Stagnation with a chance of decline: Healthcare's 5-year forecast

Healthcare is in an era of change and that change is only going to become more dramatic in the next five years, according to Jeffrey Bauer, PhD, a health futurist and medical economist.

"In the next five years, healthcare is going to move like it has never moved before," Dr. Bauer said.

Dr. Bauer provided his healthcare forecast Tuesday at the 12th Annual Healthcare and Life Sciences Private Equity & Finance Conference, hosted by McGuireWoods and McGladrey in Chicago.

Dr. Bauer knows a thing or two about forecasting: He has more than 40 years of experience as a healthcare consultant and a professor, and he spent six years as a meteorologist. He applies forecasting techniques to healthcare by identifying variables, collecting historical data, categorizing outcomes for similar combinations and assigning probabilities to those outcomes.

Here are the possibilities and trends Dr. Bauer sees on the healthcare horizon and his suggestions to weather the changes.

Economic growth in healthcare will slow and likely come to a halt

Dr. Bauer is forecasting healthcare will account for 15 to 19 percent of GDP by the end of the decade. He forecasts a 15 percent chance of growth, 45 percent chance of stagnation and a 40 percent chance of decline.

He discounts previous estimates from the government: Healthcare today accounts for about 17 percent of GDP, when estimates from six years ago put healthcare at 20 percent of GDP by 2015. This is a 25 percent overestimate, Dr. Bauer says, and using the same math, it means healthcare spending would hit 22 percent of GDP by 2022.

The latest government estimate about healthcare as a portion of GDP came out in 2014, expecting 19 percent by 2023.

"I think it is absolutely crazy. I cannot see it happening, because it is inconsistent with the patterns. In fact, the overall healthcare economy is not a bulletproof, will-grow-forever kind of sector," he says.

Healthcare growth is over, he says, due to constraints on general economic growth, the increasing demands from other sectors, the lack of disposable income for consumer spending and increasing diversification and competition.

While these factors may bring down healthcare spending, they are also optimistic for investments. Reducing spending means the healthcare industry cannot continue to be wasteful, and it presents opportunities for innovation.

As the healthcare delivery system transforms, only 25 percent of organizations will thrive

Dr. Bauer's research suggests 30 percent of healthcare organizations as we know them today will cease to exist. They will not be in business by the end of the decade, he says, be it by total liquidation or acquisition.

"[Thirty percent of organizations] aren't sensitive to new opportunities to be more cost effective and to not waste people's money," he says.

Dr. Bauer forecasts 45 percent of organizations will continue to exist as they are organized today. They won't have to claim federal bankruptcy protection, but this 45 percent will exist precariously, he says.

Just 25 percent will thrive, he says, by fixing the way care is delivered.

"It's this theme that leads me to my optimism," he says, "About savvy investors pushing people to do the right things to create the best healthcare delivery system in the United States — which we know we can do — but we've never done it through government healthcare reform."

The industry must fix the way healthcare is delivered because the sector will not continue to grow

Due to the complexity of the PPACA and the uncertainty of the law's future, Dr. Bauer believes the best way to see change is through investments, not politics.

"I think that the odds of [the PPACA] basically being eviscerated by the Supreme Court in this session are in excess of 50 percent," Dr. Bauer says. "I think to proceed with the assumption the PPACA will play out is just folly."

If the Supreme Court rules in favor of the plaintiffs in the King v. Burwell case, it may signal the possibility that politicians could find other issues with the law, changing how it will play out over the next few years.

Even if the PPACA remains intact, resources are not available to implement the law as it was enacted, Dr. Bauer says. At the same time, an increasing number of insured Americans and an aging population is putting increasing pressure on the healthcare delivery system. While politicians continue to disagree over the law, Dr. Bauer believes the best way to move forward in healthcare is to focus on making the delivery system more efficient, and to motivate this change through strategic investments.

Dr. Bauer suggests several strategies for investing in a future we cannot predict. Investors must examine investment capacity to repay debt, he says, and conduct due diligence for possible misrepresentations in healthcare research. They must understand the unprecedented speed of change, avoid assumptions and generalizations, expect successes and failures in all areas, and above all, focus on investments that improve the efficiency and effectiveness of healthcare. Healthcare needs to drive waste out of the delivery system, he says, and focus on individual patients and niche markets, expand services, reach consumers in new ways, recognize international market opportunities and remain flexible and open to innovation.

 

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