Healthcare chief executives need to make sure that their businesses develop and execute clear value creation, argue Andrew McKechnie, PwC strategy & healthcare leader, and John Butterworth, PwC strategy & deals.
There is no doubt that today’s health industry leaders face an array of emerging complex
challenges – with much of this played out under the glare of a media, government and consumer spotlight. So how does this impact their outlook for the future?
Healthcare and life sciences CEOs remain confident about future market and macroeconomic growth albeit less so than this time last year. There is an increased risk of some slowdown in top-line growth, which, in light of continually rising costs in the industry, could lead to a further squeeze on margins.
In response, the sector increasingly needs to look for efficiencies in its businesses via a combination of staff upskilling, improved use of data, and adoption of new technologies such as AI. From an investor perspective, these kinds of steps, if used as part of a consistent broader value creation plan, have the potential to help protect, or even increase, margins, and so the overall value of investments.
For each of the past 22 years, PwC has surveyed global chief executives to gain their views on the future of their markets, the global economy, and the topics that keep them up at night. This has provided powerful insight into the minds of business leaders, as well as a good indicator of future growth, thanks to a clear correlation between chief executives’ growth estimates, and the actual growth of the global economy the following year.
This year, PwC surveyed and interviewed 1,378 chief executives from more than 90 countries, with coverage of all major industries, including healthcare and life sciences. Following last year’s record optimism, CEOs remain positive across the board about the potential for growth in the global economy, but the share of respondents who believe that global growth will stay the same or improve has fallen from 95% to 71%.
A similar picture is evident among both healthcare and life sciences CEOs, with both groups becoming more bearish about the prospects for growth. Our analysis highlighted that healthcare executives were, on average, more positive than the global consensus (79% saying growth will remain the same or improve) while life sciences executives were slightly more negative (69% saying growth will remain the same or improve).
We also saw a corresponding dip in confidence in relation to industry growth, with policy uncertainty – such as that seen in the US around the roll back of Obamacare, and in the UK around Brexit – and regulation seen as the key drivers. Overall, healthcare and life science business leaders seem to be less confident this time round when asked about maintaining or increasing their top-line growth.
At the same time, costs in healthcare and life sciences continue to increase due to rising material and staffing costs, increased complexity of drug discovery, and growth in consumer demand. These costs are an area of major worry for healthcare and life sciences chief executives, with 93% of healthcare, and 81% of life sciences CEOs concerned. If our
industry’s leaders continue to be correct in their growth predictions, and top-line growth does stall or slow, then a sector already under pressure will be further squeezed.
Closing the skills gap: Up-skilling and talent pipelines are key
This pressure has already begun to affect the sector, and as a result a more cautious approach to hiring is being adopted with only 55% expecting to increase headcount in 2019, a 7% drop from the previous year.
The percentage of healthcare and life sciences CEOs expecting organisational headcount to fall has also doubled from 2018 to 2019 (7% vs 15%).
Beyond staffing, companies are also reviewing their operations in order to identify potential disposals, and looking to squeeze as much as possible from existing assets and staff.
They aim to achieve this by increasing the efficiency of operations across three key areas: retraining or up-skilling staff, improving use of data, and adopting new technologies such as artificial intelligence (AI).
The focus on staff up-skilling was clearly highlighted in our research, with nearly half of all healthcare and life sciences chief executives currently advocating or pursuing up-skilling of their existing workforce in order to improve both output and retention.
This is something we see every day with our clients, especially those in the care sector where up-skilling has been pursued for many years in order to reduce the impact of staffing pressures.
Distilling data mountains of detail, molehills of intelligence
CEOs are also being forced to improve their organisations’ use of data due to the proliferation of both internal data, and patient- or device-generated medical data.
IS HELPING TO
Of the two of these, internal data generation, management, and usage is perhaps more sophisticated across the majority of organisations (via internal finance and resource management functions, for example).
Issues still remain, however, as shown by only 45% of healthcare and life sciences CEOs stating that they receive sufficiently comprehensive financial data to make good decisions about the long-term success and durability of their business.
Improving the availability and use of this internal data is therefore critical, and can have a significant positive impact on organisational efficiency. We have seen this in our own work, for example in Australia, where PwC has implemented a number of digitisation and automation programmes for hospital finance functions. PwC research on these systems
has shown that the best digital finance functions can halve costs while providing additional time and information to improve patient outcomes.
Optimal use of external data can also help to promote cost savings in organisations, as seen in the Japanese health system’s move to evaluating and pricing new treatments and technologies based on their cost-effectiveness. This relies on manufacturer data and external expert input in order to determine what treatments will be covered by government
funding, and is aimed at reducing the high cost of drugs per capita currently seen in the country. This follows on from the success of a similar system in the UK, which has resulted in net savings of £3-5bn (US$3.8-6.4bn), and demonstrates a wider global trend of both regulators and payors demanding more real world evidence and patient outcomes before
approving and reimbursing drugs.
In addition, data from outside traditional care settings is helping to reduce costs for health organisations, with a particular focus being put on solutions that can help to reduce demand by addressing the social determinants of health (68% of healthcare CEOs saw this as an area of concern).
An example of where data has been successfully used to help address this is in the US, where ProMedica screening of individuals for issues of food security resulted in a 53% fall in hospital readmissions, and a 3% drop in A&E visits.
Beyond acquiring these datasets, CEOs need to work to remove internal barriers to change and integration in order to maximise cost efficiencies.
Specifically, this includes avoiding data siloing on different systems, building a culture of information sharing, and ensuring there is sufficient analytical talent – all areas that healthcare and life sciences CEOs highlighted in our research as major issues currently affecting their businesses.
AI presents new opportunities
Finally, industry leaders are slowly waking up to the potential for new technology such as AI to revolutionise healthcare and save costs, with 81% of health, and 75% of life sciences leaders agreeing that AI will significantly change the way they do business, but only 4% of health, and no life sciences organisations implementing the technology on a wide scale.
This is expected to increase in the coming year, however, with four in five CEOs believing that the ability to explain AI’s value to society will be the critical driver of this growth.
TO WORK TO
IN ORDER TO
For those forward-looking organisations who are able to steal a march on competitors
by adopting this technology early on, this presents a tremendous opportunity not only to gain cost savings or revenue gains across both internal and customer-facing operations but to drive market share.
An example of where this has already been used successfully include Redbook AI in India, which provides analysis of pharmacy drug consumption patterns to enable smart stock management and personalised customer demand insights, freeing up staff time, and resulting in a 15% growth in sales.
So what do the results of this research mean for investors? Well, if our survey CEOs continue to maintain their record of their views correlating with future industry and economy growth, there is potential for some degree of slow-down in top line growth.
This means that investors need to make sure that their portfolio businesses develop and execute clear value creation plans that allow them to maintain or improve margins, even as costs continue to rise.
CEOs are evidently already trying to make sure this is the case, with investment into staff upskilling, use of data, and new technology such as AI; however, in many cases, and particularly for data and AI, there is clearly a long way to go.
This provides a further opportunity for investors, with those data and AI businesses that can demonstrably improve the revenue or costs of healthcare and life sciences organisations presenting potentially attractive investment targets. The demand from the health and life sciences industry for these solutions is clearly there, it is just a question of who can capitalise on the opportunity to fulfil it.