During Covid-19, American healthcare rallied under extraordinary pressure, adapting quickly and finding new ways to collaborate. With the worst of the pandemic apparently behind us, it is time for the industry to turn to a new challenge: building on this record of achievement to create a stronger, more flexible, and more productive healthcare system that serves patients better.
No question: that won’t be easy. US healthcare faces a gathering storm of difficulties, including inflation, labor shortages (particularly of nurses and physicians), and endemic Covid-19. At McKinsey, we believe that all this could add $600 billion in US healthcare expenditures by 2027; $220 billion of that is from Covid-19 alone.
Taking action in three areas could help the entire industry rise above the turbulence.
Reimagine care delivery: This isn’t optional—it is inevitable, and already happening. Better, then, that it be done systematically. There are several major trends. One is that care is more personalized. Another is that data and analytics are becoming more central throughout the care continuum. A third is that more patients are getting care in non-traditional ways—in ambulatory settings, at home, and virtually. About 20 percent of all Medicare, Medicaid, outpatient, emergency, and home health spending could be done all or in part virtually. Finally, there is the shift to value-based care. Private investors are participating in funding all of this; regulatory changes are also generally supportive, in the form of encouraging price transparency and sharing of patient data. Potential improvement: $420 billion to $550 billion in lower healthcare spending with improved health outcomes.
Improve clinical and administrative productivity: This is a continuing problem health-care productivity growth has been very slow, with clinical activity accounting for three-quarters of costs. Leaders can help in the short term by integrating several small solutions into a single platform—for example, to support a discharge planning tool in an acute-care setting or an asset optimization tool in a surgical center. Many changes could be made within the existing workforce, for example by pruning clinically inappropriate preference rules and broadening automatic reminder systems to reduce patient no-shows. The use of advanced analytics and artificial intelligence could integrate patient data, generate insights and refine solutions. Potential improvement: $160 billion to $310 billion in lower healthcare spending with improved quality and experience.
On the administrative side, roughly 30 interventions—all of them already at work somewhere—could reduce administration’s share of total spending from 25 percent to 18 percent. The bulk of these costs come from customer service activities, and disproportionately from issue resolution. Healthcare systems could streamline these activities and make them more customer-friendly, without affecting quality or access. Examples include removing manual work for nursing managers through automated staffing and scheduling tools; building strategic payor-provider platforms to reduce demand by sharing information such as available in-network specialists; and automating repetitive work in human resources and finance. Potential healthcare savings: $270 billion to $320 billion.
Integrate technology: During the pandemic, healthcare institutions deployed technology in new ways and redesigned their systems faster than they previously thought possible. Patients, too, proved more willing to change: The number of virtual health visits exploded during the pandemic. –tenfold for Medicare from 2019-20, according to the General Accounting Office, for example. It’s important to build on that success, not just to remember it.
Traditionally, new healthcare technologies have added costs; many new technologies, however, promise to do the opposite, once they are scaled up. Preventive health and managing chronic conditions are two areas where tech has already proved effective at improving outcomes, at lower cost. Ditto for rooting out fraud. Predictive decision-making and improved clinical care are two areas of high potential. For less than the average cost of a day in the hospital ($2,883), some patients could be monitored 24/7 at home, with an on-site nurse and a doctor a few clicks away. It is also possible that nontraditional healthcare players could use data and technology to create whole new business models. For established institutions, then, getting ahead of the technology curve is a necessity. Potential cost savings: $250 billion to $350 billion.
All of it is possible and could deliver substantial benefits. The most important is in the form of improved patient care. In addition, investing in these three areas could create up to $1.5 trillion in value, while reducing cost pressures on both employers, who report healthcare costs rising faster than GDP, and also of employees, who are absorbing a greater share of out-of-pocket costs in the form of high-deductible health plans. In driving this improvement, the industry would benefit too. Data suggests that more than half of the industry’s total profit pools are at risk, unless it accelerates at-scale innovation
The United States spent more than $4 trillion on health care in 2021—or $12,914 per person. That is projected to be $6.8 trillion in 2030, or almost 20 percent of GDP. Not only is healthcare the largest single sector of the economy, but it is rich in innovation and talent: more can be done to weather the coming storm.