The Healthcare Industry: What Is The Diagnosis?

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Foreword

The Healthcare industry arguably has a greater influence on our daily lives than any other. From birth to death, everyone is affected by the quantity and quality of care that we can receive. The stakeholders are not only individuals and societies but businesses, which depend on healthy employees and customers. Understanding how our healthcare systems are structured, funded and staffed is the first step towards creating healthier and so more productive societies. Furthermore, with a total revenue of almost US$2 trillion the influence of healthcare on the global economy should not be underestimated.

This study is an independent report, researched and written by Freya Easton between January and May 2018 for Typhoon Research. Freya holds a first-class degree in biology from Oxford University, and has experience investing and consulting in the healthcare space. It was commissioned to provide an in-depth analysis of a complex and diverse sector, as well as insight into the future changes we can expect to see from technological developments, changing business models and demographic shifts. The report benefits from its global approach to the industry, and many illuminating comparisons are drawn throughout.

Typhoon Research is a function of Typhoon Consulting, a global boutique management consultancy firm headquartered in Hong Kong. Typhoon Research produces high quality industry insights which leverage the expertise of our consultants. Our perspectives are shaped by thorough research, critical analysis and rigorous peer review. The reports are not produced for only a specific set of clients but aim to share our perspectives with a broader audience and so foster well informed discussion.

Executive Summary

  • Over the last 150 years we have seen unprecedented changes in life expectancies across the planet and this is owed to the boom in healthcare technology and the construction of medical support systems. The healthcare and health insurance industries have boomed alongside these developments, having a revenue of US$1 trillion and 785 billion respectively by the beginning of 2018.
  • Consumers have very little idea of the value of the treatment they are buying. Information about exactly how much services cost is hard to come by and healthcare costs are often shouldered at least in part by another entity, whether that be a government or insurance firm. The true cost of healthcare reaches the consumer only indirectly. Therefore, the price is not determined solely by demand, but also by a variety of other influences including the buying power of hospitals or governments.
  • The framework of supply and demand is useful to unravel the key factors affecting the healthcare industry. Throughout the analysis, we see a lot of variation in the forces driving the system based on geographic location because of differences in development, GDP and education level, regulatory specifics and culture.
  • Looking to the future, we see huge challenges for the industry in the form of aging populations, increasing incidence of non-communicable diseases (NCDs) and the continued spread of antibiotic resistance. A shift to a consumer-centric model and the operational changes to healthcare systems lowers cost for providers and consumers and increases service quality whilst new medical developments increase care reach and quality. How these changes are able to combat growing pressures remains to be seen and will require increased national and international cooperation and action.

Introduction

It has been less than 200 years since the inception of wider health care provision and health care insurance. It was only in the early 1800s that modern healthcare began to emerge, driven by increased urbanization and global trade links, the development of the germ theory of diseases and vaccinations along with the formation of international alliances to tackle health from a more global standpoint. Whilst the science itself was rapidly advancing, it wasn’t until after the First World War that strides with a significant impact on public health were made; two notable developments being the invention of the BCG vaccine for tuberculosis (TB) in 1927 and the discovery of penicillin in 1928, allowing the effective prevention and treatment of two key killers. From then on healthcare developments snowballed and by the turn of the millennium, with the help of government provision, insurance and international organizations, fatal infectious diseases outside of HIV were all but eradicated from the developed world.

Unsurprisingly, the healthcare and health insurance industries have boomed alongside these developments, having a revenue of US$1 trillion and 785 billion respectively by the beginning of 2018. The healthcare industry encompasses a broad range of sectors and is typically divided up into several areas including healthcare facilities, pharmaceutical development and preparations and medical and lab analytical equipment. Complementary to this is the health insurance industry which provides financial cover to individuals in exchange for a premium normally paid monthly and, in some countries, is a key contributor to the funding of healthcare facilities and professionals.

In this publication, we use the framework of supply and demand to outline the driving factors affecting the industry today. A significant theme running through our analysis is that of national variation. Development, GDP, education level, culture and regulatory features all contribute to differences in the supply and demand balance across countries both between and within development categories. Looking to the future, we see huge challenges for the industry in the form of aging populations, increasing incidence of non-communicable diseases (NCDs) and the continued spread of antibiotic resistance. Patients are also expecting an elevated quality of care at an increasingly lower cost. Trends driven by both profitability and by a desire to combat these obstacles are emerging throughout the industry including the development of new technologies, a shift to a consumer-centric model and changes in the way healthcare systems operate. We examine their impact.

In this publication, we will be taking 6 case study nations to illustrate the huge variation in healthcare systems globally. Here is a short summary of the current states of the systems and some immediate challenges each faces (see Figure 1).

Nation GDP (USD) Model Service provision Financing Details Immediate challenges
United Kingdom 2.6 Trillion Beveridge Model Public system, but private clinics are allowed Tax Payments Many hospitals owned by the government but there is a private system Funding, understaffing and regulatory uncertainty (Brexit is only going to make this worse). Aging population
Germany 3.5 Trillion Bismarck Model Private and public sector (although all are non-profit) Employers and Employees through private insurance Tightly regulated giving the government cost controlling power Poor satisfaction and low quality of care. Aging population
Canada 1.5 Trillion National Health Insurance Model Private Sector Government Single payer has considerable market power meaning Canada has managed to negotiate very low prices for drugs. Aging population. Access and wait times. Over reliance on hospital-based care. Poor accountability for quality and effectiveness
United States 18.6 Trillion Mixture Private Sector Mixtures of government funding, private insurance and out of pocket payments. Very complex, more expensive and less fair than other systems leaving 15% of people to pay out of pocket. Incredibly high prices for insurance and for drugs meaning healthcare is often unavailable. Lack of transparency meaning inefficiency and people choosing incorrect options.
China 11.2 Trillion Mixture Private and Public Private insurance plans supervised by government along with government subsidies. 3 main insurance systems covering 95% of people. Health reform in the 12th 5 Year Plan aims to have 100% coverage by 2020. Inequality between urban and rural healthcare facilities. Waste of resources though double subsidies. Poor sustainability given aging population.
Kenya 70.5 Million Out-Of-Pocket Model Private and Public Government, private insurance, out of pocket payments and donors. Step-wise organization. Many unable to pay for healthcare+ many unable to access healthcare (20% of pop benefit from PI+ OOP). Health care inefficiently run with minimal public funding. Increased use of alcohol and narcotics along with high rates of HIV/AIDS. Health worker strikes (hits impoverished hardest).

Figure 1: Summary of the current states of the systems in 6 regions

Drivers of Healthcare

Like any industry, healthcare is driven by supply and demand, but using classic supply-demand dynamics is perhaps not the best approach to understanding the intricacies of this market as many of the driving influences are unconventional. The standard approach to the value a consumer places on a commodity is based on the idea that an individual will consume a product until the marginal value added is equal to the cost of that additional unit. For a variety of reasons, this assumption is dangerous when considering the healthcare industry.

Consumers have very little idea of the value of the treatment they are buying. Information about exactly how much services cost is hard to come by and healthcare costs are often shouldered at least in part by another entity, whether that be a government or insurance firm. The true cost of healthcare reaches the consumer only indirectly. Therefore, the price is not determined solely by demand, but also by a variety of other influences including the buying power of hospitals or governments.

Furthermore, demand is inelastic; if an individual is ill, they are likely to seek care regardless of the costs, often sacrificing other expenses in order to do so. It is also naïve to assume the system is homogenous whether that be across nations, or within them; the demand on and demands made by different hospitals can vary greatly, as can the demand and supply on different types of medical services.

Nevertheless, the framework given by supply and demand is useful when unravelling key drivers in the healthcare industry (see Figure 2).

Figure 2: Supply and demand model

Supply and demand model

Supply

There are vast number of inter-related and inter-connected factors influencing healthcare supply. In this report, we find it easiest to broadly categorise these drivers into cost and access. Throughout this section, we will touch on examples from the case study nations in order to illustrate patterns more effectively.

Cost

Pharmaceuticals

The cost of healthcare massively impacts who health-related services can be supplied to. Moving further into the 21st century, providing high quality healthcare whilst ensuring costs remain affordable is a basic summary of the challenge this industry is facing. However, this task is likely to become increasingly difficult due to predicted inflation of healthcare costs. Average annual growth rate of healthcare spending in OECD nations is 4.9% nearly double GDP growth rates whilst China’s healthcare spending is growing at a whopping rate of 16% per year. Regardless of payer system, increases in costs and the associated spending appear inevitable.

It is important to remember however that whilst there are plenty of negatives associated with growing healthcare expenditure (it implies increasing wastage and increasing insurance premiums to name two), there are positives, for instance growing healthcare expenditure may imply there have been the innovative treatments developed for previously untreatable diseases. In this section, we examine why costs are high and why they are being driven higher.

A key barrier to the supply of healthcare is the cost of medicine. The cost of drugs makes up a significant portion of total healthcare expenditure; pharmaceutical preparations alone have a global market value of over US$1.5Bn. Why drugs can be so expensive is down to regulatory features more than anything else.

In the United States, prices of pharmaceuticals are especially high. Whilst this is a multifarious issue, the key driver is that drug manufacturers set their own prices and that generics are discouraged. Unlike in countries where national health programs exist and governments have considerable buying power, individual American buyers do not. Medicaid must cover all drugs approved by the FDA regardless of price or effectiveness. Medicare isn’t even allowed to negotiate prices and private insurers rarely do.

Furthermore, generics are difficult to bring to market. Drug manufacturers are able to remain the sole producer of a drug for over 20 years under the US’s patent system. Some drug companies exploit this, altering small elements of the design (with no impact on drug performance) in order to delay generics going to market: Drugs can drop down to 55% of their original cost with two generics on the market, falling to 33% with 5, so they have considerable incentive to avoid a drug becoming generic.

Similarly, the FDA can take a considerable amount of time to approve generics and there are a number of federal policies which slow the switch patients and doctors make from the original branded drug to the generic. Because of the power of the pharmaceutical lobby, changes in national legislature to remove the monopoly and increase the prevalence of generic usage remains unlikely. Converse to this, there are regulatory measures in place to prevent rocketing prices such as reference pricing, formularies and co-payments.

On the other end of the spectrum is Canada. The Canadian government is the main purchaser of drugs used within its borders, giving it a vast amount of power when it comes to price negotiation. In February 2018, it came to an agreement with the Canadian Generic Pharmaceutical Association to cut the price of 70% of commonly prescribed generics by 25- 40%. This was mainly in response to Quebec’s threat of tendering, causing companies to drop prices, thereby revealing the true costs of their pharmaceuticals.

In China, the regional governments are responsible for negotiating drug prices; the drugs are then sold for no profit. As the national government has published the Essential Drug List (a list of 307 drugs that must be dispensed at every facility), the bulk buying of these drugs by local governments gives them a good negotiating position. Despite this system, pharmaceutical costs total nearly 50% of all Chinese healthcare expenditure. This may be reflective of the comparatively cheap cost of man power or, more worryingly, the prevalence of over prescription.

