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Topic name is Future of the healthcare ecosystem.

Analysis of the future of the healthcare ecosystems. Discuss the improvement of delivery systems, digital healthcare ecosystems, big data infrastructure, and collaborations on IT in the healthcare ecosystem.

my role in this topic is Research and write findings from 5 sources on the future of the healthcare ecosystem.

HEALTHCARE ECOSYSTEM
ANALYSIS
Class Readiness Paper #1
INFO 6130
Introduction to Healthcare Ecosystem Analysis
The Standard & Poor’s 500 index classifies industries into 11 sectors and sub-divides those sectors into industries.
This allows investors to easily compare and evaluate the performance of companies in the same sector and industry.
The sectors include: Communication Services, Consumer Staples, Energy, Real Estate, Information Technology,
Healthcare, Financials, Utilities, Consumer Discretionary, Materials, and Industrials. (Kennon, 2020)
In particular, the Healthcare sector consists of the following industries: Biotechnology, Healthcare Equipment &
Supplies, Life Sciences Tools & Services, Pharmaceuticals, Healthcare Providers & Services, and Healthcare
Technology. (Kennon, 2020)
The primary emphasis/goal of the Healthcare sector is providing patients with preventive, rehabilitative, and
therapeutic goods and services. These services converge to minimize premature mortality, improve and maintain an
acceptable quality of life, facilitate healthy birth to life growth, and promote a peaceful and pain-free death.
Healthcare products are the goods and services provided by all entities of the Healthcare Sector ecosystem that
contributes to the efficient and effective operation of medical facilities and the services that ensure the well being of
patients.
The Healthcare industry consists of all professionals and their activities which contribute to maintaining or
improving a patient’s health, through preventative medicine, appropriate and accurate diagnosis of abnormalities,
the treatment of the underlying causes of abnormalities, illness, or injury and management of a patients over all
wellbeing.
Healthcare providers include hospitals, facilities, clinics, labs, dental, optometry, insurance, supplies, occupational
therapy, education/training, pharmaceuticals, equipment, speech therapy, hospice, nursing homes, outpatient
services, medical devices, R&D firms, finance, and medical professionals.
There are 4 types of hospitals categorized as follows: General (for profit and non-profit), Government owned,
Disease Specific and University. Other types of facilities include: nursing homes, long term care facilities, medical
offices (dental, optometry, medical, etc.), mental health facilities, clinics, rehabilitation, hospice, blood banks, and
many others). Governmental agencies include the Food and Drug Administration, the Centers for Disease Control,
the National Institute of Health, U.S. Department of Health and Human Services, Centers for Medicare and
Medicaid Services, Health Resources and Services Administration, Administration on Aging, Agency for Healthcare
Research and Quality and many more.
The Healthcare sector is extremely broad and complex and contributes nearly a fifth of the U.S. Gross Domestic
Product (GDP). In 2019, the Healthcare sector contributed 17.9% of the $21.2 Trillion GDP ($3.8T). Highlighting
the importance of the sector is the phenomenal growth rate. From data provided for January through March of 2020,
the 10-year rate of growth is 177.15%. (Kennon, 2020)
The healthcare supply chain does not cover, from end-to-end, the whole ecosystem. As a result, hospitals must throw
away a tremendous amount of goods that have surpassed their expiration date or to meet budgetary requirements.
For example, San Francisco Medical Center loss $3M on wasted supplies in one year. (Allen, 2017) Additionally,
their inventory of some items is excessive. Modern supply chain system can monitor hospital inventories and
replenish the goods when a threshold is reached. This reduces inventory and minimize loss due to expiration dates.
The COVID-19 virus exposed several weaknesses in the healthcare supply chain. First, the supplies from
international companies is at risk when a major crisis occurs. Multiple sources are a must. Secondly, the laws and
regulations associated with international commerce can be volatile. Thirdly, the price of supplies increases
dramatically when demand from numerous countries is excessive. (Bohmer, Pisano, Sadun, & Tsai, 2020)
Another issue of concern was the lack of knowledge of supplies at other medical facilities within the same city,
county, and state. One hospital had a surplus of ventilators where hospitals in the same city was searching for
ventilators. (Bohmer, Pisano, Sadun, & Tsai, 2020) Analytics would help decrease bottlenecks and predict future
bottlenecks and achieve a Quadruple Aim. (Wadsworth, 2017)
Healthcare analytics is expected to grow by more than $31B by 2022. (Gluck, 2020) The healthcare industry can
benefit from a more extensive use of analytics in the areas of cost, supply chain, diagnostic, and prediction.
