Digitization is bringing a sea change to a U.S. healthcare industry already facing waves of uncertainty. By taking the right steps, this can be a major opportunity for industry players. Forecasting the future of any industry is difficult, none more so right now than healthcare in the United States. There are countless reasons why healthcare will look different in the near future, not least of which being the country's movement toward national coverage. However, digital transformation—the cumulative change that comes when digital technologies are introduced wholesale into an established industry—is poised to have an even bigger impact. For the U.S. healthcare industry, digital technology will be transformational, cutting healthcare delivery costs, eliminating errors through improved electronic medical records, and establishing routinized, evidence-based approaches to treatment. Digital forces are pulling at the industry and significantly altering services, products, innovation, delivery, and remuneration (see figure). There are digitally integrated healthcare providers, digital medical devices and technologies, and digital delivery and monitoring of home healthcare. In addition, new ideas are emanating from developing markets, agile competitors are embracing technology, and a digital-friendly federal administration is pushing innovation. And don't forget the digital consumer who is used to digital banking, digital retailing, and digital education, and expects digital healthcare. - See more at: http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/digital-healthcare-or-bust-in-america/10192#sthash.gP6B4uWR.dpuf

1. Digital Healthcare
or Bust in America
Digitization is bringing a sea change to a
U.S. healthcare industry already facing waves
of uncertainty. By taking the right steps, this
can be a major opportunity for industry players.
Digital Healthcare or Bust in America
1

2. Forecasting the future of any industry is difficult, none more so right now than healthcare in
the United States. There are countless reasons why healthcare will look different in the near
future, not least of which being the country’s movement toward national coverage. However,
digital transformation—the cumulative change that comes when digital technologies are
introduced wholesale into an established industry—is poised to have an even bigger impact.
For the U.S. healthcare industry, digital technology will be transformational, cutting healthcare
delivery costs, eliminating errors through improved electronic medical records, and establishing
routinized, evidence-based approaches to treatment.
Digital forces are pulling at the industry and significantly altering services, products, innovation,
delivery, and remuneration (see figure on page 3). There are digitally integrated healthcare
providers, digital medical devices and technologies, and digital delivery and monitoring of home
healthcare. In addition, new ideas are emanating from developing markets, agile competitors are
embracing technology, and a digital-friendly federal administration is pushing innovation. And
don’t forget the digital consumer who is used to digital banking, digital retailing, and digital
education, and expects digital healthcare.
Digital represents a tremendous opportunity—and a significant threat—for the various
participants in the U.S. healthcare industry (see sidebar: The Digital Players). No one in this
industry can afford to fall behind.
The Digital Players
Just about everyone will be
affected by digital healthcare,
from doctors, patients, and
hospitals to Big Pharma and
medical device companies.
The following outlines some
of the larger issues for the
bigger players.
• To qualify for Medicare
grants, a typical office-based
physician already needs to
certify level-one completion of
“meaningful use” for in-office
clinical systems. Failure to invest
in these could lead to financial
losses and the risk that patients
move on to physicians with more
sophisticated practices.
• U.S. hospitals are at the
forefront of the country’s march
to quality and effectiveness and
advanced clinical systems. For
example, failure to keep pace
with HCAHPS scores will result
in both economic penalties and
a poor report card on the
HCAHPS website.1
• Pharmaceutical companies
are discovering that nimble
competitors are investing in
mobile applications and
innovative tools that support
patient groups in their daily drug
administration. All efforts to
become patient-centric may
eclipse the traditional marketing
method of pushing drugs
through physician detailing.
• U.S. consumers are managing
their healthcare interactively
through a range of applications
available for chronic diseases
such as diabetes and respiratory
conditions, and for less critical
needs such as headaches,
fevers, and weight loss.
• Medical product companies are
discovering that patients and
providers are increasingly
comparing their product
experiences with other users
and challenging product claims.
Already, medical systems have
adopted a single-vendor knee
replacement device based on
reviews of patient outcomes
and costs.
HCAHPS provides the national, standardized, publicly reported surveys of patients regarding hospital care.
The website is www.hcahpsonline.org.
1
Digital Healthcare or Bust in America
2