The Pharmaceutical Price Regulation Scheme is in place in the UK (PPRS). This is a non-contractual agreement between the government and the Association of the British Pharmaceutical Industry (ABPI) whereby reasonable prices for drugs are agreed using Quality-Adjusted Life Years (QALYs) as a measure of cost effectiveness. This has led to the UK having some of the lowest pharmaceutical prices; it is thought 10% of UK pharmacists are exporting medicines to other countries to generate an alternative line of profit, a trade valued at £30-50 million a month.

Brexit, however, is likely to have a negative impact on the UK pharmaceutical industry. The EU has previously provided considerable scientific funding through programs like Horizon 2020 and regulatory and trade infrastructure. There is potential for a considerable drop in innovation and, depending on how the post-EU drug quality legislation is structured and implemented, an effect on drug safety. Similarly, a lack of funding for innovation may lead to a hike in prices in order to maintain current research expenditure.

Countries that do not have pharmaceutical production facilities such as Kenya have a completely different issue. They are at the mercy of the pricing of international companies who can sell the Kenyan people their product at a much higher price than elsewhere (Kenya abolished price control in 1994). For instance, 10 tablets of the antibiotic Augmentin costs Sh1,500 ($15) in the UK, but Sh9,500 in Kenya ($94); this pattern, termed drug capitalism, is observed over multiple drugs across both diseases and producers. Whilst some companies are attempting to import in parallel, they meet considerable opposition from manufacturers and exclusive distributors (who tend to be wealthier and more influential) and from those who are concerned about the importation of substandard medicines.

A common theme across all nations however is that innovative, cutting edge treatments cost more to deliver. R&D expenditure associated with new treatments is inevitably significant (it is estimated that for every approved medicine developed by the top 15 pharmaceutical companies, $3 billion is spent) as is rolling them out on a regional or national level. This effect can be felt at both an individual and national level: as these exciting treatments become available for previously incurable diseases, patients will want to use them even if the cost is significant either for them or their system. For instance, 4 new drugs have been approved in the US which effectively cure hepatitis C. However, as they are associated with significant costs, some programs have restricted their use. It is important to remember that with treatments such as these, while the short-term costs may be substantial, long-term savings are likely to compensate (hepatitis C is associated with liver failure and with these new curative drugs, the risk of this is massively decreased).

Payment Systems

Pharmaceutical price controls are only one regulatory influence on healthcare costs. Another is the payment systems and the way providers and patients are encouraged to utilise healthcare. Fee-For-Service (FSS) systems have historically dominated healthcare provision systems. They involve assigning a value to each treatment which is then paid for by the state, insurer or individual. Doctors and facilities are compensated based on how many services they provide.

Whilst this is logical in some ways (the more you provide, the more you get paid), it fosters a psychology which encourages doctors to increase the volume of care rather than improving the value. This can lead to dangerous mentalities whereby doctors over prescribe medication or recommend unnecessary treatments which drives up costs as well as causing both physical and mental stress to the patient. Countries like the UK and Canada, where the regulatory bodies are often the same or entwined with the entity that finances the healthcare, have already moved away from this to a value-based care system (e.g. the PPRS in the UK promoting value-based drug pricing). In both Kenya and the US, the FFS system remains embedded in the system. Some, namely in the US, are preparing for a move towards a value-driven market where as others are reluctant, aware that there has been considerable investment in FFS system and that it remains profitable. They will therefore continue to encounter the issues associated with an FFS based system.

Access

How available healthcare is not only dependent on the associated costs: Whether the facilities and professionals are accessible is another key determinant. Wherever you are, if you are wealthy, you will be able afford a high quality of health services even if that involves travelling internationally. Access for poorer families, however, depends massively on geographic location either on a global or national level and it is the average family that will be the focus of this section.

Physical access to both facilities and professionals is a bottleneck on the supply of healthcare. Without access, the delivery of healthcare is near impossible. As we have seen with other factors affecting supply, access very much varies by location. In much of the developing world, the high percentage of people living in rural areas have minimal access to healthcare. 62% of Africa’s entire population has little access to medical facilities and without adequate supply, many either accept this lower level of health quality or turn to other, spiritual or religious methods. Even within cities, the hospitals are underfunded and the quality of care provided is poor. In Kenya specifically, there are estimated to be 1.4 hospital beds per 1000 people. Maternity wards are often overcrowded, often with 2 or more mothers sharing a single bed.

What these facilities provide also varies; rural hospitals are smaller and less well equipped than large state hospitals. Travel between locations is possible, but specialist ambulances for those in critical conditions are not only rare and slow but expensive. Whilst facilities are a key access issue, the number of doctors and other medical professionals is just as impactful. WHO estimates that in Kenya there are 0.204 physicians and 1.582 nursing and midwifery personnel, approximately 10 times less than what you’d see not just in the UK and the US, but also in China.

Because of the lack of professionals, the waiting times can be immense. Even in Kenyatta National Hospital in the capital Nairobi, the largest healthcare facility in the country, radiotherapy treatments for those with cancer can take up to 4 months to occur after scheduling, those with heart conditions can wait up to 7 months for surgery, with an average post-admission wait time of 22 days before the surgery can occur and kidney patients wait on average 8 days between dialysis sessions, 2.5 times the recommended amount. The hospital cites lack of medical equipment and specialised staff as the key reason for delays as well as the large number of patients requiring care. Many of these factors are in turn attributed to lack of funding and simultaneous over and underuse in different facilities due to the failings of the national-health-care referral system.

Regional inequality in access to healthcare can be another influencer of the way supply is distributed. Unlike in Kenya, Chinese healthcare can be exceptional but the quality varies massively based on location. There has always been a big divide between east and west socially and economically and this difference also manifests itself in healthcare provision. This is demonstrated by differences in life expectancy: the western province of Xinjiang has an average life expectancy of 75 compared to the 82 found in the eastern province of Zhejiang. Similarly, life expectancy is found to be 74 in urban areas compared to 64 in rural areas, with variation also linked to the size of the city within the urban population. Whilst these differences are systemic and influenced by a range of factors, access to quality of healthcare is certainly a contributor.

This is recognised as an issue by the government which introduced the New Rural Cooperative Medical Scheme to increase accessibility. The quality of hospitals and the training the associated doctors receive is a challenge to change as is the perception of modern medicine, however. Rural communities are less likely to use formal and preventative care, turning instead to traditional Chinese medicine first and seeking out modern care as a last resort. Similarly, the government are ploughing funding into Tier II and III cities in order to boost availability and quality of care in smaller cities. How successful these policies are will depend how effectively the money is used.

Even in highly developed nations, there are issues with access to facilities and professionals. OECD countries are likely to face a healthcare workforce shortfall of 22-29% by 2022 driven by demographic shifts, employment patterns and increases in demand. In the UK specifically, Brexit is going to pose another challenge to work availability: 5% of NHS workers (including 9% of doctors) are from the EEA meaning the UK stands to lose a considerable number of its health workers if immigration laws are significantly altered.

We also observe variation in quality and protocol across different regions. Within the field of antenatal care for instance, 90% or women at the Royal Cornwall Hospitals NHS Trust had their first appointment with 12 weeks compared to 8.3% of expectant mothers at Walsall

Hospitals NHS Trust. The UK also faces issues with the number of hospital beds which are likely to decrease despite growing pressure.

Having said this, a system like the NHS still maintains excellent access, ensuring that the supply of healthcare services is available to those who need them: 70% of British patients reported same or next day access to doctors for instance. The factors influencing access in the developed world vary. In America for example, the greatest access issue is cost: a US based think-tank, the Commonwealth Fund, showed that 1 in 3 adults “went without recommended care, did not see a doctor when sick or failed to fill prescriptions because of costs” whilst in Canada, it was lack of professionals that reduced access, finding less than half of those in Canada were able to get an appointment within a day.

Cost and access are two deeply entwined factors which help define the supply of healthcare available. As we have seen, they are both affected with wider national policy and wealth and therefore vary considerably based on location.

Demand

At the other end of the balance is the demand side of the healthcare industry. Here we take this to mean any feature that affects the intensity of the demand for services. A key note to make here is that need does not always translate into demand. An individual may need medical treatment, but may be unable to pay for these services and therefore be unable to demand them. In countries which provide a national health service like the UK, this industry feature is less distinct, but in places like the US and Kenya, where many health services tend only to be available for those who can afford them, it is important to remember. Linked to this and unique to the healthcare industry is that in many systems, it is the individual who demands the healthcare, but a third party who pays for it, at least directly. This leads to complex dynamics between supply and demand which is difficult to capture using simple consumer theory.

There are two ways of viewing healthcare in the context of demand. In this report, we do not delve into the complex mathematics of health economics so the distinction between the two views is supplementary to our discussion; it is an interesting distinction to make nonetheless. The most simplistic approach is to view it as a commodity that an individual has a preference for, the same way as many commodities are viewed. It could be argued healthcare can only be valued as a means-to-an-end in order to ensure health itself, the real product, but demand for healthcare is more easily measured and observed than the simple demand for health.

A more complex approach requires you to look at health as a stock and with healthcare being an investment in this stock. This is Grossman’s 1972 model which posits that individuals consume healthcare because it improves their stock of health and therefore makes them more productive entities. Healthcare here is both a consumption and investment good, yielding direct and indirect gains; investment is optimal when the marginal cost of health is equal to the marginal benefit. Certainly interesting to ponder.

Societal Factors

The way different societies are structured and funded significantly affects the way healthcare is demanded by the individuals residing in them. Naturally, many of these societal factors trickle down to and affect individual behaviour, in turn impacting how they make health-related decisions, but in this section we look only at nation or culture wide constructs.

Wealth

Wealth hugely impacts the demand for healthcare through a multitude of different avenues. The higher the national income, the greater the amount that is available to be spent on healthcare by both the government and by individuals. GDP per capita correlates with healthcare spending per capita (with a few outliers including the United States); where wealth is high, people are often willing to spend nearly endless amounts on healthcare. At a governmental level in countries like the UK where the health system is funded by the government, the greater the GDP, the greater the amount that can be raised via taxes and, subsequently, the larger the available pot for healthcare related costs.

In countries like the US and Kenya where the system is funded through private or employer funded insurance or out-of-pocket payments, a higher GDP per capita correlates with more money to spend on healthcare. Good health is highly desirable and with a larger disposable income (compounded with the association with better education), comes an increased demand for healthcare services. Developed, wealthier nations also tend to have an aging demographic.  These older individuals tend to have a greater demand for age-related healthcare than their younger counter parts, driving up demand. Along with this, we see a rise in lifestyle related, non-communicable diseases (NCDs) such as diabetes and cancer and this compounds the increase in healthcare demand further as these diseases tend to manifest themselves in the middle-late life stage.