1
The use of visualization tools can display mined data from all aspects of hospital management. The data can identify
areas requiring more attention in scheduling, insurance billing, and uninsured. Other analytics can be used for
predictive analysis. The analytics can predict the various supplies required by month, the number of ICU beds
required and the need for additional staff. There are several issues that must be addressed before analytics are as
efficient and all-encompassing as they should be. First, the results of many analytical studies will need to be
protected to avoid release of sensitive individual information. Secondly, the lack of standard naming conventions
makes it difficult to ensure accurate data elements are used. Third, data is often stored in silos. Access to the various
databases could be difficult. Finally, the amount of data can be overwhelming. Highly qualified IT professionals are
necessary to accurately mine the “big data”. It is important to ensure results of the analytics are trusted and does not
harm any patient. (Gluck, 2020)
Previously medical facilities were overwhelmed with paper; however, with the passage of the Affordable Health
Care Act, all practitioners were required to begin digitization in 2014. (HCL, 2011)
The digitization can be as simple as eliminating hand-written prescriptions and having them sent electronically to a
pharmacy. This simple digitization effort minimizes inaccurately reading the prescription. (ALE, 2018)
A more comprehensive digitization effort requires medical facilities to keep patient data electronically. This allows
patient data to be promptly provided to any medical facility the patient chooses. Digitization of EKGs, X-rays and
other testing results are also being electronically stored and are accessible to the patient through EMRs. (ALE, 2018)
Problems with Healthcare Ecosystem Analysis
Some problems within the healthcare industry include:
1. Payments for healthcare goods and services typically come through insurance agencies or the government.
The payments are not immediate and could potentially cause a cash flow problem.
2. The entire Healthcare Sector is heavily regulated by various organizations including the U.S. Food and
Drug Administration. This oversight is important for the health and safety of patients, but it results in
increased costs and increased time to market.
3. The supply chain for healthcare organizations consists of several issues. The COVID-19 virus highlighted
the need to reduce reliance on international markets to fulfill healthcare supply needs. Additionally, the
lack of an end-to-end logistic tracking system results in unnecessary costs and excessive inventories.
4. An obvious concern exposed by the COVID-19 virus is the length of time it takes to receive approval to
market new devices.
5. An unfortunate by product of the health industry is patients believing the goods and services provided is
unacceptable. Therefore, medical professionals need to carry large malpractice insurance and experience
large legal expenses.
Looking at the Generic Strategies Grid for the Healthcare industry:
•
•
X-Axis – Differentiated
o Healthcare industry is a $3.8T industry. (HCL, 2011)
o 83.1M patients are millennials seeking Healthcare services. There are 61M Gen Xers patients and
75M Baby patients. (Dell, 2017)
o In 2018, Healthcare invested $194.2B in research & development which is 6.6% increase over last
year; however, it is only 5¢ on every health dollar spent. (Lagasse, 2019)
o The Healthcare Industry has 6,146 US Hospitals: 2,937 Nongovernment Not-for-Profit
Community Hospitals, 1,296 Investor-Owned Community Hospitals, 965 State and Local
Government Community Hospitals, 209 Federal Government Hospitals, 616 nonfederal
Psychiatric Hospital, and 123 other hospitals. (AHA, 2020)
Y-Axis – Broad
o Total hospital expenses for 2018 was $1.1T. (HCL, 2011)
o Healthcare has an 80/20 rule: 80% of healthcare costs comes from 20% of patients. These patients
are making decisions during serious illness and unlikely to shop. In 2011, the Healthcare Cost
Institute study showed only 7% of healthcare services shoppable. (Dell, 2017)
2
Being in the broad differentiated market, the Healthcare builds loyalty through differentiated services to become an
industry leader.
Looking at the Porter’s Five Forces for the Healthcare industry:
•
•
•
•
•
Barriers of New Entry – High Risk
o Economies of Scale: [good] Total hospital expenses for 2018 was $1.1T. (HCL, 2011)
o Capital Requirements: [bad] 90% of Healthcare organizations suffered security data breaches
and have spent $6.2B in total recovery costs. (Zensar, 2019) Healthcare experiences 340% more
security incidents than other industries. (ALE, 2018)
o Access to Distribution: [bad] In 2018, they had over 36.4M admissions at the available 6,146 US
hospitals with 924,107 beds. Out of the 6,146 US hospitals, 5,198 are considered rural or urban
community hospitals. (AHA, 2020)
Supplier Power – Low Risk
o Presence of substitute inputs: [good] 200,000 providers have accepted electronic medical records
or EMRs. (HCL, 2011)
o Supplier Concentration: [good] Goods for the healthcare supply chain are managed through
distribution centers or delivered to hospitals directly from distributors – such as WMS solutions.
(TECSYS, 2018) Alcatel-Lucent Enterprise connects patients, caregivers, and staff to the
healthcare ecosystem through a secure network. (ALE, 2018) Zensar provides digital scheduling
and clinical record keeping within the healthcare ecosystem. (Zensar, 2019) Smart device
applications such as: Castlight, GoodRx, Fair Health, Vitals, Healthgrades, ZocDoc, MDInsider,
and QueueDr. (Dell, 2017)
o Importance of volume to supplier: [good] Government offered $20B in incentives to accelerate
the adaptation EMRs. (HCL, 2011) Inventory control within the hospital is complex with storage
locations spread out throughout the hospital system which could potentially be hundreds of
locations. (TECSYS, 2018)
Buyer Power – Low Risk
o Bargaining Leverage:
o Buyer Switching Costs: [good] Healthcare has an 80/20 rule: 80% of healthcare costs comes
from 20% of patients. These patients are making decisions during serious illness and unlikely to
shop. In 2011, the Healthcare Cost Institute study showed only 7% of healthcare services
shoppable. In a BCG survey, 72% were willing to purchase a narrow-network plan in order to save
25% in out-of-pocket costs. (Dell, 2017)
o Buyer Concentration: [good] 83.1M patients are millennials seeking Healthcare services. There
are 61M Gen Xers patients and 75M Baby patients. (Dell, 2017)
o Price Sensitivity:
o Price Total Purchases: [good] In 2018, US Healthcare spending was $306T and 17.7% of GDP.
