting traditionally discrete industry segments, which can provide them with a considerable competitive edge if they execute well. (Think of the value fully integrated payer’s data and provider’s data can have on patient care.)
The single greatest advantage health systems have held over traditional payers and any new market entrants has been the consumer relationship. In most communities, the health system’s brand is strong, and allegiance remains high. But we expect this structural advantage might be weakened over time as industry players, both new and old, own more of the delivery system.
Consider that Oak Street Health has a reported NPS of 90 and that Amazon has one estimated to be more than 70.7,8 What’s at risk? We see that traditional health system consumer loyalty (and thus market share) has the potential to be eroded by payviders and new competitors.
Due to these market forces, health systems will need to deploy a consumer-centric care delivery model. Here are three points for health systems to consider:
Additionally, health systems will need strategies to control more of the premium dollar. While this approach depends on several local market and organizational factors, health systems that see this as an integral part of their strategy can implement one (or more) of the initiatives outlined below (while not new to the industry, these can be an appropriate competitive response to disruptors and new market entrants):
Across all industries, markets evolve and organizations must adapt with them. Healthcare is in the middle of a grand reorganization. Our industry will transform slowly, and then suddenly once a tipping point is reached. Healthcare leaders: embracing the consumer is good strategy regardless of where that transformation takes us.
1 Becker’s Hospital Review. How CVS, Amazon and Walgreens are Pushing Into Primary Care, Home Health. (2022, Nov. 8). https://www.beckershospitalreview.com/disruptors/how-cvs-amazon-and-walgreens-are-pushing-into-primary-care-home-health.html
2 Centers for Medicare & Medicaid Services. CMS Office of the Actuary Releases 2021-2030 Projections of National Health Expenditures. (2022, May 28). https://www.cms.gov/newsroom/press-releases/cms-office-actuary-releases-2021-2030-projections-national-health-expenditures
3 Becker’s Hospital Review. How CVS, Amazon and Walgreens are Pushing Into Primary Care, Home Health. (2022, Nov. 8). https://www.beckershospitalreview.com/disruptors/how-cvs-amazon-and-walgreens-are-pushing-into-primary-care-home-health.html
4 Oak Street Health. Full Year 2022 Results. (2023, Feb. 28). https://investors.oakstreethealth.com/news/news-details/2023/Oak-Street-Health-Reports-Full-Year-2022-Results/default.aspx
5 Yahoo Finance. One Medical Announces Results for Fourth Quarter and Full Year 2022. (2023, Feb. 21). https://www.yahoo.com/now/one-medical-announces-results-fourth-225300669.html
6 Newsweek. Mitigating the Costs of Customer Churn in Healthcare. (2022, May 2). https://www.newsweek.com/mitigating-costs-customer-churn-healthcare-1702286
7 CVS Health. Creating the Premier Medicare Value-Based Care Platform. (2023, Feb. 8). https://s2.q4cdn.com/447711729/files/doc_presentations/2023/02/Oak-St.-Health-Investor-Presentation.pdf
8 Customer Gauge. Highest NPS Scores: Best NPS Scores from Top Companies in 2022. https://customergauge.com/benchmarks/blog/top-highest-nps-scores
9 Becker’s Payer Issues. 5 Years Later: Chief Medical Officer Shares Results of Banner|Aetna Joint Venture. (2022, June 1). https://www.beckerspayer.com/payer/6-years-later-chief-medical-officer-shares-results-of-banner-health-aetna-partnership.html
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