Deloitte 2016 Global Health Care Outlook: Key Drivers Influencing Cost Containment

In the global healthcare sector, including healthcare providers, payers, governments, and other stakeholders, there is an active effort to improve healthcare services through efficient and equitable means. The spread of chronic diseases and population aging are the main drivers of this change.

A report by the Economist Intelligence Unit (EIU) indicates that, in US dollar terms, average healthcare expenditure across 60 countries grew by 2.6% in 2014. Meanwhile, a World Health Organization (WHO) report highlights significant disparities in healthcare spending between developed and developing nations. As shown in Figure 1, China’s per capita healthcare expenditure was $367 in 2013, markedly lower than the $9,146 per capita spent in the United States.



Global healthcare spending was projected to grow by 4% in 2016, with an average increase of over 6% in 2017 and 2018, particularly in Asia and the Middle East, where both private and public healthcare expenditures are expected to continue rising. However, a contradiction exists between the need to control costs and the demand for improved service quality. Consequently, the EIU predicts that global healthcare expenditure will increase by an average of only 4.3% from 2015 to 2019, with its share of total GDP declining from 10.3% in 2015 to 10.1% in 2019.

Looking at the major factors influencing the global healthcare industry in 2016, they are demographics, economy, operations, innovation, and regulatory systems, as shown in Figure 2. Although rising healthcare costs are closely related to increased administrative expenses, higher insurance premiums, and excessive nursing costs, on the other hand, the adoption of new medical technologies and innovative methods also leads to increased healthcare costs. However, the path for future development is clear: relevant authorities must seek new ways to reduce costs.



Analysis of Factors Influencing Healthcare Costs

Trends in the Integration of Healthcare Institutions
The healthcare industry is shifting from a historically fragmented and dispersed model toward one of integration and connectivity. In certain countries, intensifying competition and sharply rising costs are driving an evolution toward a “bigger is better” landscape. Healthcare institutions are merging with one another, while physician groups are forming independent alliances—trends that not only align with economic expansion but also provide robust resilience against mounting regulatory pressures from above.

Enhancing the transparency of medical processes, improving the quality of care, and optimizing healthcare outcomes are requirements mandated by regulatory authorities. Individual discretion in determining medical approaches will increasingly be replaced by standardized guidelines and policy regulations. Ultimately, the widespread adoption of communication technologies will connect the world, while public expectations for the healthcare industry continue to rise.



Pursuing Population Health
Healthcare institutions responsible for health management have recognized the growing need to predict disease risks in advance. These institutions and social healthcare systems should collaborate closely, enabling both public and private sectors to shift their focus from disease treatment to medical prevention, thereby optimizing health outcomes. Although promising developments have emerged in the United Kingdom, Mexico, Japan, and Germany, preventive medicine as a whole remains in its early stages.

Changes in Price Rating Standards
The most prominent shift is the United States’ advocacy for healthcare reform to transition from the Fee-for-Service (FFS) model to Value-Based Services (VBS). Currently, some institutions are actively preparing for the Value-Based Care (VBC) model, while others remain on the sidelines. The slow pace of adoption by certain healthcare organizations is understandable, given the substantial investment required for VBS, the considerable profitability of the FFS payment model, and the lack of clear, reasonable, and mandatory regulations from stakeholders regarding the assessment of healthcare value. Therefore, as medical costs and patient volumes surge simultaneously, stakeholders must strive to adopt lower-cost strategies to cope. In reality, numerous obstacles are hindering the achievement of this goal.

VBC Model
The healthcare system is improving services by optimizing supply chains and accelerating capital turnover. For instance, bulk procurement, enhanced records management, reduced labor costs, and improved clinical efficiency can boost profits in the short term, but these are not fundamental solutions. Forward-looking healthcare systems place greater emphasis on existing financial business models, prioritizing the actual health value delivered per dollar spent.
Figure 3 illustrates the transition of Value-Based Care (VBC) payment models—from Fee-for-Service (FFS), shared savings, bundled payments, and risk-sharing to cost capitation. As these models evolve from lower to higher levels, healthcare institutions assume increasing responsibility for cost containment and greater financial risk.

To this end, healthcare institutions need to invest in the following areas to rebuild the VBC model:
1. Evaluate medical performance: adopt reporting and analytical tools to measure outcomes;
2 Patient Engagement: Leveraging tools to enhance patients’ medical knowledge and capabilities, thereby improving treatment adherence;
3. Medical Collaboration: Healthcare providers participate in management at appropriate times based on situational assessment, reducing costs and improving quality;
4. Risk Sharing: Implement tiered management and control of disease risks arising from clinical factors or patients' lifestyle habits;
5. Medical Plan: Develop new clinical pathways based on evidence-based medicine for continuous disease management.
Figure 4



PPP Model
Public-Private Partnership (PPP) models involve infrastructure construction, joint technology development, and participation in operational management activities. PPP models can help governments provide more medical services, expand healthcare coverage, and alleviate cost burdens. Some PPP models incorporate risk stratification, similar to Value-Based Care (VBC) models, where the government provides financial incentives to private institutions based on healthcare outcomes.

The PPP model will foster a more efficient healthcare operations system, with the patient-centered care model being the most evident change.
From isolated care within a single department to integrated, multi-departmental comprehensive care; from fragmented, discontinuous care to continuous disease monitoring; from physician-centric care to patient-centered care; from individual physician services to multidisciplinary team-based diagnosis and treatment; and from partial, localized medical management to collaborative patient stewardship through external partnerships.



