Healthcare is a vibrant business with enormous opportunities, but it can also be unsettling due to cost worries, unpredictability, and complexity. There is significant potential for players who can produce value-creating solutions and prosper in the face of unpredictability.
Given population aging, the rising prevalence of chronic disease, and the desire for a greater quality of life, the intrinsic demand for healthcare services in the United States continues to rise. Aside from rising demand, three additional main aspects contribute to healthcare being a dynamic business with tremendous opportunity:
Consumers, companies, and the government continue to see the financial burden of healthcare rise faster than their earnings or revenues, a long-standing disparity that is unlikely to be closed anytime soon. Furthermore, new issues develop, such as the continuing opioid crisis. As a result, there has been and will continue to be a constant quest for new ideas and changes, keeping the business in flux.
Not only are regulations changing, but so are three other areas: technology (both medical science and technology, as well as the onward march of big data, advanced analytics, machine learning, and digital), industry orientation (the shift toward B2C and rapidly rising consumer expectations), and risk reallocation across the value chain.
These pressures are profoundly changing the industry’s structure and the basis of competitiveness.
The considerable headroom for improvement in healthcare (about $500 billion within the $3 trillion US healthcare system, according to most estimates) presents enormous opportunities for value creation.
Healthcare is an attractive business because of its rapid development, significant changes, and high wealth generating potential. At the same time, it is unsettling due to cost worries, unpredictability, and complexity. There is significant potential for players who can produce value-creating solutions and prosper in the face of unpredictability.
The assumption that such a corporation may effectively disrupt the pharmaceutical value chain is based on a number of fundamental considerations. First, the market’s size and attractiveness ($500 billion in sales) may support significant investment. Indeed, pharmacy is the second-largest retail sector in the US and the only big area where Amazon does not yet have a significant presence. Second, the economic dispersion throughout the value chain is wide and may be vulnerable to upheaval. Across the pharmaceutical value chain, middlemen keep about $100 billion in profit margins. Finally, there is indication that customer desire for direct internet medicine purchases may be increasing. Although development in mail-order pharmacy penetration has slowed in recent years, first initiatives to offer prescription pharmaceuticals online (e.g., through start-ups like Pill Pack and Lemonaid Health) have begun to gain traction.
The hurdles that a hypothetical technological entry to the pharmaceutical value chain would face are significant. An internet retailer would have to overcome operational and regulatory obstacles. It would also need to locate and cooperate with interested players in other sections of the healthcare business, such as payers and pharmaceutical firms. However, if an online vendor can overcome these obstacles and achieve a presence in the pharmacy business, the potential disruption to the pharmaceutical value chain and industry profit pools might be enormous.