Diamond/Goldman Sachs Symposium Finds Consumerism, Technology Reshaping U.S. Health Care System in Unexpected Ways

CHICAGO, October 13 - Industry experts at a recent health care symposium sponsored by Goldman Sachs and Diamond Management & Technology Consultants agreed: the $2 trillion dollar healthcare industry is headed towards uncharted territory as consumer-directed health care takes hold, and as information about health care choices becomes more available.

But while an emerging "health/wealth" marketplace is creating significant opportunities to improve the quality, and maybe even lower the cost of health care, there is far less certainty about precisely what the U.S. health care system will look like in the next six to 10 years.

"Consumer-driven health care has achieved impressive momentum but if our industry doesn't get consumerism right, universal health care will be at the top of the political agenda in 2012," said Patricia O'Brien, M.D., Co-Managing Partner of the Health Care Practice at Diamond (Nasdaq: DTPI). "Health care service providers, the health plans, pharmaceutical firms, employers and financial institutions all have a stake in shaping the health system. This is the wrong time to be sitting on the sidelines."

Chris McFadden, a health care analyst at Goldman Sachs, said: "We're past a tipping point. Health care costs have risen by a compound annual growth rate of 7.1 percent over the past 15 years, with no other signs of leveling off. A restructuring of the industry is coming and will inevitably create risks and opportunities, particularly for consumers but for every participant in the health care value chain, and some new entrants, as well."

Goldman Sachs estimates that the number of lives covered by consumer-directed health plans will grow from under 4 million in 2005 to 49 million by 2010.

"Historically, the self-insured and the uninsured have gravitated towards CDHPs," said Matt Borsch, a health care analyst at Goldman Sachs, "but growth is increasingly coming from the employer market where rising health care costs represent a real burden on profitability."

The Diamond/Goldman Sachs symposium, "Competitive Implications of Consumer-Directed Health Care," was held Sept. 28, in New York. More than 200 attendees heard predictions and front-line reports from a variety of experts about monumental shifts in store for health care providers and the impact of changing financial models. The theme of technology innovation was prevalent throughout the discussions.

"Our symposium confirmed our hypotheses that consumerism is real, and already driving costs down where they are being used," said John Sviokla, Diamond's Director of Innovation and Research who chaired the event. "Companies large and small are entering the health/wealth market and using their early learning to build out their business. At the same time, the current Health Savings Accounts (HSAs) and consumer-directed health plans (CDHPs) only deal with a small segment of the nation's overall healthcare challenge -- and we expect many more innovations to come to deal with the complex issues of chronic care and late life spending."

Among the forecasts that emerged from the event were:

Greater Efficiency in Delivering Care to Patients: Expect more services to be provided outside the traditional doctor's office. Large pharmacy and retail chain stores will have nurses, supported by technology, on staff for routine examinations and services and even carry those services into employer locations. Information technology will enable such services as helping diabetics monitor blood sugar levels remotely, which will in turn make immediate medical adjustments possible, thus avoiding costly emergency room visits.

On a larger scale, cost and quality data about various treatments will spark new thinking about what kinds of tests are really required in a given situation and possibly reduce the expense of unnecessary procedures. In one pilot program, once physicians were able to see statistics that compared their efficiency with their peers, they decreased the time patients had to wait for treatment from 30 days to one day.

More Comprehensive Personal Health Records: Panel members noted the importance of electronic health records that contain a patient's comprehensive medical history that could be accessed by all the providers working with the patient for practicing preventative medicine and particularly for proactively managing chronic diseases. In one example, complete health care information could be evaluated for gaps -- for example, making sure a diabetic patient also sees an ophthalmologist or a cardiologist to guard against common related disorders.

A Robust Health/Wealth Market: Aamer Baig, Co-Managing Partner of Diamond's Financial Services Practice, noted, "The convergence of financial services and health care into a new 'health/wealth' market is well underway. Health savings accounts will attract hold more than $75 billion in assets by 2010.

"New transaction processing capabilities will make it possible to settle consumer-directed health plan payments at the doctor's office, instead of weeks later," Baig added. "While the cost of processing claims can be up to 17 percent of the value of the claim, those costs will be driven down as financial services firms enter the arena and facilitate portions of claims processing for a fraction of the current costs. In fact, we predict that financial services firms and payment processors stand to capture more than $2 billion in aggregate revenue from facilitating payment transactions for HSA and CDH plans."

Competitors in this evolving market must decide how committed they are to owning customer relationships that can lead to long-term value. Relationships in the future may be driven by assets, such as an HSA account; efficiency of transactions, such as through a debit card linked to a medical savings account, integrated medical and financial advice from a health care payer or investment advisory firm; or the more traditional doctor/patient relationship.

"It's not a perspective that physicians and hospital administrators want to hear but the preliminary views expressed by panelists indicate that the provider network may not be the most powerful differentiator in a consumer-directed world," said Dr. O'Brien. "The leverage in competing for customer loyalty may just as well be based on the transaction or advice."

About Diamond

Diamond (Nasdaq: DTPI) is a premier global management consulting firm that helps leading organizations develop and implement growth strategies, improve operations, and capitalize on technology. Mobilizing multidisciplinary teams from our highly skilled strategy, technology, and operations professionals worldwide, Diamond works collaboratively with clients, unleashing the power within their own organizations to achieve sustainable business advantage. Diamond is headquartered in Chicago, with offices in Washington, D.C., New York, Hartford, London and Mumbai. To learn more, visit www.diamondconsultants.com.

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