Pulling demand in the other direction is the correlation between income and health quality. There are a myriad of studies and statistics demonstrating a distinct correlation and often causation between greater income and better health: 22.8% of people on less than $35,000 say they have fair or poor health compared to just 5.6% of those earning over $100,000. Across these different income brackets there is also an inverse correlation between the incidence of many chronic conditions: the prevalence of coronary heart disease, stroke, and kidney disease in those in the former category are 8.1%, 3.9% and 3% respectively compared to just 4.9%, 1.6% and 0.7% respectively for those in the latter bracket.

Whilst higher national income is associated with an increase in spending, it is also accompanied with a decrease in poor health and the prevalence of key conditions. However, as we have touched on previously, with low income comes a low demand even if there is a need. We therefore see a comparatively high demand in nations with high income such as the Canada, Germany and the UK compared to low income countries like Kenya, despite the fact that need in Kenya may be greater than need elsewhere. We also see the same patterns of healthcare and income within nations; we shall discuss this in greater detail when we consider individual behaviour.

Education Level

The richer a nation, the higher the standard of education it can afford to provide. Not only does education compound the impact of the effect of wealth (education level is positively correlated with income), but it provides a range of soft and hard skills which drive up healthcare demand. Schooling teaches people how to gather and interpret information, how to solve problems, how to deal with stress and pressure, how to advocate for themselves and others and promotes good communication skills all of which give individuals the tools to demand more of their healthcare.

Instead of being reliant on what doctors advise, well-educated individuals are able to challenge medical opinions, talk to multiple professionals and hold their medical care to the high standards they know exist. This, especially coupled with a significant disposable income, hikes up demand for healthcare. A country with a comprehensive and effective school system correlates directly with the number of doctors and health professionals a nation has. Whilst this does not impact demand directly, it allows more people to have quicker access to care, fostering the psychology that doctors are an easily available commodity. Coupled with the fact individuals often do not bear the full cost of their care, this helps to drive up demand once more.

Again, we see a tug of war. Whilst it is certainly true that an educated, affluent middle class intelligently invested in the care they and their families receive raises demand for services, being educated is correlated with a healthier lifestyle: at the age of 25, US adults without a high school diploma have a life expectancy 9 years shorter than college graduates. Firstly, school provides health related knowledge. For instance, 35% of those without a high school diploma in the US smoke compared to 13% of college graduates and the prevalence of diabetes is over twice that in the former population than it is in the latter indicating health classes have an impact on choices made as an adult.

Secondly, higher education is associated with high relative income leading to a reduction in stress related to economic deprivation or relative depression. Stress in turn has been linked to a wide variety of chronic conditions, many of which are classified as major killers of people in the developed world: its presence in early life is thought to affect the development of the HPA (stress) system whilst prolonged stress in adulthood can lead to the build-up of atherosclerotic plaque and cholesterol through behavioural and physiological pathways. These are two key risk factors of Cardiovascular Disease (CVD).

Finally, schools promote social integration which is associated with increased social connectedness and a larger social network. Social structures are thought to be key to managing healthcare conditions, often leading to increases survival after a major health event (we discuss in more detail below). Furthermore, some of the skills learnt in school, whilst they may increase the demand of the healthcare provided, can increase the effectiveness of the care in the long term. Education promotes communication and asking questions which both help to ensure the patient will engage in their treatment, increasing its efficacy. Once more, it must be remembered that those with a lower educational level often have a lower income; in some countries where the direct cost is felt by the individual rather than a national health system or insurance, they may be unable to afford the care they need, negatively affecting demand. This demand balance is highly dependent on both how comprehensive the education system is and the structure of healthcare payments.

Outside wealth and education level, demand for medical services is also impacted by societal norms. The expectations of the healthcare a person receives is not only impacted by the value they feel they are receiving based on cost and their understanding, but will depend on how their social network use services. For instance, Drouin et al found that the social norm for the frequency of doctors’ visits is lower in the UK than the US; those in the latter feel comfortable visiting their medical professionals a lot, but those in the former feel a social pressure to limit their number of visits. The drivers of these social factors are highly complex, involving both the structure of their respective healthcare systems intertwined with a plethora of expectations built into the fabric of each nations social material.

Culture

The cultural differences in the way healthcare is viewed and therefore utilized are more concrete and easily quantifiable. The way cultures view disease and how to treat it varies. Whereas in many developed nations, seeing a doctor is one of the first steps to treatment, elsewhere it is a last resort. In Mexico for example, home remedies and traditional medication are sometimes preferred to seeing a modern doctor or nurse. A more extreme example is found in Afghanistan where germ theory is not accepted among a considerable portion of the rural population. Tetanus in children is often blamed on the demon djinn meaning families seek the help of a religious figure rather than a medical one or simply accept that circumstances will unfold in the same way regardless of what they do.

Naturally, these uncertainties about modern medicine vary massively within cultures as well, and are directly linked to both wealth, education and access. Wealthier individuals tend to receive better education which is associated with better access to information and a better understanding of science and medicine. Similarly, lack of access to facilities and professionals is associated with a lack of information and also discourages already suspicious individuals from seeking attention simply because it is easier to look elsewhere. This is reflected in the fact that rural and older populations are often found to be most “traditional” in the way they view and demand modern healthcare. The flipside of this effect is that lack of faith in modern medicine may lead people to stop taking the medication they receive from doctors, reducing the effectiveness and increasing their need for it in the long term. This is felt most strongly in areas where access to medical facilities and professionals is easy, but trust in the system is low such as in first generation, minority communities in the United States.

Social stigmas cling to a number of conditions more so in some cultures than in others and with this, we see a decrease in demand. Mental health and HIV are two key examples of this. In Kenya, depression is often seen as a spiritual problem as is dealt with by religious authority. There is only one public referral hospital in Kenya for mental health issues: the Mathari Mental Hospital. The treatment of the patients here has been widely criticized; they lack staff (one female nurse was found to be in charge of 146 male patients) and conditions are dismal (the report cited found dead bodies abandoned on the floor) and this is reflective of how mental health issues are viewed in Kenya.

Similarly, 40% of those with HIV in Kenya reported loss of jobs or sources of income due to their positive status with 15% of those being denied some form of medical service because of it. The stigma associated around both these conditions mean people who suspect they may be affected do not seek medical attention, reducing demand. This is compounded by the fact that the healthcare system does not support those with these conditions, arising in no incentive to seek care.  Again, these discriminatory events are impacted by education; increased general education leads to a greater understanding of how and why these conditions manifest themselves, reducing stigmas as well as producing more doctors to support the chronically understaffed institutions that deal with these stigmatised conditions.

Other cultural features are less easily impacted by location and education. What is seen as attractive leads to different health promotion activities. In much of the west and in China, being a heavy adult is deemed unattractive whereas in Kenya, the opposite is true and being overweight is often celebrated. This translates to pressure on individuals to eat more healthily in places like Canada and the UK, but not in Kenya. Compounded by increasing urbanization and changes in diet, diabetes and heart disease are rising in the latter. At the moment, due to high cost and minimal infrastructure, the subsequent need for healthcare is not being fully translated to demand, but with an increase in education and income, this balance is likely to shift.

How pain is experienced and expressed can also depend on culture. In much of the west, such as the UK and US, pain is proportionally expressed to health professionals, sometimes even over-expressed in order to receive the treatment individuals believe they require as soon as possible. In Kenya, stoicism in the face of pain in the norm; the maternity wards in many hospitals are quiet as women often give birth with little or no verbal expression of pain for instance. Going to a doctor can be viewed as admitting and expressing pain, driving down the demand for care.

The expected outcome of treatment received can also be influenced by wide social factors. In China, patients often expect to receive some sort of medication after a consultation with a professional, even if the problem requires no prescription; incidences of patients being given a course of anti-biotics for flu, a virus, are common. This is certainly a cultural factor, driven by the need for apparent value for money, but is compounded by the fact the hospitals, up until recently, made much of their profits from mark-ups on drugs. This policy has changed and, along with the intensification of the fight against antibiotic resistance, is likely to help reduce this over-prescription culture.

The impact of preventative measures for various conditions is often modulated by culture. Once again, HIV in Kenya compared to developed nations proves to be a useful example. Talking about sex and educating young people on safe sex, whilst being common place in Europe and America, remains a huge taboo in Kenya. Kenya does not go as far as neighbouring Uganda in banning all non-abstinence related sexual education, but the sex education leaves much to be desired; only 2% of students were confident that the information they were receiving was complete, with fewer than one in 4 teenagers aged between 15 and 17 had learnt about contraception and only 13% were taught how to use it. Teaching about safe sex is vital to preventing the spread of HIV/AIDS, but preventative measures will clearly have much less impact in these cultures than in those where sex education is compulsory (like in the UK as of 2017).

How preventative measures, modified by culture, alter the demand on healthcare systems is dependent on a variety of other factors. Whilst the need for healthcare increases with decreased prevention, these cultures are often associated with lower education rates and therefore lower incomes, meaning the need does not translate to demand. Furthermore, where preventative measures are more impactful, there is an associated increase in awareness of the disease making people more likely to seek care than if they are unaware, if there is a social stigma attached or if there is little incentive as the healthcare system cannot provide treatment.

The structure of the healthcare system is also a driving factor on demand. If services are paid for, even partially, by insurance or through government funding, the full cost of the care is not felt by the individual. This is a major factor contributing to the high level of demand in some nations. For instance, fully funded systems as seen in the UK are massively overused, despite being chronically underfunded, because it is the government, not the individual receiving care, that bears the cost. This means that there is little preventing demand from skyrocketing.

In comparison, because of the high associated costs of medical care (not just the cost of the services themselves, but the loss of productivity and the transport costs), Kenyan hospitals can be underutilised, reflecting a comparatively low demand. The quality of the care provided can also have a variety of effects on demand. Low quality can have an inflator effect on demand by increasing the need for repeat visits or could decrease demand as people are either put off by the processes used or feel they get nothing out of the treatment given.

National and societal effects can have a huge impact on individual’s demand for healthcare. All the factors are interconnected and interlinked with our next category of demand effectors, individual choices.

Individual Choices

Individuals under many systems are often not the ones to pay for the healthcare they receive, at least not at the point of care. They are the ones however who make the choices about the care they choose to receive. National and societal factors are certainly big influences on individual decision making, but so are a variety of features determined by or unique to the individual themselves.

Genetics

An individual’s genetic make-up can predispose or protect them against a multitude of conditions. Mutations in single genes can lead with certainty to some conditions, sickle cell anaemia and cystic fibrosis being two common examples of this affecting 1 in 1,000 and 31,000 respectively. Other deleterious changes can predispose a person to a condition such as deleterious mutations in the BRAC1 and BRAC2 genes which are associated with a significant level of clinical variability. At the other end of the spectrum, there are hundreds of slightly predisposing mutations to CVD. Even if the genetic code has been fully sequenced, the onset, progression and severity of the disease cannot be predicted with any degree of certainty. Here, the interaction with the genotype and the environment is vital for determining the occurrence and the course of the disease.