3. Figure
Five trends are reshaping the healthcare IT market
Integrated
provider solutions
Digital and
social media
Health
at home
IT-driven
technologies
and devices
The growth of EMRs,
EHRs, and HIEs and
the IT backbone envisioned for ACOs are
expected to increase
clinical quality, improve
communication, and
reduce errors once
caregivers are fully
trained.
Consumers, healthcare providers, and
health and wellness
businesses are turning
to digital and social
communities to connect, learn, and engage.
As the world
population ages and
copes with chronic
conditions, home care
is becoming more
relevant. Homecare is
a safe, viable, and costeffective alternative
for many patients and
health systems.
Advances in computing and mobile
technologies are
creating revolutionary
products and procedures, such as roboticassisted surgical
devices, handheld
sonograms, and
smartphone apps
Emerging
markets
As innovators and
global healthcare
companies shift their
attention to emerging
markets, they are
finding new ways
to use IT to provide
low-cost solutions
Notes: EMR is electronic medical record; EHR is electronic health record; HIE is health information exchange; ACO is accountable care organization
Source: A.T. Kearney analysis
U.S. Healthcare: Big, Expensive, and Unplugged
By many measures, the U.S. healthcare industry in all its dimensions is large and successful. From
major integrated healthcare providers and pharmaceutical companies in New Jersey to biotech
firms in Boston, San Francisco, and San Diego to hospital equipment manufacturers in Indiana
and Illinois, the United States has large, R&D-intensive operations that produce leading-edge
products and offer tremendously high expertise and treatment.
In many ways, the U.S. healthcare industry
is successful. But it suffers in the wallet.
Where the United States suffers is in the wallet. The United States spends a larger percentage of
its GDP on healthcare than any other country in the world—18 percent, or $2.5 trillion out of a total
economy of $14 trillion. By comparison, health spending is 6 percent of GDP in Singapore and 12
percent in Canada. Perhaps more concerning, the spending has not led to consistently positive
outcomes. U.S. life expectancy ranks 27th in the world, infant mortality ranks 34th (behind Cuba
and Croatia), and the quality of healthcare practices varies widely by region. Not surprisingly,
those without regular and continual healthcare tend to be less healthy.
The state of digital technology in the U.S. healthcare market is also languishing. In 2008,
before the concerted push to connect physicians, only 10 percent of physician offices used
electronic records—very low when compared to the UK, where the use of digital primary care
records is at 100 percent. While progress is being made, with about half of U.S. physician
offices now using electronic records, the use of email remains a rarity and monthly treatment
and billing summaries for insured healthcare consumers is still confusing, especially when
compared to monthly integrated bank and credit card statements. And administrative costs
are much higher in the United States than in single-payer jurisdictions or regions with
universal healthcare (however it is delivered).
Digital Healthcare or Bust in America
3

