© Oliver Wyman

THE PATIENT-TO-CONSUMER REVOLUTIONHOW TO THRIVE IN A CONVERGENT HEALTHCARE ECONOMYApril 8, 2015

Terry Stone

Managing Partner

Health & Life Sciences

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Copyright © Oliver Wyman

22© Oliver Wyman

You go to a restaurant (chosen randomly with no Zagat guide or Yelp

reviews), peruse the menu which you don’t understand, take your

waiter’s suggestions without question, and order a meal.

But the menu has no prices and you have no idea what you will pay until the bill

arrives a few weeks later.

And it doesn’t matter if the food or service or ambience were great, OK or

terrible – you pay anyway.

WHAT IF

THE PATIENT-TO-CONSUMER REVOLUTION

CONFIDENTIAL INFORMATION © WELLTOK 2009-2014

“The consumer-driven health market will change how providers compete and will fundamentally disrupt health plans. Neither wins unless the consumer does.”

55© Oliver Wyman

WHAT IS POSSIBLE

40% total cost reduction

5.0% trend reduction

100% consumer value improvement

$7 TN of cost reduction over ten years

$1 TN of value rotation

1,000X the diffusion rate

66© Oliver Wyman

THE TWO MACRO INNOVATIONS OF HEALTH MARKET 2.0

Integrated,

holistic care

models

Web 2.0 –

eHealth

Anytime /

anywhere

clinics

Big data/

analytics

Value

navigation

Personalized

health

planning

Complex

adaptive

workflow

New risk

layers

Prediction/

prevention/early

intervention

• New generation of players redefine care delivery and

patient experience around total value

• Leads to the creation of new population segment-based

care models & entire ecosystems

• Redistributes revenues and profits amongst incumbent

and new players

• As consumers shop for themselves their expectations rise

• Seek out novel health & wellness products and servicesthat are: intuitive, transparent, personalized, and technology-enabled

• More informed purchasing and healthcare consumption

• Changes to all aspects of the consumer experience -shopping, products, networks, engagement models, and incentives

Retail/lifestyle

hubs

Consumer

segmentation

Integrated

rewards &

incentives

Transparent value

shopping

Health media &

social health

networks

Consumer

designed

networks

Retail health

and wellness

Mobile

Health Apps

Wellness

recommendations

engine

Crowd sourced

recommendations

Value

navigation and

advising

77© Oliver Wyman

Magnitudes illustrative

MAJOR POTENTIAL TO UNLOCK VALUE

Which organizations are best positioned to impact levers & capture value?

Traditional age/

sex HRA based

incidence risk

New patient

centered care

model

Prediction,

prevention & early

intervention

Consumer

engagement

Expected cost

(today model)

Acuity rating is

the starting line

for full budget –

under rating

drives losses,

over drives profits

Managing care

across population

and delivering it

more cost

effectively/with

better value

Predictive

analytics,

prevention and

early interventionsChanging

engagement/

behavior – higher

compliance, lower

stress, more daily

activity, better

diet, increased

social interactions

Actual cost

(value potential)

P&

L d

rive

rs

Potential

profit90%

75%

65%

60%

88© Oliver Wyman

Private exchange growth has

just begun

• 95% of private exchange lives will be

employer-sponsored

• 65%+ of employees choosing different benefits

than they have today

25

50

Millions of lives

PRIVATE EXCHANGE

0

2013 2014 2015 2016 2017 2018

Large employers are adopting private

exchanges and defined contribution

large employers will be offering

benefits through private exchanges100+

In 2015…

exchange offerings will

be in-market35+carriers will be participating

on third-party exchanges180+

types of products will be available

through private exchanges25+

~30%

Sources: Oliver Wyman Private Exchange Market Model, primary research

And by 2018…

of employer-sponsored lives will

have moved to DC benefit models

CONSUMER-CENTRIC HEALTH MARKETS

99© Oliver Wyman

• Intel is placing bets on the wearable

market with ‘smart ear buds’ that

track fitness and health

• It has also announced plans for its

own smart watch

• Google has announced plans for a

smart contact lens that measures

glucose levels in diabetics’ tears; it

would replace need for finger pricks

• One could also imagine Google

Glass evolving into sight assistance

for the visually impaired, etc.