Behaviour

This brings us around to behaviour. The risky behaviours that an individual displays throughout their life can hugely impact their health and consequently their demand for healthcare. Cigarette-smoking is the major cause of preventable mortality and morbidity, leading to an increased risk of two leading causes of death worldwide: heart disease and cancer. Tobacco-related costs are thought to amount to £2.6bn a year in the UK, demonstrating the scale of demand. In the US, it is thought that 5 million people who were under 18 in 1995 will die from smoking-related disease, with nearly 10% of mortalities being caused by second-hand smoking. Tobacco usage is falling in many developed countries however; 26% of the UK adult population smoked in 2002 compared to 16.9% in 2015 suggesting the demand from this segment of the population may follow suit.

Drinking is another major influencer. Over a million people per year are admitted to UK hospitals for conditions wholly and partially attributable to drinkin, costing the NHS £3.5bn a year, a figure which has risen 115% over the last 15 years. Approximately 70% of those are made up of a range of chronic conditions such as hypertensive disorders, liver disease and cirrhosis and cardiac arrhythmia. The rest refer to alcohol related industries and mental disorders due to use of alcohol.

Poor diet and low physical activity are major risk factors for a range of chronic killers such as diabetes, hypertension, coronary heart disease and some cancers. For instance, there is a 2-fold increase in risk of CVD in overweight women and a 3.6-fold increase in obese women. Briskly walking for 3 hours or more a week and eating less trans-fatty acids but more poly and monounsaturated fat decreases the risk by up to 40%. An inverse relationship has been observed between physical activity and risk of colon cancer with a diet low in folate also being implicated as a colon cancer risk factor.

Poor diet and lack of activity is also associated with a number of conditions that impact the quality of life including osteoarthritis, sleep apnea and musculoskeletal problems. Due to these behavioural choices, 25% of British adults are obese according to the UN Food and Agricultural Organisation, the highest rate in Europe. To put the scale of the demand for obesity related care into context, the NHS is thought to spend £16 billion on the direct medical costs of diabetes and conditions related to being overweight or obese, more than the UK government spend on the fire and police service combined. The situation in the US is considerably worse with 33% of adults being defined as obese. Even in the developing world, this trend can be seen with numbers increasing in Kenya at a rate of 5% a year.

Risky behaviour associated with sex heightens demand for healthcare as well. Having unsafe sex can lead to two outcomes, both of which drive up the requirement for care. Firstly, it can increase the transmission of STDs, some of which are easy to treat (e.g. chlamydia), others of which are difficult (e.g. gonorrhea) and others which are incurable (e.g. herpes). The treatment of the conditions is one factor, the treatment of the conditions that are caused by the infection are another. Chlamydia for example is asymptomatic in 85% of women and 50% of men, yet, if left untreated can cause pelvic inflammatory disease and infertility. With 1.7% of the population thought to be infected, considerable demand is associated with it. Unwanted pregnancy is the second potential outcome of unsafe sex. WHO estimates there are 87 million unintended pregnancies each year. Each baby brought to term requires medical attention of some kind: the cost of an uncomplicated vaginal birth in the US is $9,600, increasing by nearly 65% in the event of an uncomplicated cesarean. It is also estimated there are 46 million terminated pregnancies, 40% of which were not performed in a safe environment. In fact, in some developing countries, hospital admissions from complication from abortions represent 50% of the obstetric intake, a serious drain on limited resources in many countries.

Socioeconomic Status

All the individual behaviours discussed are of course inextricably linked with societal factors. Whether you smoke, exercise or have unprotected sex can often be linked with education level, culture and the wealth of your country. Another individual level influence, also affected by societal factors, is socioeconomic status.

Education is a vital contributor to socioeconomic status, acting from a societal level and trickling down to the individual. Having discussed the effect of education on health and healthcare demand in an earlier section, we’ll not dive into the detail here, but it is important to recognize its impact. Lower income is also associated with poorer health. This can partially be attributed to an inability to afford healthcare, especially in the US or Kenya where services are not free at the point of care, but there are a number of other influences on health that emerge as a result of lower income.

Despite limited clear causal mechanisms, there is an inverse correlation between unhealthy behaviours such as smoking and not wearing a seat belt, and income. Having a lower level of financial security is also associated with increased and persistent stress, hiking the risk associated with the stress related conditions (e.g. CVD). These factors push up demand. The relation of an individual’s income compared to the income of those around them is also thought to be important. On one hand, a relative gap in income compared to those around compounds the negative psychological effects of a low income. On the other, living in a place where the average income is similarly low can also increase health risks however due to higher rates of air pollution, lack of local amenities, health clinics and safe venues to exercise. In extreme cases such as those found in the developing world, water sanitation is drastically reduced in low income areas.

Employment is another socioeconomic factor which impacts healthcare demand. A variety of different indexes describe the effect of employment on health. The Edwards classification for instance suggests that children who grew up in manual (as opposed to non-manual) homes have an increased risk of heart disease, independent of employment later in life. The Duncan Socioeconomic Index takes occupational prestige, education and income and demonstrated an inverse correlation with self-reported health, smoking status, psychological wellbeing and depression.

Of course, employment is inextricably linked to income and education; a more prestigious work place tends to be associated with a larger income and tends to be filled with well-educated people. The direct effect of employment is thought to have some specific effects on health however, less influenced by other societal factors or individual behaviours. Non-manual workers are less likely to be exposed to hazardous chemicals, toxins or risks of physical injury. Jobs considered ‘high status’ are also associated with a healthier psychosocial work environment and tend to yield greater skill utilization, giving a greater sense of control and reducing the stress of day to day life. All these outcomes are likely to contribute to a reduction in healthcare demand.

A high level of social connectedness is another socioeconomic factor driving down the requirement for medical care. Support can be thought of as two overlapping components: the network and the suppor. A person’s network refers to the web of social connections which can vary in size, density, uniformity and over both space and time. Support refers to the assistance an individual receives from their network through direct care, emotional support and shared information.

A large dense network appears to provide a range of health benefits from decreasing both morbidity and mortality and improving prognosis and survival after disease. Of course, the quality of the social network is another contributor; spending time around dealers is unlikely to confer many health advantages. There is also a reciprocal effect of major illnesses on the social network: someone who suffers a serious illness may see an increased level of engagement from those around them whereas someone diagnosed with a stigmatized disease may see the opposite.

The demand on healthcare is dictated by a vast myriad of interlinked factors. In attempting to disentangle these influences, we have seen how much the drivers change across cultures within and between countries and between healthcare systems both on a societal and an individual level.

Future of Healthcare

We’ve examined a number of drivers of the global healthcare market, touching on trends that appear to be emerging. In this section, we explore the future further.

Shift from Supply to Consumer Centric

Up until recently, the industry has ultimately been driven by how much facilities and professionals can provide, with what people want having little effect. Because demand can be sky-high (at least in much of the developed world), the rate-limited factor has been how much can be provided.

However, people are becoming more and more fastidious in the selection of which care they choose to receive, actively selecting personalised services, economically rational coverage and convenience with many being keen to have their health digitally managed. This is driven by the global expansion of the increasingly affluent, well-informed middle-class populace. With more information (through education and digital means) and wealth, consumers have an increasing ability to shop around for care based on value and cost.

This trend is most pronounced in countries where consumers shoulder a significant portion of their personal costs either through insurance or out-of-pocket payments; in the US for example, the rise in high deductible insurance plans is leading individuals to be more selective and economically savvy when choosing their plans. In places like the UK, Canada and Germany, whilst people are not directly affected by the cost of their personalised care to the same extent, they are increasingly looking for value in the services they receive. The internet age has led to greater transparency across the board which allows people to make informed choices based on others’ experiences with certain providers.

That said, the private health care industry is growing. With the NHS funding crisis and Brexit providing uncertainty in the UK and more companies starting to provide private insurance for their employees, private insurance rates have risen for the first time in decades to 10.6%. Value-for-money is having the same effect in this portion of the population as it is in the US.

So, what does this mean for stakeholders?

When it comes to healthcare, everyone is a stakeholder. Every individual uses and finances healthcare through taxes and insurance, many employers provide health insurance and all pay tax. Therefore, the shift to a consumer-centric model will affect everyone. The financers of the system, namely the governments and the insurance firms, should be very aware of this trend and position accordingly. Firstly, the services they provide or promote should shift to a value based rather than a quantity-based system. For both governments and insurers, this not only increases the sustainability of the care they provide in the environment of consistently rising costs, but increases patient engagement and satisfaction in the quality of care. Furthermore, insurers will feasibly be able to provide premiums that are more economically sensible for the average person.

There are a multitude of strategies for healthcare suppliers to use in order to position well for the increasingly consumer centric market. For instance, investing in electronic health records allows for a personalised patient portal system. This can not only provide patients with billing and scheduling information, but also with their medical records. Whilst this would need to be accompanied with increased cyber security, it would allow for patients to make decisions about their health more independently, reducing the reliance on healthcare professionals and allow easier integration of patient care programs when there are multiple conditions or when the patient moves location. All of these factors contribute to reduced costs and increased value for both a patient and the financer. The key outcome of this is that digital records increase transparency. Other methods of increasing provider transparency involve training employees to be more consumer-focused, making a greater breadth and depth of information more readily available before, at the point of and after care and utilizing technologies to streamline the service being provided.

Individuals on mass are the ones driving the shift to a consumer-centric healthcare biome. In order to make the most of this new environment, individuals should shop carefully and smartly for insurance, looking for financially sensible packages that cover exactly what they need. When it comes to care, exploring and research the options in order to make the right value-based decision is imperative.

Another trend emerging because of this consumer-centric shift, is the increased involvement of tech firms in the health world. Amazon are patenting a wireless heart rate detection method, Microsoft have just hired a world leader in digital healthcare and Apple products already have aps built in which can track not just steps but what you eat and how you sleep. These innovations allow the individual to take an active role in monitoring and maintaining their health. Amazon teaming up with giants Berkshire Hathaway and JP Morgan Chase in early 2018 order to make healthcare affordable for their employees is another example of large firms entering the healthcare sphere in order to capitalize on the shift to a patient-centric market.

Demographic and Disease Shifts

We have covered how demographic and disease changes are able to impact healthcare demand and supply. In this section, we examine how these trends are going to unfold moving forwards.

Aging Population

In much of the world, the population structure is elderly; life expectancy has doubled over the last 150 years. The world’s growing population coupled with this aging means that by 2019, it is predicted that 10.8% of all people worldwide will be over 65. This is magnified in mature markets like in Europe and Japan where the percentages are projected to be 21% and 28% respectively. However, this is not as strongly reflected in the changes in healthy life expectancy (the number of years that people are expected to live without disability or disease) where the growth has not been so dramatic. Consequently, we are experiencing a rise in the number of people requiring care for an increasingly long period.