(HCL, 2011)
Degree of Rivalry – High Risk
o Industry Growth: [bad] A report from Deloitte shows that in 10 years the current healthcare
industry will be consolidated by 50%. (TECSYS, 2018)
o Concentration and balance: [bad] Hospital Consolidation trended beginning in 2015 with
hospital mergers and acquisitions totaling 102 transactions (up by 3%) or 2.6 hospitals each
transaction. All healthcare mergers and acquisitions rose up 22% in 2015. (TECSYS, 2018)
o Intermittent overcapacity: [good] There are 6,146 US hospitals and a total of 924,107 beds &
60% are occupied at any given time. (AHA, 2020)
Threat of Substitute – High Risk
o Substitute products available: [bad] Healthcare industry is looking to achieve the Quadruple
Aim through Data Analytics and IT tools. (Wadsworth, 2017) Zensar & ALE both offer IT tools
and robotics. Both adapt IoT, Security, Mobility, and Digital Health. (Zensar, 2019) (ALE, 2018)
Digital outreach is being led by telehealth and retail clinics – CVS MinuteClinic, Walgreens
Healthcare Clinic, and ConvenientMD. (Dell, 2017)
o Buyer propensity to substitute: [bad] According to a 2016 United Healthcare consumer survey,
comparison shopping for health services saw an increase by 230% (32% of Americans). Deloitte
3
Center for Health Solutions study found that 72% were interested in engaging their healthcare
providers through technology (email text, or messaging). (Dell, 2017)
Hospitals have an intense rivalry; however, there are high switching costs involved. Patients will switch for higher
quality doctors and access to emerging technology; however, buyer power in bargaining is weak. Patients’
insurances lock them into a given network without the ability to change providers. Demand is high with millennials
expecting emerging technology be used in the supply field and baby boomers require healthcare treatment.
Substitutes for emerging technology and digital outreach climbs as well as lower cost drugs from other countries
such as China, Mexico, or Canada. Threat of entry is low due to expenses; however, there is a possibility of growth
within the government hospital sector or specialty sector.
Findings on Healthcare Ecosystem Analysis
Looking at the Ecosystem of the Healthcare industry:
•
Healthcare System
§ Hospitals
§ Physicians
• Medical Tourism – 1.4M Americans travel to other countries and spend
approximately $45-$70B to save costs for procedures.
• Digital outreach is being led by telehealth and retail clinics – CVS MinuteClinic,
Walgreens Healthcare Clinic, and ConvenientMD. (Dell, 2017)
§ Patients
• 83.1M patients are millennials seeking Healthcare services. (Dell, 2017)
• 61M are Gen Xers patients. (Dell, 2017)
• 75M are Baby Boomers patients. (Dell, 2017)
§ Payer
• Health Insurance Companies – Preventive care is 100% covered under ACA
(Dell, 2017)
• Out-of-pocket – Outpatient fee-for-services for elective services. (Dell, 2017)
• Medicare – HCAHPS set up Triple Aim to help with reimbursement. (Dell,
2017)
§ Pharma
• Pharmaceutical companies – Within the US sells approximately $300B in
products (HCL, 2011)
• Pharmacies – In the US it is a $277B industry (HCL, 2011)
• Mandatory Regulations – DSCSA requires disclosure of information when a
pharmaceutical drug changed ownership within the supply chain. (TECSYS,
2018)
§ Cyber Security
• 90% of Healthcare organizations suffered security data breaches and have spent
$6.2B in total recovery costs. (Zensar, 2019)
• Healthcare experiences 340% more security incidents than other industries.
(ALE, 2018)
§ Technology
• 80% of doctors use smartphones and medical apps with 65% of all interactions
happen through mobile devices. (ALE, 2018)
• EMRs are in the Cloud. (ALE, 2018)
• IoT can be found in MRIs and CT scanners with 52% of hospitals using 3 or
more IoT devices. (ALE, 2018)
• Planning software allows for qualitative trends for better forecasts. (TECSYS,
2018)
Three Alternatives
Alternative 1 [Ecosystem > Technology]
By 2023 over 120 million people will wear a health-based tracking device. This is an increase of over 10% every
year for the next 3 years. Currently, the Apple Watch and the Fitbit are the most pervasive devices, but they only
4
provide rudimentary personal healthcare and exercise tracking. The smart devices worn by most individuals
currently track heart rate, heart rhythms, and echocardiograms. Some other disease specific wearables are gaining
acceptance. For example, Apple recently released a “movement disorder API” that will assist in obtaining insights
into Parkinson Disease. The device automatically sends information gained from the Apple device to medical
experts. These experts use this data to gain knowledge that can be used in treating patients. Omron released a
wearable blood pressure monitoring device. This device is used to assist in heart health activities. The up and
coming wearables consist of patches attached to patients. These devices collect information such as heart and
respiratory rates, temperature, and blood sugar testing. This has a potential for reducing cost by catching health
issues earlier while they can be treated. Insurance rates could potentially be reduced due to patients taking more
responsibility for their health. Employers can benefit by having healthier employees. One of the values of these
devices could potentially reduce the impact of the COVID-19 virus. The device could identify persons with COVID19 symptoms. The devices could be used to test for temperature and cough. If the disease is caught early there is a
potential to reduce deaths and hospitalizations. This could drastically reduce cost, medical personnel stress, and
prevent economic upheaval being experienced throughout the U.S. (Phaneuf, 2019)
Alternative 2 [5 Forces > Supplier Power> Supplier Concentration]
One of the emerging technologies that has demonstrated promising results is the use of 3-D printers in the healthcare
industry. Although not yet in widespread use, the limited practice demonstrates viable solutions in many healthcare
applications. In fact, by 2027 experts expect the 3-D printing in healthcare industry to be a $6B industry (AMFG,
2019). One advantage of using 3-D printers is the ability to generate customized, individualized solutions instead of
using “one-size fits all” devices. The 3-D printer can create an exact size bone, prosthetics, or tooth that can be
inserted without having the surgeon make real-time adjustments for that perfect fit. The 3-D printer can also create
surgical tools. These specialized tools can be one of a kind to satisfy emergency needs. Another advantage is the
ability to quickly create prototype solutions that can be tested before being used by patients. Additionally, the time
to receive the customized 3-D printed device is significantly less than creating a special order with a device supplier.
Finally, the cost of creating the individualized device is much cheaper than purchasing from the device maker. Also,
a cost savings is also realized by not having to retain a large inventory. Before 3-D printing becomes a mainstream
solution, several issues need addressing. First, the number of qualified 3-D printing engineers must increase. For
example, there are over 700,000 knee replacements and over 400,000 hip replacements in a year. Secondly, there
needs to be a set of quality control measures in place. The chance of human error in making a 3-D device is possible,
but there needs to be safety measures to minimize the mistakes.
Alternative 3 [5 Forces > Threat of Substitute > Substitute Products]
Longer term alternatives for improved healthcare are associated with ingestible/embedded internal sensors. These
sensors would automatically alert professionals when indicators exceed individualized thresholds. These sensors
would monitor minute changes (almost imperceptible) to a person’s health posture. The early detection of
abnormalities would greatly enhance a physician’s ability to diagnose and treat diseases before damage is done to
other areas of the body. This could potentially reduce overall healthcare cost and improve the quality of life. For
example, an internal device could monitor blood flow. A slowdown in blood flow could signal fatty build-up in
arteries which could be corrected and thus reduce the chance of a heart attack. This same sensor could monitor the
amount of red and white blood cells. This would allow a physician to detect an infection or other abnormality earlier
than previously accomplished. The blood sensor could also detect changes in blood pressure and blood sugar. In
addition, an embedded senor could monitor electrical or neurological activity. This could help in diagnosing and
treating neurological disorders. Unfortunately, the amount of data collected could be overwhelming. Therefore, data
reduction tools must be in place to turn this data into cognitive information. In addition, the information must be
individualized to avoid false positives and negatives. The wide-spread adoption of these types of sensors could
introduce a whole gamut of disruptive technologies in the Healthcare Industry; however, rules, regulations, and laws
must be in place that address the numerous ethical and safety issues likely to be encountered.
5
References
AHA. (2020). Fast Facts on U.S. Hospitals, 2020. Retrieved from American Hospital Association:
https://www.aha.org/statistics/fast-facts-us-hospitals
ALE. (2018). Connecting the Healthcare Ecosystem to Optimize the Care Pathway. White Paper, 1-20.
Allen, M. (2017, 3 9). What Hospitals Waste. Retrieved from Pro Publica: https://www.propublica.org/article/whathospitals-waste
AMFG. (2019, 8 30). 3D Printing In Healthcare: Where Are We In 2019? Retrieved from AMFG:

3D Printing In Healthcare: Where Are We In 2021? (Updated)

Bohmer, R. M., Pisano, G., Sadun, R., & Tsai, T. (2020, 4 3). How Hospitals Can Manage Supply Shortages as
Demand Surges. Retrieved from HBR: https://hbr.org/2020/04/how-hospitals-can-manage-supplyshortages-as-demand-surges
Dell. (2017). Healthcare Consumerism over Ten Years in the Making. White Paper, 1-8.
Gluck, J. (2020, 1 28). It’s All About the Data in 2020 and Beyond. Retrieved from Health Tech:
https://healthtechmagazine.net/article/2020/01/its-all-about-data-2020-and-beyond
HCL. (2011). Empowering the New Healthcare Ecosystem. White Paper, 1-8.
Kennon, J. (2020, 4 27). What Are the Sectors and Industries of the S&P 500? Retrieved from The Balance:
https://www.thebalance.com/what-are-the-sectors-and-industries-of-the-sandp-500-3957507
Lagasse, J. (2019, 12 31). Investment in medical and health R&D not keeping up with needs of nation, report finds.
Retrieved from Healthcare Finance: https://www.healthcarefinancenews.com/news/investment-medicaland-health-rd-not-keeping-needs-nation-report-finds
Phaneuf, A. (2019, 11 8). Latest trends in medical monitoring devices and wearable health technology. Retrieved
from Business Insider: https://www.businessinsider.in/science/news/latest-trends-in-medical-monitoringdevices-and-wearable-health-technology/articleshow/71970305.cms
TECSYS. (2018). Healthcare Supply Chain Imperatives. White Paper, 1-9.
Wadsworth, J. (2017). The Healthcare Analytics Ecosystem: a Must-have in Today’s Transformation. Health
Catalyst, 1-9.
Zensar. (2019). The Digital Proliferation of the Healthcare Ecosystem Analysis: Focused on patient engagement,
diagnostics and personalized care. Whitepaper, 1-16.
6
January 2018
Healthcare Systems and Services Practice
The future of healthcare:
Finding the opportunities that
lie beneath the uncertainty
Shubham Singhal, Brian Latko, and Carlos Pardo Martin
1
The future of healthcare: Finding the
opportunities that lie beneath the uncertainty
Healthcare is a dynamic industry with significant opportunity, but cost concerns,
uncertainty, and complexity can also make it an unnerving one. Substantial upside exists
for players that can deliver value-creating solutions and thrive under uncertainty.
The intrinsic demand for healthcare services
care economy) provides significant
continues to rise in the United States, given
opportunity for value creation.1
population aging, the increasing prevalence
of chronic disease, and the search for a higher
Industry growth, major changes, and strong
quality of life. In addition to increasing demand,
value-creation potential make healthcare
three other major factors make healthcare a
an exciting industry. At the same time, cost
dynamic industry with significant opportunity:
concerns, uncertainty, and complexity make
Shubham Singhal,
Brian Latko, and
Carlos Pardo
Martin
it an unnerving one. Substantial upside exists
• Consumers, employers, and the government
for players that can deliver value-creating
continue to see the financial burden of
solutions and thrive under uncertainty. Indeed,
healthcare grow faster than their incomes
our recent research into industry profit pools
or revenues—a long-standing gap unlikely to
indicates that, on average, the industry
change soon. Furthermore, new challenges,
is delivering value-creating solutions and
such as the ongoing opioid crisis, continue
consequently showing attractive profit
to emerge. The result has been a continuing
growth. Between 2012 and 2016, total over-
search for fresh solutions and reforms,
all healthcare industry profit pools (earnings
which has kept—and will keep—the industry
before interest, taxes, depreciation, and
in a state of flux.
amortization, or EBITDA) grew at a faster
rate than the combined EBITDA of the top
• Major tectonic shifts are occurring, not only
1,000 US companies (Exhibit 1).
in regulations but also in three other areas:
technology (both medical science and
However, profit pool growth varied widely
technology and the onward march of big
across the healthcare industry, and both
data, advanced analytics, machine learning,
it and the factors driving it (e.g., revenue
and digital), industry orientation (the move
growth and margins) will continue to be
toward B2C and rapidly rising consumer
uneven for at least the next several years,
expectations), and reallocation of risk across
as shown in Exhibits 2 and 3. This paper
the value chain. These forces are fundamen-
outlines the underlying drivers of historic—
tally altering the structure of the industry and
and potential future—profit pool shifts
basis of competition.
among industry stakeholders (health insurers, healthcare delivery systems, service
• The available headroom for improvement
vendors, and pharma­ceuticals), as well as
in healthcare (by most estimates, over
the impact technology-driven disruption
$500 billion within the $3 trillion US health-
could have on them.
1 Singhal S, Coe E. The
next imperatives for US
healthcare. McKinsey
white paper. November
2016.
McKinsey & Company Healthcare Systems and Services Practice
2
Health insurers
programs. Health insurers’ government lines of
Since the Affordable Care Act was enacted,
the industry that experienced profit pool growth
a major shift in insurers’ profit pools has
above 10% between 2012 and 2016.
business are one of the four segments across
occurred. Between 2012 and 2016, enrollment
in fully insured group plans decreased 16%
An important change has also occurred within
as employers switched to self-insured arrange-
the government lines of business for health
ments,2 and the number of small employers3
insurers. Medicaid profits have risen because
offering health benefits dropped 24%4; how-
of Medicaid expansion, the shift to managed
ever, revenue from ancillary lines of business
Medicaid, and the increased value that has
(e.g., dental, vision) grew by 25%.5 At the same
been unlocked through industry consolidation
time, enrollment in Medicare Advantage (MA)
and capability building (e.g., care management
plans, with or without prescription drug ben-
for special needs individuals). MA profits also
efits, rose 71%; enrollment in managed Medi­
rose, but more slowly. The result: Medi­caid
caid plans increased 80%.6 Because of these
and Medicare now contribute equally to
forces—and the substantial losses many
government business profit pools. (In 2015,
carriers have had to absorb in the individual
Medicaid overtook Medicare; their positions
market—​the profit pool from commercial lines
reversed again in 2016.) It is likely that both
of business was less than half the size of the
will be significant drivers of health insurer
profit pool from government lines of business
profit pools going forward.
in 2016. (The two were roughly equal if the
individual market losses are excluded.) The
Across all lines of business for health insurers,
growth in profit pools from government lines
scale has become increasingly important.
of business reflects structural changes in these
Changes in EBITDA — 2017
Our research shows that EBITDA margins rise
markets (e.g., Medicaid expansion) as well as
significantly as scale increases, even though
continued recognition at the federal and state
Exhibit 1 of 10
the decrease in per member per month G&A
level of the potential of managed care to im-
costs flattens at relatively modest size for
2 Kaiser Family Foundation.
prove the performance and efficiency of these
payers. (As Exhibit 4 shows, the inflection point
2017 Employer Health
Benefits Survey. Sept­em­
ber 19, 2017.
3 Defined as employers
with fewer than 50 fulltime employees (including full-time equivalent
employees).
4 Kaiser Family Foundation.
2017 Employer Health
Benefits Survey. Sept­
ember 19, 2017.
5 McKinsey analysis based
on National Association
of Dental Plans and
IBISWorld data.
6 McKinsey Payer Financial
Database based on
National Association
of Insurance Commis­
sioners filings.
EXHIBIT 1 US healthcare sector EBITDA and EBITDA growth
US healthcare sector EBITDA
Compound annual EBITDA growth, 2012 –16
$ billion
430
516
620–670
Healthcare sector
1,000 US companies
2012
2016
+4.6%
+2.2%
2020 (est.)
EBITDA, earnings before interest, taxes, depreciation, and amortization.
Sources: Capital IQ industry estimates for top 1,000 US companies; see the detailed sources listed under Exhibits 2 and 3
for the US healthcare industry
3
The future of healthcare: Finding the opportunities that lie beneath the uncertainty
depends on the line of business.) Scale is espe­
ment, utilization management, consumer
cially important for specialized insurers (Exhibit
engagement) and revenues (e.g., through
5). Among Medicaid carriers, for example,
improved product design, distribution, quality-
pretax margins are more than twice as high for
based revenue such as Medicare Star ratings,
those with more than 10 million covered lives
and better capture of risk-adjustment revenue
than for those with between 2.5 and 5 million
leakage). Scale enables the development of
lives. In our experience, capability investments
superior capabilities through greater aggregate
are driving value from continual improvements
capacity to invest and leveraging of the invest-
in total cost of care (e.g., through care manage-
ment over a broader base of covered lives.
Changes in EBITDA — 2017
Exhibit 2 of 10
EXHIBIT 2 Changes in EBITDA across US healthcare industry, 2012–16
Compound annual EBITDA growth, %
Health
insurers
Delivery systems
Service
vendors
10
Manufacturers
and distributors
Clinical
Commercial1
Hospitals
Financial
Pharma and biotech
Government
Physicians
B2B
Ancillary
FB/S
PBM2
Other professionals
Outpatient
Post-acute care
Diagnostic
Pharmacy
Brokers
Medical devices
Distributors
The width of each column reflects the percentage of the healthcare industry’s total 2016 EBITDA
($516B) accounted for by each sector. (Payers had 9%; delivery systems, 54%; service vendors,
4%; and manufacturers and distributors, 33%.) The height of each rectangle reflects the percentage
of a given sector’s EBITDA earned by each of the various stakeholders that year.
B2B, business to business (e.g., human resources outsourcing, group purchasing organizations); EBITDA, earnings before interest,
taxes, depreciation, and amortization; FB/S, fixed benefits and supplemental (e.g., long-term care insurance, accidental death and
dismemberment insurance, critical illness insurance); PBM, pharmacy benefit manager.
1 Includes the individual market.
2 PBM 2012–16 EBITDA growth rate reflects uncharacteristically low margin performance in 2012 among key stakeholders in this segment.
