Medical costs continue to spiral for insurance industry

16 May 2017 Consultancy.uk

Medical insurers are once more seeing costs rise almost across the board, and while companies are planning a range of wellness and health initiatives for employees, these are unlikely to contain the rise in the near term. The US in particular is set to see a spike in costs in 2017, while Europe is forecasted to face an increase of around 4% in medical costs.

The Global Medical Trends Survey Report (GMTSR), an annual study by Willis Towers Watson (WTW), considers annual medical cost trends for employers, as well as moves employers are leveraging to boost efficiency. The survey involved 231 insurers across 79 countries that provided insights on medical costs. Medical costs have been in the spotlight in recent years, particularly in the US, and with the new administration of President Trump seeking to repeal state insurance plan Obamacare, many low-paid members of the American workforce could soon be facing more expensive health costs.

The report meanwhile states the case that, “a healthier workforce is a more productive workforce”, noting that companies are already exploring wellness programmes, in a bid to promote employees to managing their own health and negate the need for costly healthcare provision. Unfortunately the study also suggests that one of the root structural causes of unhealthy lifestyles remains unaddressed — as many of the self-same companies perpetuate and reinforce such modes of living in their own sales and marketing initiatives, with large profit incentives offered for such successful market exploitation.

How do you expect medical trends to change over the next three years compared to current rates

Change Ahead

The majority of insurers polled projected health costs for medical insurers to rise, and globally 46% of respondents say that they expect their overall book of business to change over the next three years compared to current rates. 6% of those surveyed stated the situation will be significantly higher, while around 42% said conditions will remain broadly consistent.

Change in medical expenditure is expected almost across the board meanwhile, with the biggest movement noted in the Americas, with 47% of those asked expecting high variations, and 10% significantly higher, while among insurers polled in the Asia-Pacific, 48% projected higher and 5% significantly higher. Only respondents based in the Middle East and Africa recorded a majority of answers believing there would be little disruption, with 53% stating they expected a continuation of the status-quo.

Changes in costs related to medical categories over time

The data also suggests insurers foresee various service categories increasing over the coming five years, with as many as 60% of respondents in the Americas, Asia-Pacific and the Middle East and Africa, predicting that Basic Medical and Out-Patient expenses will see rises, while Hospital and In-Patient costs are expected to increase by more than 90% of Asia-Pacific respondents. Along with respondents based in the Asia-Pacific region, 19% of whom thought high levels of significant cost increases were due, those in the Americas were particularly concerned about rises in pharmacy costs, with 18% projecting significant increases and 53% projecting increases.

In each respect conversely, European respondents meanwhile expecting the lowest level of rise in each segment as state-sponsored socialised health systems continue to drive demand and cost down within private markets. North American costs are set to rise significantly above inflation as, among other reasons, the inefficient and historically poorly designed medical system is teeters on the brink of uncertainty, as a lack of single-payer European model sees medical expenses increasingly impacting employees.

Top three conditions over next five years

Top medical concerns

In terms of the biggest three medical conditions in the coming five years, Cancer ranks top, at 75% of respondents, followed by Cardiovascular, at 67%. Cancer is of particular concern in the Asia Pacific region, while Cardiovascular is of particular concern in the Americas as a result of low-quality diets and increasingly sedentary lifestyles.

In the Middle East/Africa, as increasing fossil-fuelled industrialisation amongst developing nations leads to increasing levels of air pollution, Respiratory ranks considerably higher than in other regions, cited by almost 70% of respondents, while Musculoskeletal/Back is ranked in the top three by 9% of respondents. In Europe concern around Musculoskeletal/Back was cited by 46% of respondents as their largely tertiary-based economies lead to rising levels of repetitive strain.

Three most significant external factors driving medical costs per person

Researchers further probed respondents on which were the three most significant external factors driving medical costs per person. Ranking highest at 63%, ‘higher costs due to new medical technologies’ was followed by ‘profit motives of providers’ at 40%. Other areas said to be creating cost impacts included ‘limited or poor networks to effectively control costs’, ‘changes in workforce demographics’ and ‘current or recent economic environment’, polling at 25%, 24% and 23% respectively.

