A significant and growing portion of the gross domestic product (GDP) is spent on healthcare globally, and as populations age, the crisis in global healthcare systems is only set to worsen. Healthcare expenditure in developed countries is reaching a tipping point beyond which it will become unsustainable, essentially forcing the industry to look for alternatives. Without the shift to integrated care and a focus on health outcomes, healthcare systems in most countries will be unable to cope with an ageing population and the increasing incidence of chronic disease.

This is especially the case for the US, which currently spends 17% of its GDP on healthcare, with the Centers for Disease Control and Prevention (CDC) projecting that spending will reach 20% of GDP by 2025 if the system is not adjusted. By comparison, the average country of the Organisation for Economic Cooperation and Development (OECD) spends 10% of its GDP on healthcare. The rising cost of healthcare would not be a problem if it grew in tandem with wealth and if outcomes also improved. More spending alone, however, does not necessarily result in better outcomes (see chart).

Digital health solutions being sought
Digital health solutions are increasingly being sought to cope with the cost challenge, mainly led by (1) the move towards value-based models, which tie reimbursements to outcomes, and (2) technological advancements such as digitalisation, health data mining and better diagnostics. The aim of digital health is to improve access to care by connecting the entire healthcare value chain. This would allow for the measurement and selection of the best value-added treatments and could lead to a more personalised and preventive care at lower costs. Prevention and an outcome-focused model (maximising value for patients rather than volume) could be the most fertile framework for digital health to help reduce costs.

Rising segments in digital health
We see three key segments rising in digital health: (1) remote patient monitoring, (2) telehealth and (3) population health management. We estimate that the total addressable market (TAM) of the three digital health segments combined could reach around USD 170 billion, up from USD 23 billion (today’s consolidated market revenue). However, the savings potential from the implementation of digital health far exceeds the TAM, with up to USD 650 billion in savings globally, since savings occur outside the TAM.

Health IT as a clear winner
We view health IT as the main beneficiary of the shift to value-based reimbursement and the digitalisation of the healthcare value chain. The great opportunity lies in the digitalisation of health data, with virtually endless sources available that can offer some insight into clinical data, drug studies and so forth. Health IT stands at the centre of any digitalisation solution. On the other hand, we see care providers such as hospitals at a clear disadvantage. The provider industry faces the greatest risk of business model disruption from the shift to digital health and value-based reimbursement. This shift will lead to the increasing occurrence of bundled payments and the rising need for technology-related investment, potentially squeezing providers’ margins further. We expect provider consolidation to remain a significant trend within the industry.