THOUGHTS

Treating Challenges in the Healthcare Industry

Aug 30, 2016

The Global Healthcare industry faces certain significant healthcare challenges that need to be promptly addressed. Healthcare executives must be able to manage greater risks in increasingly uncertain environments to provide affordable, accessible, and sustainable healthcare for the global population.

Today’s healthcare executives are faced with a growing number of global challenges. Over the next few years, executives will be required to manage increased risks as a result of rapid changes such as healthcare reforms, growing ageing populations across the globe, the end of blockbuster drugs, and increasing demand for healthcare services, professionals, and infrastructure in the developing world. Executives are also expected to face additional healthcare challenges as a result of shifting from a market-based approach to a community-centric approach, without an impact on quality or cost-effectiveness. Listed below are the four most significant healthcare challenges facing executives today.

1. Industry changing Healthcare Reform

Recent healthcare reforms in the US have presented some significant challenges for healthcare executives. The government’s deficit will continue to be an issue for healthcare providers despite the Affordable Care Act, which will incorporate approximately 30 million paying customers into the system. It has been forecast that the 10-year deficit will result in federal debt exceeding US$19 trillion, leading to the imposition of austerity measures. Services and funding for healthcare providers could be on the federal chopping block over the next ten years as Medicare funding may be reduced in an effort to help balance the budget. Hospitals account for 46% of Medicare spending and derive a significant amount of their operating revenue from Medicare funding. Any Medicare budget cuts would present significant financial challenges to hospitals and other healthcare companies.

In light of these challenges, healthcare executives should prepare their companies for a period of fiscal stringency and ration capital and operating funds until healthcare reform is fully rolled out and operational. Hospital CEOs must find ways to reduce costs, align provider and payer incentives, adjust to value-based purchasing, and adapt strategic planning around an uncertain regulatory and legislative environment.

2. Rapidly Increasing Ageing Population

Globally, the number of elderly citizens is growing at a rapid pace, and this is expected to have a tremendous impact on healthcare. In the US, the number of elderly people is expected to increase by 128% by 2050, while the number of people over the age of 85 is expected to increase by 251% in the same period. The US is not the only country facing this issue; ageing population presents problems for healthcare systems in Canada and Europe as well. Europe has been dealing with the impact of an ageing population for some time now. In 2000, 16% of the population in the UK and 16.4% in Germany were over 65 years of age.

The growth of ageing populations around the world presents unique challenges for the health care system. Elderly patients require a different type of healthcare regime with a focus on chronic illness care. Hospitals must manage multiple diseases and disabilities and also improve the quality of long-term care. New ways must be found to integrate medical and long-term care services, and there is also a prevailing need to co-ordinate healthcare and social services. However, this is especially difficult in the US owing to its fragmented financial and social services. Developing a cost-effective integrated healthcare system will be essential for healthcare providers moving forward.

3. End of the Blockbuster Drug era

Beginning in 2010, the Pharmaceutical industry in the US experienced one of the largest waves of drug patent expirations in history. Patents for top earning drugs in the Pharmaceutical industry expired, and continued to expire till 2014. Pharmaceutical companies have been shrinking over the past five years as their top revenue streams dry up.

Sales of a blockbuster drug often drop by up to 90% within a year of the expiration of its patent as competitors are able to offer cheaper generic alternatives. As a result, the industry is witnessing a slowdown in drug innovation and the number of new drugs entering the market. This wave of expiration presents the industry with a future of reduced free capital for R&D as over half of the revenue of major pharmaceutical companies and over one third of the total revenue in the industry is derived from the sale of blockbuster goods.

4. Higher healthcare demand from the Developing World

Rapid economic growth and an emerging middle class have led to a significant increase in the demand for health services in developing nations. However, governments have struggled to meet these needs, in both rural and urban areas. By 2050, 6.4 billion people are expected to live in urban centers compared to 3.4 billion in 2009. Increased urbanization creates additional healthcare challenges for providers as it can often lead to an unhealthy lifestyle. The availability of unhealthy food choices, pervasive use of motorized vehicles, barriers to physical activity, and poor air quality can increase the number of cases of hypertension, heart disease, obesity, diabetes, and asthma. Rising energy costs, decreasing availability of resources, and climate changes also present healthcare providers with significant challenges. For instance, hospitals in Brazil accounted for 10.6% of commercial energy use in 2012. This is likely to become an issue for sustainability as the cost of energy rises. The growing needs of developing nations require significant investments in the services and infrastructure required to support healthcare systems.

These issues present healthcare executives with a variety of global and localized healthcare challenges. Healthcare executives will be required to manage increased levels of risk under uncertain regulatory and financial conditions, and they must be prepared to face these challenges. Healthcare executives across the world must also address the challenges presented by healthcare reforms, the growing ageing population across the globe, shrinking of pharmaceutical giants, and unprecedented growth in developing nations.

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