Part 1 of this 3 part blog series discussed the various types of healthcare data available and why each type of data is important. Part 2 discussed the data value chain and how data and data analytics can help create tangible value for healthcare organizations. This last part, Part 3, will discuss the role of health analytic capabilities in the marketplace, whether a winner-take-all condition exists and what types of M&A activity we can expect to see driven by health analytic needs.
Health Analytics: Winner Take All?
There are some strong reasons to believe that a winner-take-all market condition exists when it comes to healthcare data and analytics. However, we believe that the market will still see several big players over the next few years. Here are some reasons why a winner take all market condition exists.
- Fundamentally, data aggregation and analytics is a type of service that has natural monopoly forces. Similar to a utility company, data aggregation and analytics makes sense to be conducted by one or very few players. Having multiple companies do the same thing around capturing and aggregating data is not efficient from an overall market perspective. If there are multiple companies doing so, as there are today, there is strong reason to consolidate to be able to produce the same benefits for a lower cost.
- The health plan business is largely a network driven business. Once people buy insurance through their employer group, they tend to stick to the health plan because of their employer. Even afterwards, consumers are poorly educated about plans and tend to stick to what they had before. The advent of the insurance exchanges, however, will change this stickiness. With traditional loyalty gone, consumers will have a much smaller switching cost and will move to different networks even if just for a marginal increase in cost and effectiveness. As such, any health plan that has a slightly better health analytics capability can start a domino effect and steal members. In the long run, the best provider of analytics driven services can take the entire network (or at least a majority of it).
Given the reasons above, it is highly plausible that in the long run there will be very few firms providing analytics driven health services. But, we believe that if a winner take all condition does exist, it will not happen in the short run for the following reasons:
- The data is still too disparate and the industry will take time to mature such that the data is available and usable in such ways as to provide opportunity for a winner take all condition.
- Even if aggregated data is available, there is not one analytics engine or algorithm or model that has emerged as the dominant model. Firms are still experimenting and will continue to evolve.
- The administration of services based on data insights must be population driven and no two populations share the same culture and preferences. As such, the administration of health services will remain a competitive differentiator resulting in multiple players.
Analytics Driven M&A Opportunity Map
Because there are several difficult functional areas required to be able to harness healthcare data, there will be a great deal of M&A activities driven by health analytics. At the least, we can expect to see more acquisitions like United acquiring Optum to help payers expand their health analytics capabilities. We might see providers acquiring payers for the same reason. In fact, forward thinking providers who have established channels to apply population health policies can benefit a great deal by integrating with their own payer system, creating a unified, integrated delivery system. If there are firms that provide end to end data and analytics services well, they can consider offering stand alone services for the data access and aggregation components since most other payers and providers struggle with this function. Simply providing access and aggregation services can be very valuable to many players in the marketplace. But, it still leaves the market for analytics and application open.
The following table summarizes our view of analytics driven mergers and acquisitions in the healthcare market. Note, that this table does not provide a perspective on general M&A forces in the healthcare market, but specifically provides probable M&A activities driven specifically due to healthcare analytics capabilities.
The Future for Data Geeks
To be competitive in the market, healthcare organizations need to be able to provide the right service at the right time to the right person through the right venue or medium to increase health outcomes while reducing costs. This will continue to be the key challenge that many healthcare firms are trying to solve, and the data geeks will continue to emerge as the thought leaders and problem solvers of this national challenge.