• The Apple Watch is expected this

spring. It features heart rate

monitoring for a more accurate

calorie/fitness tracking experience.

• This information will be aggregated in

the ‘Health’ app designed to track

and share all your health information

from every source

Intel Smart Ear Buds WatchGoogle Smart Contact Lenses

Sources: Intel, Google, Apple

MAJOR PLAYERS HAVE IDENTIFIED OPPORTUNITIES

1010© Oliver Wyman

SCIENTIFIC & TECH BREAKTHROUGHS INCREASE OPTIONS

8

47

>250

0

50

100

150

200

250

1990 2000 2010

FDA approvals for OTC home tests

1,824 OTC tests have been approved

to date

Blood pressure

Cholesterol

Hepatitis C

HIV

Blood glucose

Source: Food and Drug Administration

11© Oliver Wyman 11

$4.1 BN+Venture funding for digital health companies in 2014 – nearly the

total of all three prior years combined1

$5 BNProjected worldwide revenue from wearable electronic devices,

apps and services for fitness and personal health, 20162

69%Online U.S. adults tracking a health indicator, such as weight,

diet, exercise routine or symptoms, for themselves or a loved one

in 20132

5%Online U.S. adults who wore a device like the Fitbit to track their

daily activity in 20132

7.4% Projected CAGR of North American Health IT space by 2017

$31.3 BN Projected North American Health IT market size in 2017

Sources: 1 Rock Health 2 - Gartner and Forrester, 2013

HEALTH TECH SPACE GROWING AT SILICON VALLEY SPEEDS

12© Oliver Wyman 12

OTHER COMPLEX MARKETS HAVE SIMPLIFIED

HOW CAN YOU PARTICIPATEIN HEALTH MARKET 2.0?

CONFIDENTIAL INFORMATION © WELLTOK 2009-2014

“To seize the $1 trillion at stake, incumbents and new players will have to partner, taking the best of both with no false loyalties to the past and a shared unrelenting commitment to consumer value.”

15© Oliver Wyman 15

5 KEYS TO UNLOCKING CONSUMER VALUE

1 Change your frame of reference

2 Be aware of your place on the value ladder

3 Run skip generation plays

4 Don’t go it alone

5 Leadership is the scarcest commodity

“The rise of brands and the fall of geography will enable new business

ecosystems to emerge that are integrated and consumer centric.”

– The Patient-to-Consumer Revolution

CHANGE YOUR FRAME OF REFERENCE:

THINK CONSUMER ECOSYSTEM

• MyFitnessPal• Jawbone• Zipongo• Livongo

• Google• IBM Watson• Apple

• Theranos• Samsung• Hudson Alpha• Illumina• 23andMe

• Castlight• WebMD• ZocDoc • Amazon

• Liazon• Bloom

• Welltok• Rally

• Teladoc• MDLive• American Well• HealthSpot

• HealthCarePartners

• Iora• Qliance• CareMore

• Evolent• xG Health • Optum• Healthagen

• WeightWatchers

• Whole Foods• McDonald's• GNC

• Walgreens• Walmart• CVS• Rite Aid

TECHNOLOGY

ATTACK

CONSUMER

MARKETS

HEALTH

ECOSYSTEMS

RISE OF

RETAIL

HEALTH MARKET

2.0

Advanced

diagnostics

Health

shopping

Exchanges

Engagement

platforms

Mobile & home health

Smart care

teams PHM

PHM

enablement

Food and

grocery

Retail

Mobile and

monitoringTech – Big data

DON’T GET BLIND-SIDED BY THE SPEED OF CHANGE

NETWORK ADVANTAGE

VALUE CHAIN CONTROL

NEW INDUSTRY STANDARD

PRODUCT LEADERSHIP

TRUE COMMODITY

Price position

Price advantagedAbove market

Market position

Multi-year leadLaggard

Ecosystem

Highly coordinated

Consumer beware

Point of design

Consumer - health Physician -disease

Transformative value

Become magneticDelight consumers

A new consumer economy with redefined value

Price-based competition and substitute economics

RUN SKIP GENERATION PLAYS:

SHIFT YOUR STRATEGIC FORMULA TO 70% OFFENSE

PROTECT THE

FORT

Reinvent&

Innovate

Consumer configurable health plans

Population based smart care team ecosystems

PROTECT THE

FORT

Reinvent&

Innovate

PROVIDER

PAYER

LEAD, PARTNER, LEAD, PARTNER

?HEALTH MARKET 1.0 INCUMBENT

PASSIVE MONITORING

BIG DATA & PREDICITVEMODELING

MOBILE APPS

RETAIL PHARMACIES

HEALTH MARKET 2.0 PLAYERS

Selecting StrategicPartners from the

Health and Wellness Jungle

20© Oliver Wyman 20

THE LEADERSHIP IMPERATIVE

Leading through uncertainty using

lessons from the unencumbered innovator

& robust incumbents

Thriving in the “chaos of innovation &

transformation” as the new normal

Practical & flexible transformation

models that work

Leadership, not refinement, is what’s

needed to survive.

2121© Oliver Wyman

… a market- and/or

region-leading

hospital company

… an integrated,

cross-continuum health

solution

… a patient centered

population health

management company

Specialist Player Health Enabler Medical home

(patient hub)

Hospital, service lines,

market share, efficiency

Delivery network, referral

management, care

coordination

Populations, patient

centered, predict,

prevent, engage

… a consumer centered

better living company

Retail/smart phone

(consumer hub)

Personalized consumer

engagement with

quantified self,

social engagement

Ask what business are you in? Who is the customer? And how do we add value?

Capital

base

Margin Capital

for Rev.

Growth Rev.

Multiple

$1 3% $1 1-2% 0.6

Capital

base

Margin Capital

for Rev.

Growth Rev.

Multiple

$1 15% $0.30 15% 1.5

WHAT IS THE CENTER OF YOUR NEW BUSINESS MODEL?

HOW ARE THESE STRATEGIESPLAYING OUT IN THE MARKET?

CONFIDENTIAL INFORMATION © WELLTOK 2009-2014

“Health Market 2.0 will have many business designs, most of them new and some global. We expect the marketplace to add more than 1 million new jobs. And we expect new players and new business designs to capture about $1 trillion of the $3 trillion US healthcare market.”

SOLVING THE CONSUMER HASSLE MAP IS CRITICAL TO DESIGNING

WINNING SOLUTIONS

THE NEW FRONT DOOR

RETAIL VIRTUAL HEALTHFOOD &

GROCERY

SOCIAL &

MOBILE APPS

CONSUMER SHOPPING

HEALTH SERVICES

SHOPPING

BENEFIT/PRODUCT

EXCHANGES

ENGAGEMENT

PLATFORMS

SMART CARE

TEAMS

MONITORING,

BIOMETRICS &

PREVENTION

BIG DATA & PREDICTIVE

MODELING

PERSONALIZED HEALTH

28© Oliver Wyman 28

• We know the innovation/diffusion gap is a mile wide – just effectively using what we have already invented changes the game

• We know there are evolutionary pathways for health systems and health plans – leading to even stronger business designs than they enjoyed in the past

• We know we have value hungry tech and retail neighbors who will pressure weak businesses and can actually strengthen the best ones

• We know the web services and genomic pioneers – at a high cost – are already translating their genius into vastly improved lives for our family and friends

• While there is risk and uncertainty, we are at the front edge of the single largest value growth opportunity of the next decade

TAKEAWAYS

CONFIDENTIAL INFORMATION © WELLTOK 2009-2014

“Health Market 2.0 will be a space where new kinds of companies offer combinations of services we have not seen before, redrawing industry lines and engaging consumers in new ways.”

CONFIDENTIAL INFORMATION © WELLTOK 2009-2014

LEARN MORE

THE PATIENT-TO-CONSUMER REVOLUTION

THE OLIVER WYMAN HEALTH INNOVATION CENTER

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