An aging population has caused a shift from death by communicable (infectious) diseases to non-communicable (non-infectious) diseases. Logically, it is associated with an increased incidence of conditions linked to old age such as greater number of falls and Alzheimer’s Disease. Falls are one of the most common injuries in the older population; as Baby Boomers are living longer and remaining more active, it is estimated that 1/3 of those over 65 fall each year. Not only do these injuries increase the number of hospital visits and doctor appointments, driving up costs, but 20-30% of those who fall suffer severe injuries that decrease mobility. These people can end up dependent on either family members or on externally sourced care, the latter applying further pressure on the care system, a system that in countries like the UK is already cripplingly underfunded.

Dementia and Alzheimer’s Disease are other conditions associated with the elderly, mainly found those over 65. There are currently just under 50 million people affected worldwide and this number is predicted to rise to 131 million by 2050. Those with Alzheimer’s have over 3 times the yearly medical bill of those without (approximately $287,000 annually), costing the US alone $259 billion. This does not include the 18.2 billion hours of informal, un-paid care (valued at $230.1 billion) Alzheimer’s patients are thought to collectively require. Furthermore, a 2015 report by the Alzheimer’s Association projected based on the aging population and increasing costs, that this spending could increase to $1.1 trillion a year by 2050 if an effective treatment is not found. These two medical conditions alone are likely to influence changes in medical care across all the aging nations.

In order to predict how population structures are going to develop over time, we look to past trends. The aging of the population has been driven by two key factors: falling fertility and mortality rates, both of which have been falling for decades. Figure 3 shows fertility rates broken down by national income and Figure 4 and Figure 5 display the infant and adult mortality rates.

Figure 3: Fertility rates (births per woman)

Fertility rates (births per woman)

Figure 4: Infant mortality rate

Infant mortality rate

Historic Changes in Fertility and Mortality Rates

Developed World

The National Bureau of Economic Research states that the cumulative decline in mortality in the US over the 20th century was 67% which contributed to the vastly increased life expectancy (high income countries experienced a 25% increase between 1950 and 2015). For the first 4 decades of the 20th century, 80% of the life expectancy improvements came from reduced mortality rate in those under 45.

This was mainly driven by an even-increasing ability to avoid and withstand infectious disease through improved public health measures and nutrition. In the two succeeding decades, we see this decline being more and more attributable to advances in the field of medicine as drugs such as antibiotics become increasingly widespread. In the latter 4 decades, 66% of life expectancy improvements came from reduced death rate of those over 45. This can clearly be seen in Figure 4 and Figure 5: the infant mortality from 1960 has remained roughly constant, with much bigger changes being seen in adult mortality rates. High incomes, improved lifestyles and progression in advanced medical techniques were contributors to this.

A similarly distinct decrease can be seen in fertility rates over the same period, falling from 3.5 in 1900 to under 2 per woman in the year 2000. Throughout this century we have seen a vast expansion in the empowerment of women. With women’s education comes not only an understanding of effective family planning, but a desire to postpone a family in order to pursue a career. This leads to a positive feedback loop: lower birth rates lead to smaller school cohorts, boosting the quality of the education those individuals receive. Women have been further been empowered by the distribution of contraceptives, allowing them to control their fertility.

Furthermore, a reduction in child mortality reduces the need to have more offspring in order to insure against the loss of children. This is coupled with a shift in the value of a child: before the welfare state and pension system, the children would provide for the parents in their old age. The more children, the more support. Similarly, child labour usage has plummeted in the last 100 years, removing the income incentive to have a large family. With increased provision from the state or through pension plans and an increase in the expense of education, children have become more of an expenditure than an asset. These patterns seen in fertility and mortality rates have led to an aging population structure and greater life expectancy. This has contributed to the elevated demand (and the consequent depression in supply) of healthcare in the developed world.

Developing World

In the developing world however, the story has been slightly different. Many of these countries are yet to go through the demographic transition so have not gone through these changing dynamics. Unlike in richer parts of the world, fertility rates have remained high, 5.1 children per woman in Sub-Saharan Africa for instance, rising to 5.5 in areas of west Africa. This can be attributed to a number of developmental, social and cultural factors. Empowerment of women is low. Contraception use is minimal, used by only 28% of married women (compared to 75% in the US) and 12% of girls in Sub-Saharan Africa are married off before the age of 15, giving a much larger childbearing window. Social norms and prevalent child mortality drive up desire for a large family. Many of these nations do not guarantee health, safety and employment or educational opportunity so children are the best form of social security; they remain an asset rather than an expense.

Figure 5: Adult mortality rate

Adult mortality rate

Mortality rates in the developing world are also much higher than in more developed nations. Child mortality in closely and inversely related to national income and has shown a continually improving trend over the last 20 years. Taking Kenya as an example, the under-5 mortality rates have fallen from 200 deaths per 1,000 live births in 1960 to 50 in 2016. There are a number of factors that have contributed to this: improvements in the safety of birth environments, better vaccinations, better sanitation and improved early life nutrition can all be credited. Adult mortality however has not shown the same improvements, showing increases in areas and periods affected by HIV/AIDS and by civil war. Gender has affected death rates much more in developing countries than developed ones; men overall show a higher mortality rate and these rates are more responsive to changes in educational status and to mass mortality events such as war or genocide.

Having examined the past changes in demographics, we now need to look forward and attempt to predict the changes in fertility and mortality across the world in order to understand how demographics will impact the healthcare industry.

How will fertility rates change?

Will they continue to decrease or will they bounce back? In the developing world, assuming continued social and economic progression, we are likely to see a decrease in fertility rates, reflecting the same patterns seen in their developed counter parts decades ago. For developed countries however, there is much more uncertainty. A variety of arguments have been posited and each will be briefly summarized below.

Certain schools of thought support the idea that fertility in developed nations will increase again. Some, such as Easterlin’s 1980 paper, suggest that there are fertility cycles caused by the influence of income and fertility in one generation on the next. However, the predicted baby boom in the 1980s was not observed, discrediting this theory. Secondly, in response to the aging population, fertility could be affected by public policy. We have seen this historically in Singapore where government policies encouraged couples to have more children. However, this was incongruous to the increasing economic and societal development that was occurring and had limited impact, with Singapore now having one of the lowest fertility rates in the world. We therefore predict that it is highly unlikely that developed nations will attempt to actively reverse changes in fertility rates.

The most credible theory on this side of the debate is that we have hit rock bottom fertility. Whilst this argument does not suggest there will be an increase, it suggests at least no further decline. As can be seen in Figure 5, the fertility rates for High Income countries has remained constant since the early 1990s. For instance, humans will always have a number of predispositions causing them to have children including both biological, behavioural and emotional factors. This means as fertility approaches zero, it will level off much as been shown to do. Whether this is the actual rock bottom level however remains to be seen.

On the other side of debate are the arguments for the continued decline of fertility rates. Many of these arguments revolve around the continued increase in the empowerment of women. These include women actively choosing to have a smaller number of children and having those children later in order to pursue careers, the increasing instability of marriages as women are no longer financially reliant on their husbands and the improvement in awareness around and effectiveness of contraceptives. Secondly, the rise in consumerism means adults would supposedly choose investment in their time and pleasure over having and spending money on children. It is thought in some parts of Europe the ideal family size has been decreasing throughout generations; data shows that the ideal family size across both genders for those above 35 is higher than it is for those under 35. Goldstein et al (2003) suggested this is because younger generations form their ideals around the features of the previous generation hence the 20-30-year lag indicating fertility rates could spiral further. From a physiological and biomedical perspective, higher population density can lead to lower fertility rates and other environmental impacts such as stress and smoking may affect the number of quality of sperm leading to an increase in the rate of involuntary childlessness.

Exactly how fertility rates will change will depend on a vast number of societal, political demographic factors. It is this publication’s opinion that, based on the balance between these conflicting factors and historic evidence, we are unlikely to see much change in the fertility rates in the developed world over the next 20 years. Changes in population structure are therefore likely to be mediated mainly by mortality rates. It is important to view this issue categorised into child and adult mortality rates. Child mortality rates are predicted to continue to decrease in the developing world and remain low in the developed world meaning it is really the changes in adult mortality that will dictate the issue (Figure 6).

How will mortality rates change?

As with fertility rates, the future of these mortality rates remains uncertain and views on the subject vary massively. Many subscribe to the idea that life expectancies (a good proxy of mortality rates) will continue to increase at the rate of 2.4 per decade as they have on average for the past century, rising to over a hundred by the end of the century. Whilst medical technologies and public health improvements are likely to continue to drive down mortality rates, many others doubt that the speed and magnitude of this trend will continue. Past life expectancy improvements in the first half of the 20th century, as discussed, were mainly due to the reduction in prevalence of infectious diseases. A similar reduction in the current main killers such as heart disease, diabetes and cancer is unlikely especially given the rise of obesity.

What happens at a national policy level will dictate adult mortality rates and life expectancies and this holds true for across the globe. A crack down on obesity or improvement of HIV prevention schemes on a nation-wide level will have a significant impact on the continued decreasing of mortality rates whereas a lassiez faire attitude will lead to the opposite. There is significant debate over whether human life span has a fundamental limit due to biological factors such as cellular oxidative stress that are very difficult to temper. Even within the camp that believes this to be so, there is no consensus as to when this would be.

What does this mean for the healthcare industry?

Because of the current population structure in the developed world (Figure 6 shows the UK’s population structure as an example), we are likely to see increased demand and cost over the next 10 years. As we have previously established, an aging population leads to a greater number of people with a lower level of health and consequently a rise in the demand of health-related services. Because conditions associated with old age can in some cases be linked to innovative, expensive treatments, costs are driven up and pressure is put on healthcare financing systems. In fact, as the baby boomers get older, a higher proportion of the elderly will be above 80, worsening this effect.

This may be compounded by a decrease in adult mortality rates and an increase in life expectancy; the elderly may live longer than predicted as will those the generation below. Morbidity rates will be tempered by changes in obesity levels and other risk factors such as smoking or poor education so how this plays out will vary between nations as well as on specific government strategy. Based on the various schools of thought and the historic evidence, this publication also suggests fertility rates will remain low, continuing at around replacement level (2 children per couple) throughout most high-income countries. Based on this, there will be no surge in the younger portions of the population leading to the maintenance of this aging population.

However, looking past the 10-year mark, as the Baby Boomer demographic leaves the structure, we may begin to see a much more balanced, smaller population. Figure 6 shows what the predicted population structure in 2100 for the UK will be; it is no longer middle or top heavy, but more balances all the way through. The exact point this rebalance occurs of course depends on current population structure, for instance, occurring in Europe and America before China. This leads to a reduction in the number of elderly people overall as well as the reclamation of the demographic dividend, making it easier for certain systems to finance care.

In the developing world, we are likely to see demographic patterns which follow the pattern we have seen in the developed world; this is the demographic transition. Continued reductions in child mortality and reductions in fertility through economic and social development will lead to an aging population down the line. Kenya’s current population structure (Figure 8) is very young; by 2100 (Figure 9), after the predicted demographic transition, it becomes top heavy. Again, this exact point will depend on the developmental characteristics of the specific location and will assume no major conflicts or natural disasters.

Figure 6: UK population structure,  Figure 8: Kenya population structure

UK and Kenya population structure population structure

Figure 7: Predicted population structure in 2100 for the UK,  Figure 9: Predicted population structure in 2100 for Kenya

Predicted population structure in 2100 for the UK and Kenya

Source: Population Pyramid

How the healthcare industry will be impacted will depend on the balance of mortality to fertility. Currently, a significant healthcare expenditure is child birth and as families reduce in size, this pressure is relieved. It would however be counter acted by the increase in costs of an elderly population. A key factor to consider here as well is that whilst previously need did not translate into desire, with development comes greater wealth and knowledge, reducing this gap. This shift itself will cause an increase in demand. With increased wealth and education on a national scale, an increase in supply of medical professionals will occur and will support this increased demand. Whether these two factors will occur simultaneously or distinctly will depend on the exact conditions; the pattern long term is predicted to be the same regardless.

Shift to Non-Communicable Diseases

Another trend is emerging: life-style related chronic diseases such as heart disease, diabetes and cancer. 70% of deaths worldwide are currently lifestyle related with the main risk factors occurring in both developed and developing countries: high blood pressure, childhood under or malnourishment, unsafe sex, alcohol use and water or sanitation issues are cited as the most damaging five Diabetes alone costs the US $245 billion a year ($176 billion for direct medical costs and $69 billion in reduced productivity), over 1% of national GDP. The 30 million affected currently is projected to increase to 46 million by 2030. 250,000 people are diagnosed every year in the UK, costing the NHS £5 billion annually and the wider UK economy £18.3 billion in productivity loss.

A huge risk factor for many of these chronic conditions is obesity. 80% of those with diabetes are overweight or obese, obesity in childhood or adolescence has been linked to a twofold higher risk of coronary heart disease and an estimated 6% of all cancers are attributable to obesity. Worldwide, it is estimated that 13% of the adult population is obese, the rate tripling from 1975. Affected both by a poor diet and lack of physical exertion, this problem is likely to continue to pervade both the developed and the developing world.

Developing Countries

NCDs are often associated with developed nations where lifestyles tend to involve over indulgence, but alarming statistics are emerging from developing countries. 80% of NCD deaths worldwide occur in low-middle income countries accounting for 48% of deaths. Whilst there are certainly changes in lifestyle driving up disease incidence like in the developed world, the vast hole in medical infrastructure is a very real influence on the death rate.

Hospitals and medical centres are not used to dealing with increased rates of cancer and diabetes meaning mortality rates are vastly elevated: 90% of children with leukaemia die in the 25 poorest countries compared to only 10% in the 25 richest. Globally, the scale of this issue has been quantified by the WEF which claims that NCDs caused $21.3 trillion in losses over the last 20 years and they are a greater threat to global economies than fiscal crises, infectious diseases, natural disasters and crime and corruption. In Kenya, the problem is only likely to worsen as communicable deaths decrease (leaving a greater portion of people to reach the age where NCDs can have an effect), there is increased urbanisation and participate in poor eating, smoking and alcohol and drug consumption.

Why is there an increase?

This trend is due to two key factors. Firstly, the impact of infectious, communicable diseases is dwindling leaving a greater portion of the population to be affected by NCDs. The former still has a significant impact in developing countries, remaining the leading cause of death, but overall there is a considerable downward trend globally; worldwide mortality from infectious diseases fell to 16% in 2010 from 25% only 12 years earlier. This means a greater number of people reach the age where NCDs tend to manifest themselves.

The other key influence is the rise in unhealthy lifestyles. Some risk factors such as smoking and drinking are on the decline; the global market for alcoholic drinks decreased by 1.3% in 2016, a steepening from 0.3% for the previous 5 years and it is predicted that between 2016 and 2021, the global cigarette volume with decline by 8.2%.

However, obesity globally is expected to continue to rise. For example, there is a projected 33% increase in overall obesity by 2030 in the US with a 130% increase in the most damaging kind: severe obesity. This is due to a variety of factors, many of which we have touched upon and which include poor diet, low physical activity and stress. Whilst this statistic represents a levelling off of the historic rate of increase, it is still going to mean a considerable rise in the level of demand, and therefore increase the cost of healthcare systems. Globally, 20% of the worldwide adult population is projected to be obese by 2030. Much of this increase is likely to come from the developing world. Rates of overall obesity appear to be levelling off in developed countries (increases in morbid obesity rates especially in children are becoming the main health issue). With developing nations such as Kenya however, as people move to cities and become better educated, they are more and more likely to move to a less physically strenuous career and eat a greater amount of high fat, high sugar foods.

Continued Threat of Communicable Diseases

Having said this, communicable diseases are still a pressing issue, especially in the developing world. 52% of deaths in low-income countries are caused by communicable diseases, maternal causes and nutritional deficiencies compared to just 7% of those in high-income countries. The main cause of death in the former is lower respiratory infections (85 per 100,000) followed by diarrheal disease (57 per 100,000). HIV/AIDS, TB and Malaria were also amongst the top 10 causes of death (48, 35 and 34 deaths per 100,000 respectively).

Even though healthcare quality in these countries is certainly improving, increasing urbanization and the growth of urban slums that lack sanitation amplifies disease transmittance. As cities expand, they disturb natural habitats exposing previously undiscovered diseases (Ebola being an appropriate example). In Kenya with 1.6 million people infected by HIV/AIDS, economic value of loss-of-life due to this alone is estimated at around 12% of the GNP and this does not include the loss of both economic and societal progression due to children dropping out of school to help at home. Whilst these communicable diseases however are highly preventable with basic vaccinations or lifestyle changes, unfortunately, these factors have been met with very little commitment at a political level with minimal investment into local and national health infrastructure. Current  official costs are therefore relatively low (according to the World Bank, 78USD is the average a Kenyan national spends on healthcare in a year).

Whilst infrastructure may be less of an issue in the developed world, the influence of communicable diseases is certainly not. HIV and pneumonia remain two key killers in countries like Germany with annual death rates being approximately 600 and 21,000 respectively. This is vastly below the rates in other areas of the world and in demonstrably minor compared to other causes of death, but due to mass migrations and climate change, communicable diseases may raise their head once more.

The range of the Anopheles mosquito (the main vector of the malarial parasite) is increasing, having reached southern Europe and with globalization continuing, rare and exotic disease can easily be transported elsewhere: The West Nile Virus being transported to New York and subsequently the rest of the US is a perfect example of this. The cost associated with communicable diseases is dwarfed by those linked to non-infectious conditions in the developed world. However, as stated by the question surrounding next global pandemic is not if but where and when, which would lead these costs to explode.

What does this mean for the healthcare industry?

The increase in NCDs is going to cause an increase in demand for healthcare-related services. 60% of baby boomers (those born between 1946 and 1964) are projected to have 1 or more chronic condition by 2030 and these conditions tend to manifest themselves at a younger age than any old-age related conditions; treatment must therefore be carried out for an extensive (and expensive) period. According to WHO’s 2015 predictions, the three main NCDs, cancer, CVD and diabetes caused 8.7 million, 17.9 million and 15.5 million deaths in 2015 respectively. This was accompanied by $125 billion, $863 billion and $1.2 trillion worth of healthcare spending also respectively.

All projections see a vast increase in these figures between 2018 and 2030. Global cancer-related spending including loss of productivity is predicted to increase to $458 billion annually, CVD spending to $1 trillion and diabetes to between $2.1 and $2.5 trillion depending on estimate assumptions. With this spending increase comes an increased number of deaths. Currently, it is predicted that in the year 2030 12.6 million will die of cancer, 22.2 millions of CVD and 24.6 millions of diabetes related causes representing a 45%, 24% and 59% increase respectively. Whether these predictions come true will depend on improvements in the healthcare provided, improvements in the efficiency of early detection methods and implication of timely treatments and population wide prevention schemes.

The considerable gap in healthcare provision in developing nations will remain unless addressed at a nation-wide level. Social and economic development by itself will promote the closing of this gap through an increase in wealth and the number of doctors per head, but without a concerted and specific effort, this could take a generation if not more. Working against this progress is the vicious cycle which keeps NCD levels high in the poorest communities: low income can expose a family to behavioural and environmental risk factors leading to NCDs which in turn drive people further into poverty due to high costs and loss of productivity and income. Breaking the poverty cycle is another factor that will allow those who bear the NCD burden most heavily to be liberated. Of course, this is a significant undertaking, one which global organizations and governments have been attempting to crack for decades. The UN millennium goals aim for eradication by 2030 and this would certainly help to reduce NCD-related deaths.

The upward surge in NCD incidence and mortality is a trend unlikely to abate. As with aging populations, we are likely to see a correlated increase in demand for many healthcare services ranging from cancer operations to long term care in the home. Whilst in parts of the developing world, this increase in demand may be met with increases in supply due to general development, in richer parts of the world this is unlikely to occur, again applying pressure to healthcare systems world-wide. Chronic conditions tend to be associated with new, innovative treatments which have a higher price tag; it will be up to the healthcare governing bodies to decide whether these treatments are cost effective and whether they can afford them.

Antibiotic Resistance

Communicable diseases were on their way to becoming mostly obsolete. However, this may all be about to change.

What is Antibiotic Resistance?

WHO claims that antibiotic resistance is one of the biggest threats to global health, food security and development today.  Unlike many other conditions discussed here, behaviour, socio-economic background and wealth will not impact disease spread and treatment caused by this. The cellular process itself involves bacterial cells developing a resistance mechanism to certain antibiotics, preventing them from working effectively. Unlike in animals, these resistance genes can be transferred horizontally between unrelated individuals meaning the spread of the resistant gene can occur very quickly.

Whilst it is a naturally occurring process, it is being accelerated due to overuse by the public, inappropriate prescribing by health professionals, extensive agricultural use and the low availability of new antibiotics. In places like the UK, there is regulation on when antibiotics should be prescribed, but the opposite is found China where over prescription and improper use is rife. This has already lead to an ever-extending list of strains that are becoming antibiotic resistance such as those from the pneumonia, gonorrhea and septicemia families.

Without antibiotics, bacterial infections are very difficult to treat. In a pre-antibiotic world, a small infection or minor injury could kill. Significant operations or procedures were extremely dangerous not just in themselves but because of the risk of infection after the event. A post-antibiotic world could look the same. A 2014 report commissioned by the UK government predicted that by 2050, 10 million people a year would die due to conditions previously treatable by antibiotics. The same report indicates this would cost the world USD100 trillion with a reduction of global GDP of between 2 and 3.5%.

What does this mean for the healthcare industry?