The Deloitte report also points out that in China’s second- and third-tier cities, despite substantial government funding for hospitals, basic medical services still need strengthening. These cities require well-trained physicians, clinicians skilled in disease diagnosis, and other healthcare professionals to maximize the returns on investments in mobile health technologies and infrastructure. Figure 6 illustrates the global ratio of hospital beds per 1,000 population in 2014 and 2019.



Furthermore, improvements in the healthcare sector across various countries include restructuring administrative functions, enhancing information sharing and transparency, reducing redundant medical testing services, boldly adopting digital technologies to decrease reliance on in-person care, and promoting home-based healthcare and patient self-management.

Many countries, such as Canada, the United Kingdom, and Australia, have autonomous healthcare organizations with distinct administrative departments responsible for primary, secondary, and tertiary care, clinical training, leadership development, quality standard setting, accreditation, regulation, and policy-making, each fulfilling its specific role. It is projected that in 2016, many healthcare organizations will strive to reduce unit costs by implementing shared services.

Furthermore, according to research by the RAND Corporation, 31% of U.S. healthcare expenditures occur in hospital settings. Improving care coordination processes within hospitals is highly beneficial for reducing medical waste and promoting the development of the entire healthcare industry. Cost pressures, changes in staffing models, technological advancements, and consumer preferences have all contributed to the emergence of a new “ubiquitous” healthcare landscape. In response, numerous health systems are adopting diverse alternative care delivery models, such as decentralizing management from national to local levels and shifting services from large hospitals to lower-cost infrastructure settings.

Statistics indicate that, on average, the ratio of physicians per 1,000 population remained largely stable globally from 2014 to 2017. India faces the most severe physician shortage, with a doctor-to-population ratio of 0.6:1, while China’s situation is equally concerning. The restriction on multi-site practice for physicians has hindered the development of private hospitals. Although pilot programs for multi-site practice have been introduced in certain regions, the public continues to prioritize the rankings and brand reputation of public hospitals. Consequently, private and foreign-funded hospitals face significant challenges in recruiting highly reputable physicians.



Amid intensifying market competition and sustained regulatory pressure, most U.S. healthcare institutions have adopted mergers and acquisitions (M&A) to integrate hospitals, thereby creating large-scale health systems and expanding their service offerings. As shown in Figure 8, M&A activity among healthcare institutions accelerated markedly in 2014 and mid-2015, with healthcare institution M&A accounting for the majority of all M&A transactions in the first half of 2015.



Medical Technology Innovation

Pharmaceutical Innovation
The advent of the human genome and precision medicine has opened new avenues for targeted therapies against the most challenging diseases. However, the cost of medical innovation remains high. For now, medical innovation will continue to drive up healthcare costs.

For instance, although the new drugs for hepatitis C approved in the United States will save on the treatment costs of liver failure and cancer in the long run, their unit prices remain high. As a result, some states and commercial insurance companies have actually restricted the scope of use for these new drugs, ultimately leading to intense competition between public and private sectors, while the government also compares the application costs of old and new drugs and takes comprehensive considerations.

Precision Medicine
Personalized precision medicine will transition from the past era of large-scale, generalized-quality healthcare to an integrated model of diagnosis and disease management that combines pharmaceuticals and medical devices. For instance, the U.S. government’s FY2016 budget proposed $215 million for precision medicine, with a focus on establishing large-scale longitudinal studies and ensuring the sharing of patient data across numerous healthcare institutions and organizations within a legal framework.
Genetics-based personal health care will fundamentally improve prognostic outcomes. For instance, 30%–40% of patients experience adverse drug reactions; however, precision therapy will help physicians devise more accurate treatment plans and reduce side effects.

Digitally Connecting Healthcare
The future trend is to integrate in-hospital and out-of-hospital care, enabling anytime, anywhere communication between doctors and patients. Healthcare institutions will explore models to enhance doctor-patient interaction, encourage patient participation, and support out-of-hospital prevention and chronic disease management. The transition from the concept of mobile health (mHealth) to connected health (cHealth) is underway. The digitalization of communication, diagnosis, treatment, and monitoring processes relies on advances in medical technology.

Wearable devices can capture data, with mobile health apps and social media also playing a part. For instance, developing countries suffer from a severe shortage of medical resources and infrastructure, particularly in rural areas. Therefore, it is essential to explore digital technologies to improve basic medical services and bridge the gap with the robust healthcare systems found in urban areas.

The global digital health market encompasses wireless medical technologies, electronic health records (EHR), electronic medical records (EMR), mobile health, telemedicine, and other segments. The global market size was $60.8 billion in 2013 and is projected to reach $233.3 billion by 2020, representing a compound annual growth rate (CAGR) of 21.2%. Furthermore, the development of digital health has driven advancements in wireless devices, sensors, and smart devices. Investment in digital health exceeded $4 billion in 2014, with telemedicine emerging as the fastest-growing segment, registering a 3.15-fold increase from 2013 to 2014.

Examples of how wearable devices collect human health data include: contact lenses that monitor blood glucose, hearing aids that enhance auditory function, heart rate monitors, wristbands that track heart rate, blood pressure, and calorie expenditure, smart pills that monitor physiological responses to medication, and insole sensors that measure body weight, body fat balance, and temperature. As shown in Figure 9: