Healthcare costs on the decline, thanks to digitalization and telemedicine
A technological revolution is dawning in the globally difficult healthcare market. This revolution is nourished by demographic, technological and financial motives. Advancements in digitalization such as health apps and telemedicine are likely to cut healthcare costs over the long term.
The problem can be described in simple terms: according to the Swiss Federal Statistical Office, healthcare costs in Switzerland have risen by around 800% since 1960 when adjusted for inflation (in absolute terms, around 3,600%). In comparison, inflation-adjusted wages rose just 16% over the same period, so the potential for social conflict is evident; even from the perspective of healthcare costs per capita, the increase of 500% in real terms represents a huge difference compared to general wage growth.
From a relative viewpoint, the administration and prevention segments report the highest rise in costs at 1,300%, although these segments make up just 6.1% of all healthcare costs. In absolute terms, costs have risen most sharply in inpatient and outpatient treatment, where costs are currently nine and eleven times higher, respectively, than they were in 1960. It stands to reason that as life expectancy rises, these healthcare costs, ceteris paribus, will continue their disproportionate rise. Similar figures exist in all industrialized economies.
Digitalization Is Changing Healthcare
Now, however, digital technologies in many fields of application allow for significant cost savings while improving services in prevention, diagnosis and treatment. The commercial spread of these new possibilities is likely to spark a global revolution in healthcare in the near future.
This development would affect all areas of the healthcare business. Specifically, this means:
- Research and development of new drugs, therapies and instruments
- Better, cheaper treatments
- Better and cheaper system processes
Healthcare costs have risen with inflation
Healthcare Costs Could Decline
Over half of all services in the healthcare sector could be provided better and less expensively as soon as the next decade. A few examples:
First, the exponential decline in the cost of computational power, also known as Moore’s Law, which has brought us to the advent of self-learning software and artificial intelligence, will accelerate the development of new pharmaceuticals at lower cost.
Second, the cost of decoding a human genome has fallen drastically. What cost CHF 100 million in 2001 can now be done for just CHF 100. This opens up numerous possibilities to enhance services in diagnostics and prevention, but also in treatment of many diseases. The response rate for certain cancer patients, for example, can be lifted from around 7% to over 70%.
Fewer Errors Thanks to Digitalization
Surgical robotics, personalized medicine, biotechnology, medical technology and nextgeneration implants that only became possible with digital technologies, promise significantly cheaper and better treatments. An example: estimates indicate that drugs worth more than CHF 300 billion are wasted each year due to imprecise administration.
Especially with widespread disorders, such as diabetes or chronic pain, simple implants or sensors can deliver successful treatment outcomes for millions of sufferers, in an easier, simpler and more cost-effective fashion. Finally, modern technology can ease the burden on specialist personnel and allow nursing staff to devote more time and attention to their patients. Technologies that support clinical decision-making and processes present opportunities to reduce diagnostic error and deviations from the prescribed care.
The healthcare industry is on the brink of a global revolution
Burkhard Varnholt, CIO Swiss Universal Bank / Deputy Global CIO
Health Apps and Telemedicine Are Gaining Ground
Telemedical services can overcome more than geographical barriers. At the same time, social and legal developments are creating the framework for a responsible approach to digitalization in the healthcare sector. For example, sales of telemedical healthcare apps, ranging from heart rate monitors to diabetes sensors to flu tracking by region, have risen nearly nine-fold from 2013 to today, with revenues soaring from USD 2.4 billion to around USD 21 billion. Many of these apps prevent diseases and costs before they occur.
The healthcare revolution is still in the shadow of the status quo. But it will ultimately take the spotlight with the creative force of the “better.” Investor portfolios should already address this development today.