The New Strategic Landscape: Top Priorities for Health Care CEOs—and Investors

At Health Evolution Summit, CEOs from across the health care industry come together to discuss the biggest challenges and opportunities facing the industry and forge partnerships to drive the industry forward. At our 2024 Summit in April, executives especially homed in on how the strategic landscape for health care is shifting, and how capital markets are responding to those changes.

The New Strategic Landscape: Navigating Heightened Competition, Consolidation, and the Quest for Consumer Loyalty

During a conversation entitled “The New Strategic Landscape: Navigating Heightened Competition, Consolidation, and the Quest for Consumer Loyalty,” moderator Derek Streat, Founder, CEO, & Chairman, DexCare, and discussion leaders Sarah Iselin, President & CEO, Blue Cross Blue Shield of Massachusetts; Dan Mendelson, CEO, Morgan Health; and Warner Thomas, President & CEO, Sutter Health, examined the emerging strategic challenges and opportunities facing health care executives in the years ahead. They identified three major strategic priorities for the industry:

1. Meeting the growing health care needs, and costs, of America’s aging population;
2. Ensuring health care is affordable while embracing emerging innovations; and
3. Empowering consumers to access high-value care.

America’s aging population

All Baby Boomers will reach Medicare age by 2030, bringing an entire generation into senior care. This transition poses a landmark challenge, the discussion leaders said, as the industry already grapples with strained finances and workforce capacity, while demand for care will continue to grow.

“There’s a train coming, and the industry is going to have to evolve to be able to handle it,” Streat said.

Thomas explained that 11,000 people aging into Medicare every day exacerbates the disparity between what commercial insurance and Medicare typically reimburse providers. “That’s going to cause tremendous stress on the delivery system’s capacity and ability to care for people, and it could create more conflict across the health care ecosystem when it comes to payment mechanisms,” he said.

To mitigate that pressure, the industry must “change the payment mechanism to move to global payments and change the incentive structure in the delivery system” to one that centers on high-value care, Thomas said.

As part of those changes, the industry needs to ensure that “economic incentives get down to where the actual clinical decisions are being made, reaching actual provider groups and departments,” Iselin added.

Mendelson agreed, noting that industry executives must figure out a more cost-effective way to provide and pay for care. “The time is now to really pivot in a lot of ways, and the old ways of doing business are not going to be appropriate,” he said.

Mendelson touted shifting toward a value-based payment system, but he said change will “have to go further than that over the next decade in order to accommodate the practice of medicine as it fits right now into the way that we do business.” For example, he said, “the focus of so many companies on digital solutions, care navigation, and shifting toward lower-cost care settings when possible are going to be critically important going forward.”

Streat added that greater access to care and a capacity of providers shouldn’t be tradeoffs. “The real hurdle is not technology, but changing how we operate as an industry,” he said. To get ahead of a fragile system that will be pressure tested as Americans reach the age of 65, Streat said “we must move away from a fragmented view of how care is distributed and adopt a predictive model that manages how, when, and where care is accessed.”

The discussion leaders said these shifts will require executives from across the industry to work together in new ways. “There isn’t a roadmap for how to do this,” Iselin noted. “Partnership; the appetite for experimentation and learning—and for doing so in a transparent way; and acknowledging that we’re not going to get it all right is going to be required. That is the future, and it takes trust with our members and patients, and between health plans and providers. That’s what it’s going to take to make real progress,” she said.

Balancing affordability and innovation

Costs aren’t just a concern when it comes to caring for seniors. Across the country, patients, purchasers, and the state and federal governments are struggling with affordability.

Thomas said implementing more value-based payment structures across the industry is needed to both bring down health care costs and ensure patients are receiving quality care—which can help to stave off more spending in the long run. “Changing the payment mechanism incentivizes you to move people to lower-cost settings, move people to lower-cost generic drugs, try to keep people out of emergency departments, and work to keep people’s blood pressures and diabetes under control so maybe they can get off their medications over time,” he said. “That’s why changing the payment mechanism and establishing partnerships to work with employers and insurers to do things differently is a key factor to our success. Insurers, employers, and delivery systems all must help people live healthier, productive lives. It’s a collective responsibility and we’ve got to work on it together,” Thomas asserted.

Mendelson said, “Employers have an opportunity to engage and really start to drive more of the change, through providing better primary care to workers and incenting workers to choose higher-quality, lower-cost options.” He noted that, currently, “the employer part of the system has the least amount of value-based care,” and it’s time for that to evolve. “We’re not going to affect the kind of change we need unless we do that,” he said.

Mendelson added that employers also “have an opportunity to bring new kinds of products” to employees that could help them access higher-quality care, “whether that’s more accessible primary care, better care navigation, or digital health tools that will reduce the cost of care by driving clearer decision making and reducing the types of care that patients frankly don’t want anyway.”