The effects on the healthcare industry would be immense and far-reaching. A greater proportion of people would develop infections after an operation. 11% of those who undergo surgery contract a bacterial infection and resistance would make this much harder to treat. Procedures would take longer and cost more to ensure total and utter sanitation and reduce the risk of septic exposure.

In order to treat bacterial infections, multiple medications, often with greater side effects would have to be used. Not only would these be more expensive overall, but the potential side effects may have to be mediated through longer hospital spells or further treatment. A number of studied have estimated an increase of between 1.3 and 2-fold in both cost for patients and in mortality with resistant vs susceptible infections.

Hospitals can already be breeding grounds for infections with so many sick and weakened individuals being close together. Antibiotic resistance would increase the risk of remaining in hospital, potentially causing many to leave care before it is complete, reducing the effectiveness of treatment.

As healthcare professionals such as doctors, surgeons and nurses are likely to come into contact with bacterial infections, a secondary effect of antibiotic resistance may be that many are discouraged from entering this career path. Of course, if the right precautions are taken risks can remain minimal, but the perception may be different. Supply of professionals would therefore decrease, impacting the ability of those in need to receive care and the quality of care they receive.

Furthermore, from a drug development angle, there is and will continue to be increased pressure and demand for new, virgin antibiotics. WHO has laid out a number of recommendations for multiple entities in order to prevent, manage and monitor the situation. For instance, individuals can contribute by preventing infections in the first place through good hygiene and can ensure they use their full course of antibiotics should they be prescribed.

Policy makers should implement national and international action to observe the spread of resistant strains, ensure dissemination of information on how individuals can help prevention and add in controls on the prescription of certain antibiotics. Doctors are advised to inform patients on the risks, keep an eye on resistant strains and only prescribe antibiotics if a bacterial infection is certain while vets and agricultural professionals are encouraged to stop the use of preventative and vaccine antibiotics.

The issue is a global one and an effective response will have to be just that. Much like the healthcare industry as a whole, decisions tend to be made at an individual level with the impact being felt at a societal and, in this case, global one. This makes cracking down on many of the contributing factors difficult despite the risks. Without decisive action, we will see a continuation of the spread of antibiotic resistant strains, driving up healthcare demand, cost and decreasing the value of healthcare provided.

Key Innovations in the Next 10 years

Given the challenges being faced by the seemingly inevitable aging population, the increasingly demanding populace often in a system struggling financially and the ever-pressing threat of antibiotic resistance, the healthcare industry is in need of innovation. In order for innovation to be impactful, it needs to deliver more value for less, aligning financial incentives with the need for quality whilst also being compatible with the rise in consumerism and being secure.

Big pharma appears already to be adapting to the need for fresh ideas; we have seen a trend in these companies partnering or acquiring smaller biotech and healthcare entities which they view as “suppliers of innovation”. Partnering allows these small companies to access funding and develop more risk-sharing models whilst the big pharma firm receive milestone payments and royalties without the cost and regulatory problems of an acquisition. Acquisitions have been bolstered by the reduction of tax on corporate income earned overseas in the US which is predicted to drive a number of M&A deals throughout 2018. In this section, we cover 3 key themes this publication believes will emerge in the course of the next 10 years.

Medical Digital Revolution

The medical digital revolution is already underway. Phones track steps automatically and there are an increasing number of tracking apps on the market used to log fitness and diet as well as data related to medical conditions. This term however can be used to refer to a much wider trend, one which is moving to help alleviate the predicted pressure on the industry whilst making or saving money. The market is already huge. US$7.2 billion of venture capital funding was raised for digital health in 2017, rising 42% from 2016 for instance and the market is expected to reach over US$230 billion by 2020.

Wearables

The adoption of wearables is increasing; it is predicated that the market will have a compound annual growth rates of 20.3% and reach US$0.98 billion by 2020. The term wearable refers to a vast range of technology, collated under this umbrella because of their autonomous, non-invasive and monitoring capacity. Firstly, there are the commercial wearables such as Fitbit, Misfit and Garmin bands which are sold widely. Some are basic step counters, encouraging their users to be more active whilst others are holistic wellness devices which monitor heart rates, track specific sporting activities and produce sleep statistics. The latter not only encourages people to live healthier lives but gives them the tools to see how they can make changes for the better.

Of course, these companies are looking to capitalize on the growing demand for health and activity tracking, but they are perpetuating a virtuous circle which allows people to manage their own fitness and every day health. With the rise in obesity being a looming issue for the healthcare industry, encouraging fitness and a healthy diet is no bad thing. Over the next 10years we are likely to see a development of these technologies; smaller, more discrete items are likely to come to market and there is the potential for internally ingested biomarkers which can track vitals from within with greater accuracy.

Secondly, the wearable term also refers to medical specific monitoring and support. Worn on patients with specific medical conditions, this allows individuals and doctors to remotely manage their conditions, reducing the need for repeated hospital visits. For instance, the Biolife tracking device was developed by the small company Biotricity Inc and soon to be brought to market. It is designed to measure key vitals useful for the day to day management of CVD or Coronary Heart Disease (CHD) such as respiratory rate, temperature and ECG. Wearables can also be used in a hospital or diagnostic capacity.

Biotricity Inc also have another device, Bioflux, which it markets as a diagnostic heart rate monitor. Worn for 30 days by a patient, it can identify patterns in heart rates which can suggest underlying heart conditions and lead to a more accurate, timely diagnosis. This can not only save lives, but reduce the number of medical services required down the line. In fact, wearables with a broader application can also be useful in this space. Google Glass can save time by allowing easier access to transcriptionists to take medical notes and make it easier for medical students to understand procedures.

Simple location tracking devices also have potential healthcare applications; those with Alzheimer’s can be at risk of getting lost, posing a danger to themselves and location devices can help reduce this. Looking forward and as with commercial wearables, we are expecting to see these devices get smaller and more accurate. With greater accuracy comes greater trust in the technology, which may contribute to their wider use across diagnostics and medical support as well as commercially. Increased demand in these technologies may drive down demand for other healthcare services in the long term by reducing unhealthy lifestyles and by managing or diagnosing conditions more effectively.
Robotics

Robotics are another excellent example of digital technologies changing healthcare and again we see that their impact can be far reaching. Robots can aid patients physically. For instance, exoskeletons can allow those who are paralysed or with amputations to walk again more easily, reducing the need for constant care. There is also potential for robotic care givers or nurses which are able to check vitals or perform simple services in lieu of a professional. These professionals can therefore use their time more efficiently. Robots can also be useful in the drug manufacturing or development process. By automating drug compounding preparations and decontaminating and sterilizing procedures, this again frees up highly educated professionals to concentrate on the science rather than the semantics.

AI

Along with robotics, Artificial Intelligence has significant potential to add value in the healthcare industry. With data collected from wearables or through robotic management, AI is able to diagnose patients with certain conditions. Frost and Sullivan’s report on transformational health have estimated that 90% of US and 60% of worldwide hospitals and insurance companies will implement AI systems by 2025. AI can also be implemented on a national or international level, to aid in the identification of disease outbreaks, allowing decisive intervention before an epidemic can form. This market is expected to grow, reaching a CAGR of 42% and a value of $6.6 billion by 2021.  AI will help to streamline care and reduce pressure on healthcare professionals, both aiding the shift to a value-based system and improving early diagnosis.

Social Media

Social media is another useful digital tool. Again, it can act as a platform by which healthcare organisations or governments can track-consumer experience at specific facilities. A transparent ratings system similar to those seen for many services already would help the shift to quality and cost effectiveness. In conjunction with AI, social media could be used to view macro, population-level health trends, allowing the early identification of disease outbreaks or other epidemiological features.

Virtual Clinical Trials

Clinical trials that use a digital platform would vastly increase the scope of clinical trials, making it easier, quicker and cheaper to bring innovative drugs or treatments to market. Rather than paying for physical space, people access a portal and log their information there. Alternatively, if a medical professional is required, these doctors can be significantly more dispersed rather than localized at specific centres, reducing travel costs. Similarly, enrollment is much easier as a significantly wider patient base is available and the lack of overheads mean there is no significant increase in cost with scale. Apple has already introduced ResearchKit which is revolutionizing the way trials are performed; the MyHeart Counts trial enrolled 11,000 people in one day, a feat which would normally take a year and 50 medical centres. GSK, Pfizer, Novartis and Purdue Pharma have all shown interest in running trials through these systems.

What does this mean for the healthcare industry?

Two key outcomes are expected to occur as these digital trends continue to develop. Firstly, healthcare can become data driven. Wearables and social media collect data that can then be used at an individual or population level to make both healthcare and the associated research more effective. A large amount of personal data monitoring internal and external vitals means doctors and patients alike can identify changes over time.

Similarly, widespread digitizing of genetic information through companies such as 23andMe allows patterns between genes and phenotypes to be observed meaning at-risk populations can be identified. This genetic knowledge can also be paired with response rates to certain therapies which, when collated on a large scale, can help to identify the most effective treatment program for a certain individual or geneotype.

Medical data can also be digitized creating an electronic patient record system; Sweden for example plan to open patients’ medical records to them by 2020 in order to lower clinician costs. Not only does it allow people to manage their own records and resources, reducing face time needed with doctors or nurses, it creates greater integration of care. Poorly coordinated healthcare contributes to 250,000 deaths a year in the US and also reduces the effectiveness of the treatments given; digital records can help alleviate this. Apple announced in early 2018 their plans to ask organisations to allow patients to use their smart phones to download their medical records marking one of the first company led steps in this direction.

Along with this move towards a data driven market, extensive cyber security needs to be put in place. ¼ of all cyber- breaches that happen in the US happen in the healthcare space and as data becomes more and more personal, efforts need to be put in place to ensure users feel comfortable with the safety of their information.

The second, inextricably linked outcome is the rise in personalised care. As we have touched on already, genetic information can be used to ensure the more efficacious therapies are used, driving down costs of needless or ineffective treatments. It is estimated that 30-40% of patients take drugs for which the side-effects could outweigh the benefits and there is a significant level of trial and error prescriptions.

Using the data collected from digital health platforms to provide a personalised care plan can help reduce costs and patient burden. This is especially important in the age of antibiotic resistance where trial and error testing with antibiotics can contribute to the issue. The use of automated, robotic manufacturing of prosthetics and replacement joints allows for a greater level of personalization in the products, increasing satisfaction and reducing the need for follow up operations.

Healthcare Technology and Developments

When discussing the future of healthcare innovation, it is impossible not to cover the key areas of science which are likely to yield the most impactful new technologies. Of course, there is a huge amount of exciting work being performed in a vast number of different arenas, but here we select those this publication believes will most impactful.

3D-Printed Devices

3D-printed devices allow for a greater level of personalised care and are becoming increasingly low cost. For instance, Tracheobronchosomalacia airway splints for babies are tiny and are more effective when they fit exactly. With new manufacturing techniques such as additive manufacturing these customizable splints can take mere hours to produce and can now cost as little as US$10 a unit. This technique used layering rather than producing a shape and removing the excess material which means less capital is required for a single product. The same equipment, materials and processes can produce multiple differing products boosting the scale economics.