4. Pressure Is on to Eliminate Costs and Inefficiencies
Why does the United States spend more on healthcare than any other country? Although there
are numerous reasons and opinions for this (along with a similar number of proposed fixes),
most agree that the following are major contributors:
• A “fee for service” system that rewards activity rather than outcomes and offers little pricing
transparency for patients
• An overreliance on specialists rather than generalists and routine community care
• Administrative expenses from a complex multi-payer system, billing fraud, and inefficiency
• A focus on treating acute episodes rather than preventing disease
• An emphasis on new, innovative treatments and products without rigorous economic
assessments against older, established methods
Pressure to cut healthcare costs through more preventive measures and more effective
treatments is continuing to rise. All healthcare organizations, from pharma to equipment
providers to services, are shifting away from a model based on market share (patient visits)
and revenues (delivering reimbursed treatment) to one that produces superior health
outcomes at lower costs.
We are moving toward a time when market share (an unfashionable term for many in the
healthcare industry) is influenced by positive outcomes and the cost to achieve them,
rather than location and geographic coverage. New product development processes,
services, IT use, service locations, measurement, and early intervention will look very
different in the future.
A shift to outsourcing services and treatment approaches may push full-service healthcare
providers to disaggregate activities and contract with specialists to provide certain services.
There are digital implications to this disaggregation, as digital is a means to:
• nsure seamless interactions with contract suppliers via electronic communications
E
• easure outcomes of specialist organizations that provide services
M
• anage outcomes of preventive programs that require direct interactions with patients
M
(requires more retail-oriented IT scaling and more traditional institutional IT communications)
Can Digital Mend U.S. Healthcare?
Where does digital belong in the effort to improve U.S. healthcare? Some areas are obvious
(providing more communications channels and the ability to measure outcomes), while others
are less so (creating entirely new ways of doing business). The following are several ways in
which digital will impact the healthcare industry:
Healthcare gets an information backbone
Digitization is an opportunity for healthcare providers to improve their information backbone
and integrate disease life cycles and relationships with patients. For example, an integrated
perspective on patients with diagnosed diseases and risk factors (such as a prediabetic
Digital Healthcare or Bust in America
4

5. patient with metabolic syndrome) makes it possible to monitor disease progression, increase
treatment effectiveness, reduce costs, and facilitate prevention and wellness programs.
Getting to this integrated view in a cost-effective manner requires electronic health records
(EHR) that organize medical diagnoses and treatments. Digital data collection and analysis
are then used to evaluate a treatment’s effectiveness and track performance through
pre-treatment and treatment.
The U.S. government has been a big proponent of electronic medical records (EMRs), which
are digital versions of the paper charts that contain a patient’s medical history. Through the
American Recovery and Reinvestment Act (best known as the economic stimulus), the
Department of Health and Human Services will spend over $30 billion on improving EMRs.
Proponents say computerized systems will reduce medical errors, paperwork, and unnecessary
tests. As a result of this investment, companies are emerging to centralize records and to reduce
the cost of “big medical data” and evidence-based research, prevention, and optimization. The
landscape of companies ranges from large, established hospital-based suppliers such as Epic,
McKesson, and GE (with its Centricity) to newer start-ups such as Athenahealth and Carefusion,
which have focused on physician billing and practice management with simpler, cloud-based
offerings. Similarly, the leading insurance companies, such as United Healthcare’s Optum,
Aetna’s ActiveHealth, and Humana’s Anvita Health, all aspire to integrate data from disparate
sources (pharma claims, medical claims, lab results, formulary data, and eligibility information)
so that they can identify gaps in care, duplications, and counter-indications.
Alternate channels transform provider-patient relationships
Digital and social media are altering interactions among patients and healthcare institutions, and
patients’ use of the Web is allowing access to information about healthcare alternatives. Access
to information comes with higher expectations and demands for more informed interactions.
Through the American Recovery and
Reinvestment Act, the U.S. government is
spending billions of dollars on improving
electronic medical records (EMRs).
Kaiser Permanente is well known for gaining first-mover advantage in digital and social media.2
The company uses secure email between patient and institution—a simple step—to reduce
costs and improve timeliness. Digital interactions allow information to be delivered to multiple
locations (for example, outside the hospital), reducing costs and improving the quality of
information as every medical professional has accurate data no matter where the interaction
takes place. Of course, this can only happen when there are secure information hubs for communicating among disparate providers and patients. One example is Merck’s non-promotional
Univadis website, which provides medical information, support services, and education around
the world. Its more than 1.3 million registered users account for nearly 30 million interactions
per year.
See A.T. Kearney’s interview with Kaiser Permanente chairman George Halvorson.
2
Digital Healthcare or Bust in America
5