Iselin agreed but cautioned that, although the industry’s “capacity and ability to innovate is limitless, our ability to innovate is outstripping our ability to pay for everything.” She asked, “So how do we continue to finance and protect access to all of these extraordinary new technologies, new drugs, new procedures, and things that have the potential to extend life at a time when consumers, employers, the government, and really everybody who finances health care is telling us in every way they can that they’re struggling with what it costs?”

“This is a place where we really need to come together, figure out what risk pooling looks like, whether there’s a role for government, and what the cost of these technologies are relative to their value,” Mendelson said.

Iselin contended that government must play a role. “We need a community signal from government around what constitutes an acceptable level of health care cost growth. I don’t think the private sector can do this on its own without a stronger signal with serious consequences from government because of how hard this transformation is going to be,” she said.

Empowering patients

A key component to solving these challenges is empowering patients to access high-value care, the discussion leaders agreed.

“It’s really about the empowerment of consumers to make great decisions through care navigation and other tools to really be choosing health care that better suits their needs from both a clinical and budgetary standpoint,” Mendelson said.

That will take cross-industry collaboration, Iselin noted. “It’s tricky to influence consumers to get care in different ways. Convincing people to change care patterns, to change physicians, to change their impression of where they’re going to get the best care is slow work, because these are the most vulnerable moments of people’s lives. We need to keep working on it,” she said.

To make progress, Iselin said executives must work together to create a system that’s more cohesive and easier for patients to navigate and access the care they need. “One of the greatest opportunities and frustrations of consumers is that health care is littered with point solutions that don’t recognize our overall health. Even when we talk about insurance, we’ve got pharmacy carved out to a different company than our medical benefits. We’ve created an ecosystem that is incentivizing and rewarding chopping everything up, and it’s nearly impossible to integrate 50 different point solutions. So we need to innovate in a way that is responsive to that challenge,” she explained. Iselin added, “I think with more empathy and more heart in vulnerable moments in people’s lives, that’s where we’ll win.”

The Capital Conundrum: Deciphering Volatile Markets and the Impact on Innovators and Incumbents

Many of the challenges and opportunities that discussion leaders identified as strategic priorities for the industry are top of mind for investors looking to support innovation in health care. During a conversation entitled “The Capital Conundrum: Deciphering Volatile Markets and the Impact on Innovators and Incumbents,” moderator David Gluckman, MD, Vice Chairman of Investment Banking & Global Head of Healthcare, Lazard, and discussion leaders Scott Kupor, Managing Partner, a16z; Dan Skovronsky, MD, PhD, Chief Scientific Officer and President, Lilly Research Laboratories and Lilly Immunology, Eli Lilly and Company; and Mary Tolan, Founder and Managing Partner, Chicago Pacific Founders, delved into how investors are looking to back companies and solutions that could address some of the industry’s most pressing challenges.

Overall, the discussion leaders said investors are looking for innovations that will help move the industry forward on its path toward centering care and payments around value.

“Companies that are really going to succeed are those that are focused on applications that create real value,” Tolan said. Investors are looking for companies that can “take a population and really prove the interventions that they have and the success reducing medical expenses and improving quality” before investors look to accelerate their investments into a company, she explained.

Tolan said investors are particularly focused on innovations that can “really improve quality and improve costs, including true medical expense reduction.” These types of innovations include systems for delivering care in the home for critically ill patients, using AI tools to “identify the appropriate disease burden” among senior patients, and using AI tools to drive patient engagement. “Dramatically improving connectivity to the patient and getting more patient engagement is the beginning of everything in terms of really starting to improve costs,” she said.

Skovronsky agreed, especially when it comes to pharmaceuticals. “Big pharmaceutical companies have a lot of data,” but they “might not be as good at the technology innovation to figure out how to use that data to create something valuable,” he said. “That’s where innovators have strength,” and “the whole industry is kind of working through” how to bridge those gaps to create valuable solutions, he explained.

Skovronsky said investors also are looking at new developments with GLP-1 and other emerging medications to address “metabolic disease” and “potentially correct obesity and all of the downstream consequences of that,” which could “have a fundamental impact on human health.”  In addition, investors are excited about developments in AI and how AI tools could improve health care and drug discovery, he said.

Kupor agreed that AI could help to address some of the industry’s challenges, particularly cost pressures. “From an economic perspective, AI can be a massively deflationary technology, which ought to improve productivity broadly across the industry. It can help to augment efficiency and productivity, which is a very exciting opportunity,” he said.

For example, Kupor said “there will be a whole new set of business applications, HR applications, customer support applications, and finance applications” that companies will be able to use to streamline processes, as well as targeted solutions to support care delivery functions.

However, the discussion leaders cautioned that continued investment, and possibly regulatory reforms, are needed to bring these solutions to fruition. “I think at this moment, we are in the golden age of innovation,” Skovronsky said. But that could end if policymakers enact rules that limit the revenue health care companies use for research and development—and potentially quash investors’ interest in the industry, the discussion leaders warned. “We need some way to reimburse the risk takers,” Skovronsky contended.