The global 3D printing medical devices market was worth US$0.84 billion in 2017 with projections suggesting a rise to US$1.88 billion (a CAGR of 17.5%). This growth will significantly impact the effectiveness of device procedures, affecting demand for follow up treatments.

Where the real game changers begin to occur is when 3D printing becomes available for use in human tissue, printing eyes, hands or livers. A lack of organ donors means only 5,000 from over a million people worldwide receive a kidney transplant currently. Not only would providing 3D printed organs save lives and reduce the healthcare costs of maintaining someone in need of a transplant, but it would remove the black market of illegally obtained organs.

Immunotherapies

Immunotherapies are another key space for innovations, especially for cancer therapies. What is most promising about immunotherapies are their broad application. Cancers vary both within and between types in terms of their causes and developmental features. Developing a curative technique that can attack each one is a tall order. Passive and active immunotherapy exploits the fact that the majority of cancerous cells have tumour-associated antigens (TAAs) on their surface, allowing them to be detected by the immune system, giving a vast amount of growth potential after an effective technique has been developed.

Whilst check point inhibitors are often seen as the most exciting area, there are a number of other developmental arenas which have significant potential such as new chimeric antigen receptor constructs. The cancer immunotherapy market is estimated to be worth US$119.39 billion by 2021, but cancer is not the only domain in which immunotherapies are exciting. The pipeline of Alzheimer’s treatments is dominated by passive immunotherapies and allergies, inflammatory conditions and infectious disease are all areas where they also have potential.

Earlier Diagnostics

Earlier diagnostics are the final area identified which have the potential to really impact the operation of the healthcare industry in a 10-year time frame. Point of care (POC) diagnostic techniques give faster results and can contribute to the development of a more cohesive treatment plan. By identifying the cause of an illness, costs associated with delayed treatment are reduced. Because the effectiveness of the treatment of cancer is so reliant on the stage at which the cancer is diagnosed, more efficient diagnoses would have a significant impact. We are already seeing increases in the accuracy of liquid biopsies through technologies like CancerSEEK, which announced in early 2018 that it could detect 70% of cancers across 8 different types.

Aside from condition specific techniques, tests distinguishing viral from bacterial infections can prevent the misuse of antibiotics and ensure correct treatment. Whilst these technologies are currently expensive, lab-on-chip techniques are close to reaching approval which will make this process much more accessible. The market in POC diagnostics is predicted to reach US$38.13 billion by 2022 with a CAGR of 10% from 2017. Timely diagnoses will also be increasingly facilitated by growing bank of data and the use of AI. Data collected through wearables or tracking apps can be screened either by a professional or AI in order to identify worrying patterns. The earlier these patterns can be observed, the sooner a condition can be dealt with and the lower both the financial and physical burden is on the patient and the system.

Alterations to Healthcare Systems

The final innovative trend likely to emerge over the next 10 years are changes in the way healthcare systems are structured. Changes to how these entities operate have significant potential to increase efficiencies and reduce wastage.

Telehealth

The concept of telehealth is similar to the mobile health apps we have previously discussed, but takes it one step further. Instead of just having access to health records or being able to track bodily functions or features, telehealth uses this electronic information combined with telecommunication technologies to provide long-distance clinical care.

By increasing easy communication between providers and consumers, personalised information and advice is more accessible. It also helps to dampen the systematic inefficiencies of missed appointments (in the UK, 14 million appointments are skipped each year, costing the system £1 billion annually). The management of chronic conditions is thought to cost the UK system £1,000 per patient and this increases exponentially as the number of conditions a person has increases. Often this management is in the form of advice or routine check ins which do not require physical contact. By engaging the patient outside a traditional setting, costs and time wastage can be limited whilst care quality can be maintained.

Remote monitoring through a similar system also allows care to be more comprehensive, in depth and consequently effective. Both of these capabilities increase the value and ease of care in homes, diminishing pressure on hospitals and care homes for facilities and professionals. We are already seeing this shift: in the UK, the NHS has teamed up with the private healthcare provider BabylonHealth to provide video call access to GPs within minutes. There is of course an efficiency trade of here. Whilst this can ensure that those who do not have the flexibility or physical access to a GP can receive advice, because of this increase in accessibility, people may use this resource more freely than they would GP appointments in a practice, increasing time wastage.

Another space telehealth will have a considerable impact however is in the developing world. 74% of those in Kenya and 43%of those in China live rurally and this is often synonymous with poor health access. Using telehealth can increase patient engagement and allow a level of care to be delivered to certain areas that was previously impossible.

New Treatment Spaces

Shifting care from traditional settings through telehealth is not the only trend appearing. The emergence of retail clinics is allowing simple, point of access care for a vast range of conditions but at lower cost sites. These clinics can offer routine services for a variety of conditions from STI testing to vaccinations. Walgreens already has 400 locations across the US which provide just this and in 2013 they opened their first clinic to manage chronic conditions including asthma and high blood pressure. Once again, this reduces the demand for these services in higher cost locations and on high cost professionals which has the potential of saving $2.2 billion a year.

Urgent care clinics are another emerging avenue to provide an alternative to hospitals. It has been estimated that 30% of those who visit the ER in the US could be treated elsewhere leading to a 30% reduction of costs. They provide a higher level of care than retail clinics and a lower level of that supplied in the emergency room, giving an excellent, lower cost option in an emergency. These types of facilities have been available since the 1970s but are recently seeing a surge in numbers: there was nearly a 10% rise between 2015 and 2016.

Defragmentation

The defragmentation of the health systems is a global trend, but especially prevalent in the US. Due to market competition, financial challenges and regulatory pressure, many providers are using M&A to consolidate and expand. This allows these entities to offer economies of scale and to expand their service capabilities. Being larger gives these entities a greater level of freedom to support novel care delivery models, run population level health plans and platforms all whilst assuming a greater level of risk. A greater range of capabilities in one location allows for better integration of care for patients and, with the rise in patients with multiple chronic conditions, this will only get more valuable.

Healthcare M&A has been a consistently active space with 12 consecutive quarters yielding over 200 deals and the US isn’t the only player. The market is active in China: Jiangsu Sanyou Group Co. Ltd announced its intent to purchase Meinian Onehealth Healthcare for $1.3 million for instance. Partnerships and collaborations are another method through which capabilities can be expanded and risk can be shared whilst regulatory requirements and costs can be circumvented. The NHS’s 5-year deal with Virginia Mason Institute in the US to help improve both safety and efficiency brokered in 2015 is an example of this.

These 3 structural and operational trends in the healthcare industry signify a desire to eliminate both time and financial wastage and boost capabilities and capacities. Unlike in some sectors (the pharmaceutical segment is the obvious example), profitability and patient welfare appear to be aligned. Increased value with lower expenses improves outcomes for the majority of stakeholders and we are therefore likely to see a continuation of this trend.

Concluding Remarks

Over the last 150 years we have seen unprecedented changes in life expectancies across the planet and this is owed to the boom in healthcare technology and the construction of medical support systems. Like any industry, the healthcare segment is driven by supply and demand but, as consumers often do not feel the direct cost, the dynamics can be unconventional.

We see a lot of variation in the forces driving the system based on geographic location because of differences in development, GDP and education level, regulatory specifics and culture. Looking forwards, the industry faces some significant challenges: the aging population, the increasing prevalence of NCDs and the threat of antibiotic resistance puts pressure on the healthcare provision. Whilst developed countries have suffered less previously, these trends are a very global threat.

There are however, emerging initiatives to combat these. A shift to a consumer centric model and the operational changes to healthcare systems lowers cost for providers and consumers and increases service quality whilst new medical developments increase care reach and quality. How these changes are able to combat growing pressures remains to be seen and will require increased national and international cooperation and action.

The 21st century has been hailed by many as the “century of biology” and in order to face the global challenges in the industry today, this statement will have to be true.

Appendix

Appendix I: History of Healthcare Provision

  • 1747- Treatment for Scurvy discovered through first clinical trial by James Lind
  • 1796- Smallpox vaccine developed by Edward Jenner
  • 1851- International Sanitary Conference in Paris to prevent the spread of cholera, yellow fever and the plague. First organization to tackle healthcare internationally.
  • 1880- Charles Louis Alphonse Laveron identifies microorganisms responsible for malaria
  • 1882- Tuberculosis microorganism discovered by Robert Koch
  • 1885- Rabies Vaccine developed
  • 1895- X-rays that could be used to diagnose injuries were invented. This technology also led to the treatment of cancerous tumours
  • 1914- First World War.
  • 1918- Spanish flu pandemic kills 500 million people world-wide
  • 1924- Tetanus vaccine developed.
  • 1927- BCG vaccine for TB
  • 1928- Penicillin discovered
  • 1942- Widespread use of antibiotics to treat infections
  • 1946- UNICEF formed to provide food and healthcare to children in disrupted countries.
  • 1948- WHO established- 61 countries involved. Focused on eradicating disease e.g smallpox and treatment of HIV/AIDS
  • 1948- first randomized controlled trial to investigate the use of Streptomycin to treat pulmonary TB
  • 1950s- Pre-hospital care improved by equipping ambulances appropriately
  • 1955- First Polio vaccine rolled out
  • 1958- Smallpox eradication program launched by WHO
  • 1978- Synthetic human insulin produced for the first time using recombinant DNA techniques.
  • 1979- Smallpox eradicated
  • 1986- Global Program on AIDS launched to provide an international response to AIDS
  • 1988- Global Polio Eradication Initiative established by WHO, UNICEF and Rotary Foundation
  • 1995- Directly Observed Treatment, Short Course launched by WHO to tackle TB in a cost-effective way
  • 1996- Joint United Nations Program on HIV/AIDS
  • 2000- Stop TB Partnership- eliminate TB worldwide
  • 2001- Measles initiative to reduce measles deaths by 90% by 2010
  • 2002- The Global Fund to Fight AIDS, TB and Malaria founded to fight the 3 biggest killers in the developing worlds
  • 2003- Human genome sequenced
  • 2006- HPV vaccine developed to prevent cervical cancer
  • 2007- Fully articular bionic hands developed
  • 2010- First robot led surgery
  • 2015- The Cancer Genome Atlas published detailing many genetic changes that occur during cancer formation
  • 2018- Cancer blood test can detect 70% of cancers from a blood sample

 

Appendix II: Key Statistics

Figure 10: Breakdown of systems by expenditure segment

Source: The World Bank

Breakdown of systems by expenditure segment

Figure 11: Population ageing projections

Source: Global AgeWatch Index 2015

Population ageing projections

Figure 12: Healthcare industry diagram

Source: Fidelity Research

Healthcare industry diagram

Figure 13: Healthcare expenditure per country

Source: The World Bank

Healthcare expenditure per country