// . //  Insights //  Healthcare Players Face Big Decisions Over The Next Decade

This article is part of the Designing for 2035 report.

The future of healthcare by 2035 will depend on how organizations react to current market trends and their perceptions of the threats and opportunities the future holds. Big incumbents could tackle transformative ambitions of delivering value in new ways. Innovators and new entrants could continue to siphon off profitable market segments and eventually take more of a leading role. The pace of consolidation may accelerate to create real economies of scale and scope, or the pendulum could swing to favor the nimbleness and local intimacy of smaller players. Capital markets and industry regulators will respond in varying ways to limit, or expand, all of these possibilities.

The future makeup of the industry depends on what organizations within and outside of healthcare do today. For each of these stakeholders, a set of no-regrets decisions should be on the table.

Health systems face mounting cost and revenue pressures

Care continues to shift to lowcost outpatient settings. Outpatient revenue now contributes almost half of community hospital revenues. The growth in less-profitable government payer lines of business also puts pressure on revenue. And the ever-increasing price of supplies and medications, coupled with ongoing labor struggles, are a strain on the bottom line.

Health systems don’t have 10 to 12 years to address these risks. While profitability has rebounded slightly post COVID, the long-term outlook for this sector is challenging. More than 60 hospitals and health systems in 2023 were downgraded by at least one of the three big credit rating agencies and over half of hospitals have a negative operating margin. This is particularly acute for rural and safety-net hospitals. Both community hospitals and academic medical centers need to reevaluate their inpatient operations, focusing on growing operational efficiency and partnering for scale as appropriate. They’ll need to strategically divest direct ownership and invest in coordination of care, all the while continuing to increase expectations on patient experience. Revenue models will evolve, bringing greater visibility, but requiring investments in population health and a focus on government lines of business.

The health system of tomorrow will also have fewer, higher-acuity inpatient beds. Instead, targeted scopes of services will be supported by smaller on-site teams and partnerships, a larger and more diverse ambulatory footprint — including for post-acute care, and partnerships for virtual specialist access. While the pace of change will vary — some hospitals will continue to afford favorable fee for service rates for decades to come — most health systems will need to radically rethink operations to succeed in a new market.

Adapting health plan payer strategies for evolving needs

Today’s private payers will have to adapt as the preferences and needs of each segment evolve and the overall funding environment becomes more constrained. Employers need holistic health plan offerings that more directly address the needs of their workforce. As competition for a shrinking talent pool picks up, employers will need the flexibility to use tailored benefits as a retention and recruiting tool. Payers need to help employers expand their role beyond strictly offering health benefits, with increased efforts towards guaranteeing access, especially toward behavioral health. Additionally, as coverage increasingly includes therapies with high upfront costs, payers will need new ways to provide access to those services, guarantee quality, and ultimately manage costs, including through risk pools that share in that cost.

Greater integration between government programs will be vital for establishing better continuity of care; it will no longer be possible to run these lines of business-like separate segments. Medicare Advantage payers will need to maintain their benefits while revamping operations in the face of challenging macroeconomic trends and funding pressures. Across product lines, payers must make investments in operations that can pay long-term dividends in cost and flexibility.

Biopharma innovators transforming care

Pharmaceutical companies today focus on the development, manufacturing, marketing, and distribution of innovative therapies. In this product-centric model, there has been limited connectivity between pharmaceutical companies, the providers who select and administer therapies, and the payers who cover the treatments. The pharmaceutical company of tomorrow will engage in more partnerships with other stakeholders and be involved throughout the care journey, facilitating delivery in novel ways. While they will continue to drive forward research and development, they will also play an increased role in therapy administration, management cycle, and bringing pre-test services to patients’ homes. We’ll see more companies supporting care teams, providing financial assistance, and supporting other logistics or compliance items, all with sustainability in mind given the ongoing climate situation. They will participate in new pricing and revenue models that incorporate multi-year horizons or outcome-based pricing. These new capabilities formed inside pharmaceutical companies will serve as a bridge between healthcare stakeholders when it comes to therapeutics and empowering patients to own their journeys by arming them with necessary knowledge and tools.

These stakeholders each face a challenging and meaningful road to change. They make investments, undertake transformation, and build new models while looking to other industry frameworks and structures to evolve at the same time. Whether its evolving statebased licensing or regulatory requirements, enabling new supply or education of clinicians, or top of license practicing challenges and boundaries, many enabling structures need to align to realize what’s needed.

Take action

We encourage you to explore the diverse topics covered in this report. The goal is to help inform your strategies, foster innovation, and, ultimately, contribute to the betterment of healthcare for all. The changes we outlined will not happen all at once but the foundations and momentum for a different healthcare system in the future are evident. Market leaders and innovators are already moving in the directions we’ve highlighted. Make no mistake, 2035 will be here before we know it. Mobilizing now, having hard conversations, and beginning to plot out a path to that future is not optional.