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Understanding the costs of healthcare—the first step to a more efficient healthcare system.

Rising healthcare costs aren’t news. Global health spending already reached USD 7.8 trillion—10% of world GDP—in 2017, according to the WHO. And with the over-65 population likely to grow 60% to 1 billion by 2030, we expect the growth in healthcare spending to continue to outpace the expansion in GDP.

While higher spending does improve health outcomes, life expectancy improvements moderate at higher levels of spending, with several outliers. The United States spends over 17% of GDP on healthcare, yet its life expectancy lags that of Western peers. Singapore spends just over 4% of GDP for better results.

Part of the explanation is the inefficiency of many healthcare systems. A staggering amount is wasted on unnecessary and low-value care—between USD 760 billion and USD 935 billion in the US alone in 2019, according to according to the American Medical Association, equivalent to roughly 25% of total health spending in the country.

With constrained budgets, governments and other payers are likely to push more healthcare costs onto individuals. The rise of high-deductible health plans and growth of prescription copays in the US are a case in point. But as patients bear more of their drug costs, they become more price-sensitive and more likely to skip prescriptions. This can have adverse medical consequences.

Technology and the "consumerization" of healthcare

Healthcare delivery therefore needs to change, with implications for patients, payers, and investors. Technology and the “consumerization” of healthcare are key to this change. A more engaged “health consumer” will take health into his or her own hands, with a greater incentive to focus on preventive health. The growth of wellness programs shows this behavior in action. We expect a further blurring of the lines between these areas and healthcare products and services as people seek to live better, rather than just longer, lives.

Will everyone respond to these challenges equally?

Unlikely. Patients willing to alter their behavior and reduce health risks are probably a self-selecting group, while some social or demographic groups may be less able to adapt. To ensure fairness, a mix of “carrot” and “stick” will be needed to drive change. Shifts in health delivery are likely to be gradual (we do not assume wholesale change in the US insurance-led model). But with chronic disease spending on the rise, better management and prevention of “lifestyle diseases” like obesity and heart disease could both save money and improve individuals’ quality of life.

Who are the enablers in the future of healthcare?

Enablers are companies developing technologies or services that drive change. The most successful will have large addressable markets and a competitive advantage in technology, service, or market access. Enablers are growth companies, with relatively high idiosyncratic (company-specific) risk, and may have speculative appeal.

Who are the beneficiaries in the future of healthcare?

Beneficiaries are incumbents who can leverage the enablers’ technologies to entrench or improve their market position. These companies are more likely to be stable compounders, but must beware the risk of being disrupted or disintermediated by the enablers.

Opportunities in digital healthcare

We expect the adoption of digital health tools to grow significantly, driven by healthcare cost concerns and changing social trends. Healthcare generates 5% of the world’s data, and healthcare data volumes could rise to 23 zettabytes by 2030, by our estimate. However, healthcare remains one of the least digitized industries. Today’s inefficiencies create an opportunity for tech-enabled treatments that improve health outcomes at lower cost. Remote monitoring, telemedicine, and health tracking tools allow health consumers to take greater control of their own care.

COVID-19 has illustrated the value of telemedicine, and healthtech more generally, with positive responses from both patients and doctors. Reimbursement and regulation have improved as governments have woken up to digital healthcare. And millennials are more willing both to use digital health solutions and to share health data with technology companies, suggesting an adoption tailwind as they age. Privacy concerns must be carefully managed, however.

The adoption of digital health technologies

The adoption of wearables and digital health tracking is increasing as their capabilities improve. Smart watches now go beyond collecting fitness data to track sleep, measure oxygen saturation, and monitor for arrhythmias. Big tech companies are running trials to show that their devices can generate actionable health signals, despite not being approved as medical devices.

At the same time, medical-grade connected devices that measure blood sugar and pressure, and even home EKG monitors, are already available. Real-time data can be monitored for abnormalities that traditional intermittent diagnostics could miss. As data quality improves, these tools’ clinical value will grow, integrating continuous diagnostics into personalized treatment plans and providing early warnings of exacerbation of disease to help avoid costly hospital treatment.

As an example, digital platforms for diabetes management have been shown to lower patients’ blood sugar levels and risk of both hypo- and hyperglycemia, while reducing hospital visits. These platforms are just gaining commercial traction: We estimate that just 2–3% of the 34 million individuals in the US with diabetes use disease management platforms.

This approach could expand to other chronic diseases as patients become more tech-savvy and willing to integrate preventive care into their day-to-day lifestyles. The insurance-driven US system serves as a test bed for many digital health innovations, but their benefits are relevant across developed economies, where chronic disease is a growing burden on healthcare systems. They could also improve access to preventive care in less developed economies.

"Moonshot" technologies

In the further future of healthcare, we have identified a number of “moonshot” technologies, potentially disruptive but not yet ready for commercial launch. If successfully developed, they could transform how we treat disease and manage health. Given their early stage, private market investments may be the most suitable way to gain exposure. We also highlight how technology can improve access to care in emerging economies—a potential source of impact investing or philanthropy funding.

Download the full report and access the full list of “moonshot” technologies.

COVID-19's impact on telemedicine

Telemedicine and remote monitoring were in the right place at the right time when the coronavirus pandemic struck. The use of telemedicine has exploded since COVID-19, and we expect these higher utilization levels to stay even if a near-term slowdown is possible as economies reopen. A Citi Research survey suggests that the number of US adults using telemedicine has tripled since the start of the pandemic, while half as many are interested to try it. This is consistent with commentary from telemedicine companies and insurers. Older age groups, previously less keen on remote care, have also adopted telemedicine, perhaps due to their high-risk status during the pandemic. How sticky telemedicine is with this age group remains to be seen.

Growth expected for telemedicine

Despite the recent boom, telemedicine penetration is still low—but the scope for growth is significant. In the US, for example, we estimate that only 1% of the approximately 900 million annual individual physician visits used telemedicine prior to the pandemic. According to Frost & Sullivan, the total US telemedicine market could grow by roughly 17% a year from 2019 to 2024, while the currently smaller Chinese market could grow at nearly 50% a year, overtaking the US in size by 2023.

The benefits of telemedicine

Telemedicine can save costs for the healthcare system, improve the utilization of physicians’ time, and improve the health consumer experience. Better access to care in remote or rural areas is also a key benefit. In China, which lacks an effective primary care system, advanced, AI-driven telemedicine companies are stepping in to provide online primary care. More broadly, reducing hospital admissions through earlier and more remote interventions should help to slow the growth in the total cost of care. Similarly, at-home alternatives to traditional clinic-based healthcare services should expand, as is currently underway with US dialysis services.

Hospitals will remain the mainstay of treatment for serious conditions or surgical procedures. But even here, we see a shift to more minimally invasive robotic and digital procedures. Their benefits include more consistent outcomes to complex surgeries, with faster recovery times allowing patients to recover at home instead of in hospital. Greater connectivity (5G) could even mean the surgeon operating the robot need not be physically present at the operation. Currently, only around 2% of applicable surgical procedures are performed robotically.

Companies providing telemedicine generally fall into the “enablers” group. Please read below for more information.