The lowest responses were ‘higher per capita income’, ‘insufficient information on external factors’, and ‘poor information on provider quality’, at 2%, 6% and 14% respectively – meaning even a higher income, educated consumer in a system of competition is perceived as being likely to be hit hard by ever-increasing costs.

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Privately-owned UK pharmaceutical companies are thriving

04 April 2019 Consultancy.uk

Britain’s 50 fastest-growing privately-owned pharmaceutical companies have all increased sales by at least 10% in each of their last two financial years, new research reveals, facing down headwinds such as Brexit and NHS spending pressures to deliver outstanding performance. 

According to data by Alantra, a corporate finance firm with over 280 professionals globally (of which 70 are based in the UK), pharmaceutical companies in the country are thriving. “These companies have achieved remarkable rates of growth,” said Tom Cowap, a Director in Alantra’s UK advisory business. “Many of UK’s smaller and privately-owned businesses often lead their markets globally.”

The fastest-growing pharma player in the industry – Qualasept Pharmaxo, a specialist pharmacy provider and clinical homecare company – achieved annualised sales growth of 77% over its last two financial years. The analysis reveals that firms that have made the prestigious list differentiate themselves through their ability to isolate and then communicate a diverse set of value drivers, including societal issues such as the economic case for a product, as well as patient outcomes. 

One fast grower, Prescient Healthcare Group, is focused on advising drug development and commercialisation teams (executives) for some of the largest pharmaceutical companies, as well as the smaller firms and biotechs. “We help them differentiate their assets and brands and understand the priorities of the key stakeholders who will influence and enable commercial success and patient access,” said Rakesh Verma, the company’s President of EMEA and APAC.

Pharmaceutical companies in the UK are thrivingAt Oxford PharmaGenesis, Chief Operating Officer Richard White agrees. “We no longer refer to ourselves as a medical communications business because that is too narrow,” he said. “We think HealthScience communications is a better representation of our wider range of activities: in growing areas such as value demonstration and patient communications, for example, but also in talking to a wider audience that still includes physicians, but also spans payers, patients, regulators and even policymakers.” 

For Mark Jeffery, a founding director of The Research Partnership, this shift has meant his firm now provides its specialist market research to pharmaceuticals working at every stage of the product cycle. His company is as at home researching how a marketplace might change over the next 15 years as its is analysing demand for a specific new product or forecasting future sales of an established product going off-patent. “This is a global market, with emerging market customers becoming more and more important to us,” Jeffery says. “Our value driver is the strategic direction we can give clients based on the data.” 

This is not to suggest a broader product offering will erode the importance of specialist skills. Nucleus Global Chairman Stephen Cameron said, “The complexity of the compounds that clients are developing means they need real specialist expertise in niche areas – we invest heavily in recruiting and retaining the right people to meet those needs, and talent is going to be a battleground for our sector.” Nevertheless, burgeoning demand is driving a wave of consolidation amongst the consultants. The last 12 months alone have seen medical communications group Fishawack acquire creative consultant Blue Latitude and Peloton Advantage buy Open Health Communications. Private equity interest in the sector has also been heightened.

Alex Marshall, Partner at CIL Consultants, a management consultancy with specialist teams covering this space, expects this to continue. “This is a rare opportunity to invest in a market where the leading players are generating organic growth of 10% or more each year,” he says. “It’s an industry that remains reasonably fragmented, plus emerging trends such as digitalisation and the growing importance of health economics are only just getting going.” 

Expect international expansion to be an important theme too, especially in developing and emerging markets. Prescient Healthcare Group’s Rakesh Verma says the growth of the middle classes, particularly in developing economies, will underpin a sustained increase in demand for healthcare, even if economic and political instability present short-term challenges. “These markets are going to be hugely important over the longer term, as their middle class populations grow and their governments move towards universal healthcare models,” Verma says.

“This presents new challenges for commercialising products, as pharma and biotechs have to navigate regulatory regimes they are less familiar with. The key will be to focus on individual countries, rather than falling into the trap of targeting regions or country grouping acronyms; you need to build the right infrastructure and pricing model for each specific market.”