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Health care: Breathing new life into the sector

People are living longer, healthier lives and demanding more from health care providers super-charged by new technology. We see five big factors driving long-term investment opportunities.

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Over the last century, life-altering breakthroughs in medical treatments have been coming at a rapid pace. When we consider that it’s only 90 years since the discovery of penicillin and the dawn of the antibiotic era, it’s staggering to find ourselves in an age of MRI scans and artificial organs in the space of a single lifetime.

The pace of medical advances shows no sign of slowing. In fact, new treatments are coming faster now, compared to not only 100 years ago but also to just 15-20 years ago. The simple fact is, technology advances so quickly, and there are so many new things being created and discovered, that it’s hard to imagine what discoveries could be shaping the world in 20 years’ time, let alone 50 or a 100.

Despite this, improvements to the way health care is actually delivered often happen very slowly. Technology has been disrupting other service industries but has so far made only tentative inroads into the way that health care is delivered and administered.

However, change is coming to health care, and providers, pharmaceutical companies, medical device makers, insurers and patients all stand to benefit.

We see five potential areas of disruption:

  1. Personalised medicine
  2. The Amazon effect
  3. The digital revolution
  4. Consumerism
  5. Regulatory change

 

Personalised medicine

Personalised medicine is a move away from a ‘one size fits all’ approach to a more targeted approach to better manage patients’ health. This is not a new concept, and has been around in some form for many centuries. Hippocrates (460 – 370 BC) individualised treatment of disease with the concept of ‘balanced humours’. This saw all disease having its root in the balance between four fluids in the body – understanding each individual’s natural humour and balance was considered crucial to treatment.

The modern approach to personalised medicine is not all that different. We are all unique and our health is determined by our inherited genetic differences combined with our lifestyles and other environmental factors. Increased understanding of genetics, the underlying causes of disease, and how those diseases respond to treatments are supported by advances in technologies such as computational biology and genotyping. As the cost of gene mapping has fallen exponentially, growth in this type of treatment has accelerated.

Technological progress, supported by scientific advancement, is now enabling us to understand the true potential of personalised medicine and improve the ways we treat disease. There is global recognition of its potential benefits, and health systems across major economies are formulating policy and research programmes to support the adoption of more personalised approaches to health care.

Personalised medicine is revolutionising the pharmaceutical and biotech industries. Over the next few years, the established business models will change out of all recognition to enable companies, health care systems and patients to benefit from those changes. It’s not the death knell for the existing industry, but has the potential to offer a plethora of new opportunities provided that structures, decision making practices and processes evolve with the changing environment.

The Amazon effect

In January 2018, Amazon, JP Morgan Chase and Berkshire Hathaway caused a stir by announcing plans to form a company “to deliver health care to their employees”. Their stated goal was to improve US employee satisfaction while reducing overall costs, but commentators saw something else in action: the first touch of the Amazon effect on health care.

Amazon has been consistently disruptive across various sectors. It has an unrivalled ability to step in to new markets and upend the status quo by delivering consistent customer experiences with digital innovation that provide scale and price competition. This ongoing evolution and disruption of the retail market is known as the ‘Amazon effect’. Since the announcement, Amazon has quietly acquired wholesale pharmaceutical distribution licences in several US states, and is also reportedly planning to grow its medical supplies business.

And Amazon is not the only player here. Other non-traditional health care players around the world, including Alibaba, Tencent, Apple and Samsung, have already entered the industry, although on a much smaller scale.

Non-health care companies, including tech and financial services companies, are likely to leverage their expertise to bring new solutions to health care. This is certainly going to disrupt the traditional health care business models. Insurers – both health plans and property and casualty (P&C) companies – will likely develop new business models, and the end user experience will change enormously.

“The convergence of mobile phones, sensors, cloud computing, genomics (the study of genes) and imaging technology, together with standard medical practices, promises to revolutionise health care.”

