How to thrive amid disruption

ACA has accelerated the rate of change in healthcare and payors are under the gun to make the transition from an industry in which the customer is a corporation to one in which consumers call the shots. Many current market leaders could be unseated, predicts a June report from McKinsey & Company.

While history has shown that industry leaders often are displaced during times of disruption, McKinsey research uncovered two key insights for payors who want to defy history:

• Companies in other industries have taken three strategic paths to thrive during and following disruptive change.

• All of these companies made big shifts in leadership focus and resource allocation and developed faster organizational clock speed and leaner cost structure.

The report authors go on to describe the fundamentals of disruptive change, including industry leadership volatility and what they call “topple rates.” During disruptive times, companies often face regulatory as well as competitive challenges; there is greater financial disparity between top and bottom performers; productivity and innovation increase; profit pools shift; and the volume of mergers and acquisitions increase.

The authors maintain that disruption was underway even before ACA was enacted, with expenditures growing more rapidly than GDP for more than half a century and productivity lagging.

The existing payor model is being disrupted in two ways. With the shift toward the consumer, payors (and, likewise, providers) need to build a new set of consumer- and retail-based capabilities. New competitors also are  emerging to offer integrated care and payment as well as other innovations that help companies and consumers manage their healthcare spending.

If the past is a guide, the healthcare industry will see many new entrants, and while most will not survive, those that couple operational efficiency with innovation are likely to become the new leaders.

The report suggests three strategies to help incumbents thrive: refocus your portfolio to emphasize customers or products that will benefit from disruption; transform your business model (pricing model and approach are critical decisions); and build a major new business that can leverage the company’s core capabilities.

Access the full report for more details.