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Photo: Luis Alvarez/Getty Images
The impact of the Covid-19 pandemic on the healthcare industry is significant, and as a result, shifting profit pools, increased innovation and the creation of new business models, diversification and vertical integration may accelerate in the wake of the pandemic.
These are among the conclusions of the McKinsey report, which found that providers are increasingly moving into the more profitable and fast-growing areas of care delivery outside the hospital.
Payroll and service sector profit pools are expected to grow rapidly, with total earnings before interest, taxes, depreciation and amortization (EBITDA) expected to grow 6% between 2012 and 2026 to reach $31 billion.
However, the report does not take into account factors including rising economic headwinds or inflation.
An evolving payer mix due to the popularity of Medicare Advantage, and a shift in care settings, driven by digitalized services such as virtual care, as well as home-based services will be key factors for healthcare businesses moving forward.
Between 2021 and 2025, annual administered Medicaid revenue growth is 5.3%, compared to 3.7% between 2017 and 2019, and the Health Care Services and Technology (HST) segment is projected to grow at a compound annual growth rate (CAGR) of 8.2%, the report said. 2021 and 2025, reaching $70 billion by the end of the period.
“In addition, several provider systems have launched venture funds aimed at diversifying core business into attractive revenue pools such as data and analytics; some have created startup incubators to build a variety of digital health products and services,” the report added.
Why is this important?
The report comes as the industry faces rising costs and eroding margins, a trend accelerated by high labor, supply and capital spending — and the problems are likely to continue, Fitch Ratings said.
In Los Angeles, for example, an ordinance raised the minimum wage for private health care workers to $25 an hour — a move that would affect nearly 20,000 health care workers.
The biggest trend
Hospitals are expected to face financial pressures over the next decade, with telehealth expected to resume its dominance and account for 27 percent of all evaluation and management visits by 2032, according to a June report from Vicent and its subsidiary Sg2.
Cleveland Clinic, a joint venture between the health system and Amwell, has found a virtual second-opinion program that will save the organization $65 million a year.
On the record
“Payers, providers, HST players and pharmacy service organizations are facing big decisions about what kind of companies they want to be in the coming years. Even as the pandemic continues, now is the time to make strategic choices and make big bets. Acquisitions and new business building are increasingly key success factors.” They will be.
Twitter: @dropdeaded209
Email the author: nathaneddy@gmail.com
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