Sources: The data underlying this analysis came from a wide range of sources, including regulatory filings (e.g., SEC reports, NAIC
filings), US Bureau of Labor Statistics, external surveys (e.g., American Hospital Association, Kaiser Family Foundation, US National
Health Expenditures), publicly available information from CMS (e.g., Medicare cost reports), and external industry financial reports
McKinsey & Company Healthcare Systems and Services Practice
4
Scale also offers additional benefits such as
ness models that leverage technology to
broader data sets, ability to build skill-based
construct high-efficiency networks (e.g.,
capabilities in data, and advanced analytics.
advanced value analytics), combined with
Scale-enabled operating efficiency is increas-
changes in provider market structure that
ingly a less relevant differentiator.
make the creation of local networks easier,
Changes in EBITDA — 2017
are one major factor. More than half of
Ongoing disruption to health insurer profit
Americans live in metropolitan areas where
pools is likely because several forces are
Exhibit
3 of 10
the largest providers gained more market
working to unbundle the commercial payer
share than did the largest payers between
value proposition. Direct-to-employer busi-
2012 and 2016.7 Over 125 million Americans
EXHIBIT 3 Projected changes in EBITDA across US healthcare industry, 2020
Compound annual EBITDA growth, %
Health
insurers
Delivery systems
Commercial1
Service
vendors
10
Manufacturers
and distributors
Clinical
Hospitals
Financial
Government
Pharma and biotech
Physicians
Ancillary
FB/S
PBM
Other professionals
B2B
Outpatient
Post-acute care
Diagnostic
Pharmacy
Brokers
Medical devices
Distributors
The width of each column reflects the percentage of the healthcare industry’s projected total 2020
EBITDA ($620B– $670B) accounted for by each sector. (We estimate that payers could have 10%;
delivery systems, 50%; service vendors, 5%; and manufacturers and distributors, 35%.) The height
of each rectangle reflects the percentage of a given sector’s EBITDA likely to be earned by each
of the various stakeholders in 2020.
B2B, business to business; EBITDA, earnings before interest, taxes, depreciation, and amortization; FB/S, fixed benefits and
supplemental; PBM, pharmacy benefit manager.
1 Includes the individual market.
Sources: The data underlying this analysis came from a wide range of sources, including regulatory filings (e.g., SEC reports,
NAIC filings), US Bureau of Labor Statistics, external surveys (e.g., American Hospital Association, Kaiser Family Foundation,
US National Health Expenditures), publicly available information from CMS (e.g., Medicare cost reports), MedPAC reports,
McKinsey Center for US Health System Reform, and external industry financial reports
7 Although provider con­
centration has been
growing more rapidly
than payer concentration,
on an absolute basis
payer concentration
continues to be higher
than provider conce­n­
tration in most markets.
5
The future of healthcare: Finding the opportunities that lie beneath the uncertainty
now live in regions where the leading provider
In this environment, organized purchasing by active
has a market share above 35%, and 79 health
employers is becoming more feasible. Employers
systems already hold direct-to-employer con-
Changes in EBITDA — 2017
in several markets are already collaborating to pur-
tracts (Exhibit 6). Digital models of consumer
sue new models of care delivery for their workers.
engagement delivered directly to employees
Exhibit 4 of 10
These forces will require commercial health insurers
are buttressing the trend toward direct-to-
to continue to innovate and drive efficiency to main­
employer contracts.
tain and grow their share of industry profit pools.
EXHIBIT 4 Payer SG&A cost scale curves, by number of lives
in each line of business, 20141
SG&A costs (not mix-adjusted), $ PMPM
Approximate point at which scale savings diminish2
Commercial
Medicare Advantage3,4
80
180
70
160
140
60
700,000 to 1 million
covered lives
50
40
100
30
80
20
60
0
5
Covered lives, million
400,000 to 600,000
covered lives
120
0
10
ASO
Medicaid
90
140
80
130
50
50
40
40
1 million to 1.2 million
covered lives
30
20
10
10
20
Covered lives, million
4
700,000 to 850,000
covered lives
30
20
0
2
Covered lives, million
40
0
2.5
Covered lives, million
ASO, administrative services only; PMPM, per member per month; SG&A, sales, general, and administrative.
1All graphs are based on 2014 data.
2Flattening of curves is defined as the range where marginal expense savings decrease less than 0.05% per 200,000 lives.
3There is no standard way that payers allocate costs shared across lines of business; as a result, some report having almost
no costs for Medicare, while others allocate a bigger share of costs to Medicare than commercial.
4Medicare Advantage statutory filings reflect health entities only; line of best fit calculated after excluding provider-based
plans and plans covering less than 1,000 lives.
Source: McKinsey Advanced Healthcare Analytics Payer Performance Index
5
McKinsey & Company Healthcare Systems and Services Practice
6
Delivery systems
which suggests that the switch to lower-cost,
The provider market continues to experience
will not abate.
less-capital-intensive care delivery systems
a significant move away from inpatient care
and toward distributed settings of care. After
Scale is also becoming increasingly im­por­tant
comparing the mix of revenue across pro-
for providers. Our research shows that 2016
vider segments between 2012 and 2016, we
margins were, on average, 17% higher at the
estimate that the shift to distributed settings
top 40 US health systems than at other health
resulted in about $36 billion in foregone
systems—and 33% higher than at independent
revenue growth for hospital-based inpatient
hospitals.10 Scale within local markets is also
care during 2016. In that same year, shifts
important. In 2016, facilities owned by health
in settings of care led to about $29 billion
systems with a market share above 50% in
in additional revenue for hospital-based
a given metropolitan area had margins that
out­patient care and $7 billion for other more
were 30% higher than those of either facilities
convenient sites of care (e.g., urgent care
owned by health systems with less than 25%
clinics, free-standing emergency depart­ments,
market share or independent hospitals with a
retail clinics).8 While much of the shift has
similarly small market share (Exhibit 7). These
remained within hospital systems so far, the
Changes
in EBITDA — 2017
realities are likely to put even more pressure
return on invested capital (ROIC) is often much
on health systems to consolidate.
