New Entrants Grabbing Slice of Changing Healthcare Market

At least $42 billion of the $2.8 trillion US healthcare industry is up for grabs as new market entrants from Walmart to technology start-ups seek a slice of the pie, according to a new study.

In a trend that threatens to upend the healthcare industry, new market players are capitalizing on freshly empowered consumers and the drive to create a value-based medical services delivery system, according to a new PricewaterhouseCoopers study, "Healthcare's new entrants: Who will be healthcare's Amazon.com?"

"There are huge openings for these new entrants to disrupt the healthcare sector," Ceci Connolly, managing director of PwC's Health Research Institute, said Tuesday during a webinar on the study. "In overwhelming numbers, consumers are willing to abandon old models for more efficient, convenient care. … We are seeing this go far beyond flu shots."

The key findings of the study are:

• Two dozen of last year's Fortune 50 companies are new entrants to the healthcare market
• New entrants are driving "democratization and decentralization" of healthcare, which is boosting access to medical services
• Consumers' growing insistence on price and transparency presents an opportunity to new entrants and a risk to traditional healthcare organizations
• New entrants are not only seeking a share of the $2.8 trillion medical services market but also "reshaping and expanding the $267 billion US fitness and wellness industry"

The new entrant study's lead author, Trine Tsouderos, a director at PwC's Health Research Institute, says a consumer survey served as "the heart of our report." The survey asked consumers whether they would be comfortable receiving medical services outside of a traditional setting or with new "virtual technology" options such as smartphone apps and telemedicine. The medical services in the survey ranged from a routine electrocardiogram to dialysis.

A significant finding of the survey is that 45% of respondents said they were likely to choose the new options for outpatient care and services historically obtained in physician offices. "People were very open to doing these in new ways," said the study's lead author, Trine Tsouderos, a director at PwC's Health Research Institute, during the webcast.

New dialysis options drew the most tepid consumer response, with 26% of respondents embracing options such as home dialysis.

Tsouderos says the consumer survey also gauged "the money at stake" for traditional healthcare organizations. She said $42 billion is a "conservative number," noting 2011 data indicates new entrants had the potential to vie for more than $64 billion in medical services.

New entrants, new payment models

Lack of experience in the healthcare industry—particularly with complex payment systems—is the largest obstacle for nontraditional players trying to establish niches in the market, Connolly says. Some new entrants are building their business models without public and commercial healthcare payers in the mix, she says. Other new entrants are establishing partnerships with traditional players.

An example of a new entrant is San Francisco-based CellScope Inc., which markets technology that turns a smartphone into a digital otoscope. The technology allows parents to conduct diagnostics at home to determine whether a child has an ear infection.

Connolly says CellScope decided against working with payers entirely on its CellScope Oto product. "They are hoping to market that directly with consumers," she says.

An intriguing new-entrant partnership has been formed between Oakland, CA-based Kaiser Permanente and retailer giant Walmart. In California, the companies are opening Kaiser Permanente Care Corners, where patients can have a private teleconference with a doctor or nurse, with a vocational nurse on-site to collect vital signs and other data that can be sent to Kaiser Permanente physicians. The Care Corners sites also generate referrals and offer medical advice for conditions including asthma, diabetes, and joint pain.

Kauffman said providers and payers alike should take notice of the way new entrants are utilizing telemedicine. "This is here to stay," he said. "It's important for all the stakeholders to get together and figure out how … to deliver some of these telemedicine solutions."

Meeting new capacity and expectations

Brian Kim, senior vice president of account management at Southboro, MA-based ikaSystems, says the PwC report's findings reflect what he is seeing in the marketplace. "Of course there are going to be these new entrants. People want to get into this business because there is tremendous opportunity."

Kim says the millions of people who have gained health insurance over the past year represent not only a new pool of customers but also a chance for new entrants to help address an anticipated capacity shortfall. "There's going to be incredible stress on the delivery system," he says. "You need additional capacity to serve the population. … The key disruption is the uninsured."

For example, the Kaiser Permanente Care Corners at Walmart are "about increasing capacity for a population that probably didn't have coverage before and probably went to the emergency room to get care," he says.

David Schultz, president of Albany, NY-based Media Logic, a healthcare marketing firm, believes the enhanced role of the consumer in healthcare is the key that has opened the door for new entrants. "The entire industry is due for a major upheaval," he said after Tuesday's webinar. "Once you've made consumers actual buyers, their whole set of expectations has changed."

US consumers are still learning the healthcare industry ropes, but their interest in price and transparency is a game-changer, Schultz said. "Their needs will be met by entrepreneurs," he says.