The global healthcare consulting market has grown by 7%, to a value of just over $6 billion, amounting to 7% of the entire advisory industry. Changing demographics, regulatory schemes, and pressure to cut costs are the key areas driving the growth.
The healthcare market is currently undergoing a period of massive change. The rising costs of healthcare, mainly the result of an ageing population in combination with a rising life expectancy, is putting pressure on governments and healthcare institutions to manage spiralling cost levels. At the same time, changing consumer expectations are driving up expectations on all aspects of healthcare, from direct healthcare quality to the operations around health services. On top of these two external megatrends come a range of other factors, such as the introduction of massive reform agendas, regulatory intervention, and disruptive – often technology-driven – innovation.
B.J. Richards, a researcher from analyst firm Source Information Services (Source) explains: “It is very much a time of change in the global healthcare sector, as public and private institutions in virtually every market are dealing with some mix of changing demographics, ever-evolving regulatory schemes, political pressure to cut costs, social pressure to improve care, and expenses that are rising at unmanageable rates. The need to respond to these pressures has led to a wave of reform and restructuring across the healthcare landscape.”
Window of opportunities
For the consulting industry, the backdrop of change leads to a widening window of opportunities. “These changes mean significant opportunities for consultants ready to help take on the challenges,” says Richards. At the strategy side of the consultancy spectrum public and private healthcare institutions for instance hire consultants to support them with setting up or reviewing policy, revitalising business models or redefining the way they operate within the value chain. On the operational side of healthcare, institutions rely on consultants for a wide range of advisory and execution services, ranging from functional expertise (e.g. Finance, HR, etc) to project management support (e.g. PPM, PMO, project management) and the implementation of IT-programs. The adoption of technology is another area where external advisors play a large role, advising and supporting clients with embedding technology into their operations and transforming IT-infrastructures, to provide cost savings and efficiencies while meeting other objectives.
According to Source, which on an annual basis researches the size of the consulting industry and underlying different segments, the transformation agenda has in recent years reflected in expenditures on consultants. In 2012 the healthcare consulting market was worth approximately $6 billion, and on the back of a 7% growth rate the industry has grown to $6.33 billion in 2013. Going forward, the market is forecasted to continue its momentum, bringing it past the $6.5 billion landmark in 2014, and perhaps further towards the $7 billion milestone. Overall, spending on healthcare currently represents 7% of the global consulting market – in comparison, the financial services consulting industry is worth $24 billion, while advisory in the energy & resources domain has a turnover of $11.1 billion*.
The US market is with a distance the largest market for healthcare consulting, making up almost two thirds (62%) of the $6.33 billion. “The Affordable Care Act (ACA) has fundamentally reshaped the way Americans receive care, and as insurers feel their way through the transition from being B2B to B2C providers, they’re turning to consultants to help them do so,” comments Richards. The US is followed by large markets such as Germany, the UK and Australia. From a maturity and growth point of view, the analysts note that there are “huge variances between geographies”. The Russian market for instance shrank by 4% whereas, despite healthcare not being a major sector, the GCC* healthcare consulting market grew by 29% in 2013. Besides the mainstream drivers such as growing demand for high quality healthcare and transformation requirements, a shaping the UAE’s healthcare growth is a push to becoming a preferred destination for cosmetic surgery, with member states actively promoting among others breast augmentation, nose reshaping and facelifts at a lower cost than in Europe.
From a functional perspective, the role of technology is picking up quickly, and now makes up a third of the overall market ($2.08 billion). Healthcare clients see improving existing technology as their number one priority in 2014, and exploring new technologies comes in second. In addition, the agenda of executives in healthcare includes several other IT-related topics, such as driving cost savings, protecting and managing vital patient information and using tech-driven innovations to improve the quality of the end-to-end healthcare process. Despite the already large share of technology in the healthcare space, there remains significant upside potential, says Richards, with only half of the clients saying they are likely to use consultants on technology projects. “A significant opportunity,” she adds.
The upside potential has its risks as well, however, as large transformations in healthcare, a public domain, brings along media scrutiny. In the US, CGI was late 2013 and early 2014 bashed for months by politicians, including Obama himself, and media, for its ailing lead-IT role in the much criticised HealthCare.gov system, the official site of the Affordable Care Act***. In the UK for example, the spiralling spending by the NHS on management consultants has sparked widespread debate within the sector on the necessity and added value of advisors. In the Manchester region, the debate even spread to the individual firm level, after an analysis revealed that hospital trusts in the region had paid ‘just’ five consulting firms nearly £150 million in fees over the course of three years.
* It is important to keep in mind that analyst firms have different forecasts of the value of the global consulting market, and hence the size attributed to the segments within the industry. In the case of Source, the global consulting market is valued at $101 billion (2014), with the scope of the analysis centred around the market for the ~top 250 consultancies. Kennedy Information, a US-based analyst firm, uses a broader scope and assesses the global consulting market at around $350 billion (2014).
** GCC = The Cooperation Council for the Arab States of the Gulf. Member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
*** The launch of the Affordable Care Act website in October 2013 was dubbed a “disaster” by media and officials, and following lacklustre follow-up in January 2014 the Obama administration dumped CGI for rival Accenture. The consulting and technology giant has been able to revamp the system, at least to satisfaction of the client – two weeks ago the US renewed its contract with Accenture for five years (estimated value $563-million).