2019 has marked the beginning of a major shift in the healthcare IT space away from onsite server rooms and legacy software systems towards the adoption of cloud-based software services, and the next ten years will be defined by the radical shift towards a cloud-based healthcare system in America. We’ve seen the rapid adoption of cloud-based strategies in many other enterprise industries, including the banking and services sectors, but the healthcare sector has lagged in its adoption. It has trailed other industries because of a lack of free cash flow and the introduction of the Affordable Care Act in 2010, which forced hospitals to shift to a fee-for-value reimbursement model over a fee-for-service one. The overwhelming nature of this foundational shift in healthcare reimbursements slowed down investment in and adoption of IT innovation for almost a decade. Nearly nine years later, we’re finally starting to see the healthcare industry catch up in its adoption of cloud based strategies. We’ve identified three trends driving this shift.
1. Millennial consumers are making their tech preferences known.
92% of millennials have smartphones versus just 57% of boomers, and only 58% of millennials trust doctors versus 73% of the previous generations. Millennials are driving change in the care delivery landscape because they prefer to interact with their care-givers through mobile and online social interfaces instead of scheduling an in-person visit. And the healthcare sector is responding. Companies providing new care delivery models, including One Medical and Forward, are heavily focused on remote care and mobile technology. Kaiser Permanente now offers care via telephone and email, and scheduling through its mobile app. Other large healthcare organizations will follow suit, having finally realized the need to invest in cloud-based healthcare.
2. Changing demographics in patient populations are straining healthcare resources, forcing hospitals to become more efficient.
By 2030 there will be 69.7M boomers on Medicare, leading to a shortage of an estimated 120k doctors. Hospitals will need to get more efficient in order to serve their patients. In 2018, the average hospital had an average operating profit of 1.7%where 2.5% is a more sustainable number. With such limited free cash flow, most hospitals don’t have the option of increasing staffing to deal with a higher patient volume. Hospitals and healthcare practices are therefore looking towards technology to help drive more efficient care delivery and support functions of care delivery like supply chain and materials management, which often account for 20-40% of a hospital’s capital budget.
3. We’re in the middle of a generational turnover in executive leadership at hospitals that’s driving modernization.
Boomers started turning 65 in 2011, and eight-years on, we’re starting to see boomer generation executives retire and make way for a younger set of millennial executives. Because the fee to value shift sparked by the ACA was such a radical, time-consuming change, the outgoing executives didn’t have the time to prioritize investment in technology and cloud-based systems. Their successors, on the other hand, are digital natives with the time and inclination to jettison old legacy systems. This generational shift is driving the healthcare provider investment in overall cloud-based strategies that we’ve seen in other industries. Investor dollars also support this trend, as we saw an all-time high for diagnostics and tools M&A in 2018, and over $84.3 billion in venture capital investment across all healthcare sectors in 2018.
The next ten years will be all about healthcare providers adopting overall cloud-based strategies. Driven by consumer tech demand, generational turnover in healthcare system executive leadership, and the need to efficiently serve an ever increasing number of patients, the days of limited, expensive, legacy software are numbered. We predict that the change to cloud-based solutions will continue to expand and accelerate in the healthcare sector until it touches every aspect of healthcare.
Photo Credit: Goran Ivos