Healthcare’s future winners and losers

The distribution of market share and profitability across 13 healthcare sectors will change dramatically over the next decade, reveals Accenture analysis of healthcare profit pools—the relationship between a sector’s market share and its profitability.

Some traditional sectors will see market share fall by 60 percent, and new profit opportunities will emerge in others for companies that can quickly capitalize on them. Companies will need to make targeted investments to navigate this massive change, making tough judgements about which areas of the healthcare value chain will succeed, and which will suffer.

Shifting profit pools

All healthcare sectors are not created equal in future opportunities. Sector margins will fluctuate significantly over the next 10 years. Some sectors will grow even while profits erode. A select few will improve both market share and profitability.

By far, the biggest future winners in tomorrow’s healthcare landscape will be software and IT companies and outpatient providers. Pharmacy benefits managers (PBMs), distributors and wholesalers, and payers will lose big in a landscape that will be unrecognizable. See Figure 1.

As profit pools increasingly shift from traditional parts of the value chain toward sectors oriented around technology, incumbents need new ways to defend against disruption and maximize business value. The old rules simply no longer apply.

Change is not by chance

Three pervasive market trends will set the new rules in healthcare:

1. Blurred lines
   Vertical consolidation across outpatient care, health plans, drug retail and PBMs signals an active M&A landscape. This combination of problems to solve and rewards for scale is a siren song for technology players, which will continue to gravitate toward healthcare. Over the next decade, healthcare’s software and IT sector is expected to grow by more than 15 percent annually.
2. The middle of nowhere
   The industry can expect the steady flow of profits attributed to transaction-based businesses to disappear. The PBM sector is projected to shrink nearly 8 percent annually through 2026, with operating margins falling from 5 percent in 2016 to 3 percent in 2026. Distributors and wholesalers will see their sector fall off over 4 percent annually, with operating margins shrinking from 2 percent in 2016 to -2 percent by 2026. Lastly, while changes to payer market share will be limited, their margins will be significantly reduced, falling from 7 percent today to 3 percent in 2026.
3. Consumers are cash
   Healthcare businesses that zero-in on consumers are best positioned for long-term sustainable value. The outpatient provider sector will expand nearly 13 percent annually, with operating margins increasing slightly from 2 percent in 2016 to 3 percent in 2026.