6. Alternate delivery approaches will gain favor
Historically health services were delivered at one of two locations: the hospital or the doctor’s
office. A new delivery location is emerging: wherever the patient is. Patients are growing more
comfortable with using enabling technologies such as online chats to receive health services,
and healthcare providers are looking to take the benefit of changing incentives. A good
example is PatientsLikeMe. Founded by three MIT engineers, this radical healthcare business
model provides a data-driven social network to allow patients with rare conditions (such as Lou
Gehrig’s disease) to exchange information and experiences.
New medical process models will emerge—outside of the United States
This may be the most surprising trend. New process models, similar in concept to the idea of
business models in other industries, will be designed, tested, and rolled out on a large scale in
less litigious, less developed countries, and in places with more mature and established
universal coverage.
Several innovative companies are already experimenting with different styles of healthcare
delivery to provide effective, low-cost care to fast-growing but disadvantaged populations.
SafePoint Trust is a global charity that promotes the use of auto-disable syringes to fight the
spread of infectious diseases. InterSystems, a healthcare information systems leader, has had
significant success in developing countries such as Brazil, India, and South Africa. TeleVital has
succeeded in emerging markets by offering telemedicine capabilities to link specialists with
remote locations, and one million families in Mexico have used Medicall Home, which offers
medical advice over the phone.
For well-established healthcare suppliers and providers, digitization means that new competition
will come from non-traditional vendors with a technology-based approach—including startups
and well-known technology players such as Intel and Google. More foreign companies have
entered the U.S. market with low-cost systems that have already proven effective in other markets.
Management Implications: Where and How to Invest
The pervasive use of the Internet and mobile devices is of course altering how data is collected,
analyzed, used, and monitored. It provides more frequent data at a more granular level and
provides the basis for refined analysis of treatments, drug interactions and iatrogenesis, and
drug efficacy. All of this has implications on healthcare management, particularly in terms of IT
and business portfolios.
It is useful to think about the implications in terms of investments. There will be compulsory
investments to comply with government mandates (EHR for example) and strategic investments
in vital systems, capabilities, and processes that are essential to business strategy. Many of these
strategic investments could be experiments requiring different investment criteria. For example,
the experiment could be new treatment protocol support software designed to lower the cost of
care. The initial efforts may not bring many short-term benefits, but they usually provide information and experience that can lay the groundwork for transformation down the line.
What is clear is that executives have an enormous range of choices. A recent MarketsandMarkets
report pegged the U.S. healthcare IT market at $21.9 billion in 2012, with astounding 7.4 annual
growth expected through 2017 (when the market reaches $31.3 billion). We estimate that more
than 4,000 companies operate in this space, most with revenues of less than $100 million.
Digital Healthcare or Bust in America
6

7. Thus, executives need to figure out where to place their bets. In such a dynamic market
executives have a broad range of investment approaches to consider, along the lines of the
“build, buy, borrow” options:
• Build. Existing IT platforms, redesigning core processes and adding sophisticated analytical
capabilities will likely require building onto existing systems.
• Buy. In some cases, an innovator in the field may present an attractive buying opportunity,
particularly when the buyer has access to a broader client base and can justify the current
steep valuations.
• Borrow. Outsourcing has been common in the industry. What is new and increasingly common
in areas such as mobile health is that companies are negotiating cooperative agreements that
allow them to “borrow” their customers or software functionality. Pioneered by Apple with
its iPhone apps, companies such as Aetna (with its CarePass) are applying it to healthcare by
encouraging various health applications to link to Aetna consumers.
A recent report from the Institute of Medicine frames America’s healthcare future as a path to
continuous learning and improvement. Learning requires measurement and easy access to data.
It also requires effective deployment of preventive programs and treatment processes, both of
which require more digital capabilities. For every player in the U.S. healthcare industry, the next
few years will bring substantial change. Those ready and willing to adapt to digital technologies
will have a leg up on the competition. Those that fail to adapt could find themselves on the wrong
side of the “digital healthcare or bust” mantra.
Authors
Chris Paddison, partner, Dallas
chris.paddison@atkearney.com
Bob Haas, partner, New York
robert.haas@atkearney.com
Craig Kane, principal, Dallas
craig.kane@atkearney.com
Digital Healthcare or Bust in America
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