The digital revolution

While the digital revolution has reshaped everything, from energy to education, health care has lagged other industries. But now health care is waking up to the disruptive power of digitisation.

The ageing population and increasing medical costs will demand changes in the delivery of health care. If society is to extend the revolution in health care across the widest possible population, then health systems will need to expand their digital options to meet these needs.

Adopting digital health technologies can help to deliver medical care more efficiently in other ways, for example:

  • performing complex procedures
  • administering medicines with fewer errors
  • monitoring and caring for patients in a more consistent and effective manner
  • improving drug development and supply-chain management.

The convergence of mobile phones, sensors, cloud computing, genomics (the study of genes) and imaging technology, together with standard medical practices, promises to revolutionise health care.

The arrival of applications from companies like Microsoft, Google and Apple demonstrates how critically involved Silicon Valley will become in technologically driven health care developments in the future. However, the challenge for both health care providers and consumers is going to be how they balance the use of technology with the human touch.

Regulatory Change

Innovation is the cornerstone of business, but in today’s era of ultra-fast evolution, government regulation can create a drag on the pace of change. An ageing population and increasing medical costs mean changes in health care delivery are inevitable. The consequences of getting it wrong extend beyond mere financial loss and can involve life-changing harm.

As a consequence, regulation can impose lengthy – and costly – requirements when bringing products to market. Regulators are frequently criticised for perceived delays and an unwillingness to change established approaches to fulfilling public health mandates.

Regulators are acknowledging that analogue-based regulations do not always support digital change and some countries are beginning to embrace the impact of digital innovation on health services. Australia, for example, has implemented a National Digital Health Strategy to encourage innovation, while the US has amended existing laws and policies to limit what is considered – and actively regulated as – a medical device to relieve some of the regulatory burden from digital solutions.

Governments and other authorities acknowledge that there is more to be done. While regulators are modernising and harmonising health regulation, it is still fragmented and lagging behind the rapid advancement in health tech.

This presents opportunities as well as challenges as the evolving environment means companies can play an active part in the development of policy and help shape future regulatory frameworks. For example, The US Food and Drug Administration (FDA) is looking to develop new programmes to precertify the quality and validation practices for some developers of medical device software products. This will avoid the necessity to assess every device reviewed by the FDA for marketing authorisation – nine companies have already been selected by the FDA for the streamlined process so far.

Health tech companies will continue to work within existing regulations. But investors should be aware that developing regulatory changes that foster innovation and faster market access for digital health technologies could make the journey from development to market much quicker in this sector.

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Consumerism

We see three key themes driving a more consumer-focused approach to health care.

The concept of consumerism in health care delivery takes a page from the retail world. It’s a trend that has gained significant traction with health systems, hospitals and medical practices.

‘Consumerism’ doesn’t mean the same as commodification – it’s not a matter of moving to a user-pays for model, but the relationship between supplier and user of a service. It advocates moving away from the ‘doctor says/patient does’ model to a ‘working partnership’ model, where patients are involved in their own health care decisions. We see it as a trend that will continue to inspire innovation– and disruption – in the health care landscape.

The health care industry has an opportunity to engage with consumers and address their concerns in a way that is win-win for both consumers and the industry. They have the chance to move closer to creating personalised, value-based products that address the needs of individual consumers.

Organisations that respond to the growing trend of consumerism in health care will be better positioned to thrive in this ever-changing market. The customer experience must be a top priority, ensuring all products, services, and innovations are focused on the best interest of the end user.

Key Takeaways

The long-term investment case for health care is well understood – people are living longer and healthier lives, which will see growing demand within a sector that is characterised by rapid technological enhancement. We see five key factors driving innovation in the coming years:

  • Personalised medicine aimed at individuals rather than populations
  • The ‘Amazon effect’ as new providers disrupt traditional business models
  • The digital revolution in information provision will lead to new ways to monitor and treat health issues
  • Consumerism will encourage a demand for higher standards from patients
  • Regulation will need to adapt to accommodate the rapid pace of development

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