higher for the new settings (e.g., ROIC can be
Exhibit
5 of 10
more than three times higher for ambulatory
The strategic choices health systems make
surgery centers than for hospital systems),9
are becoming increasingly important because
EXHIBIT 5 Payers’ pretax margins by line of business, grouped by number
of member months, 2016
Number of member months, millions
8 McKinsey analysis based
Medicare Advantage, %
>10
5–10
6.4
3.6
0.8
2.5–5
< 2.5 Medicaid, % 2.7 1.8 0.8 1.5 0.4 Note: Medicare Advantage figures include only plans with more than 250,000 member months; Medicaid figures include only plans with more than 100,000 member months and consider each payer’s business in individual states separately. Source: McKinsey Payer Financial Database based on National Association of Insurance Commissioners filings on Medicare cost reports 2012–16, VMG Intelli­ marker, IBISWorld, and US Economic Census data. The 2016 expected revenue was calculated by assuming the same share of revenue across setting as in 2012. 9 Centers for Medicare and Medicaid Services’ Medicare Cost Reports, 2012–15; annual financial fillings (10-K) for Surgery Partners, Surgical Care Affiliates, and Envision Health. 10 McKinsey analysis based on American Hospital Association hospital survey and Medicare cost report data. The future of healthcare: Finding the opportunities that lie beneath the uncertainty Changes in EBITDA — 2017 Exhibit 6 of 10 EXHIBIT 6 Growth of provider influence in local markets Relative growth of the 3 largest payers and 3 largest providers in each CBSA, 2012–161 Population of CBSAs where providers have gained more share than payers Population of CBSAs where payers have gained more share than providers In 2016… 209M 125 million people lived in CBSAs where a provider has >35% of market share
33% of US physicians were either hospital-employed
or worked in a practice with hospital ownership
72M
79 health systems held direct-to-employer contracts
CBSA, core-based statistical area.
1 Provider market share is based on admissions; payer market share is based on total covered lives. Although provider concentration has
been growing more rapidly than payer concentration, on an absolute basis payer concentration continues to be higher than provider
concentration in most markets.
Sources: American Hospital Association hospital survey; Decision Resources Group Managed Market Surveyor;
American Medical Association
of the confluence of forces facing healthcare
The increased efficiency of non-inpatient settings
delivery, including the shift to distributed
and consumers’ mounting demand for con­ven­
settings of care and rapidly rising consumer
ience are powerful realities. Health systems need
expectations. We evaluated the M&A activity
to carefully consider their capital and resource
of the top 50 US health systems to classify
deployment as this structural shift continues.
their strategies into four types:
Service vendors
• Growth in distributed settings of care
As shown in Exhibit 2, two of the four seg• Growth through payer/provider integration
ments within healthcare that experienced
profit pool growth above 10% between 2012
• Growth in core hospital business
and 2016 were service vendors. Annual
EBITDA growth was 17% for com­panies that
• No significant M&A activity
deliver clinical services (e.g., population health
management, clinical information systems)
The providers pursuing growth in distributed
and just above 10% for those offering financial
settings of care were the only group of
services (e.g., revenue cycle management,
health systems that experienced both revenue
payment integrity). The growth in these two
growth and margin improvement between
segments—largely enabled by advanced
2012 and 2015 (Exhibit 8). The groups of
analytics and digital transformation—has been
systems that focused on either payer/provider
so strong that the combined profit pool from
integration or core hospital business growth
all service vendors eclipsed the commercial
experienced revenue growth during that time,
health insur­­ance profit pool in 2016 (if indivi-
but it was accompanied by margin erosion.
dual market losses are included). Although
7
McKinsey & Company Healthcare Systems and Services Practice
8
traditional service vendors, such as third-party
increased by an average of 30% annually since
admini­stra­tors, group purchasing organizations,
2009.11 In 2015 and 2016, venture capital acti­
and brokers, still account for a significant
vity in the healthcare industry largely focused
portion of the total service-vendor profit pool,
on solutions that create value in one of three
their EBITDA has been growing more slowly.
ways: by delivering productivity improvements,
enabling improved care quality and outcomes,
The growth in the profit pool for clinical and
or supporting member-centric care (Exhibit 9).
financial services reflects ongoing industry
Strong EBITDA growth is projected for many
changes. For example, increasing use of care
of these solutions in the coming years.
management and population health management models has strengthened the market for
Companies given first-round funding in recent
clinical services. A range of factors, including
years are more likely than their pre­decessors
meaningful use incentives, advanced analytics,
were to have received multiple rounds of fund-
and greater complexity in benefit design, have
ing from both financial investors and strategic
made sophisticated financial capabilities
buyers; as a result, they are more likely to have
(e.g., for payment integrity and revenue cycle
moved beyond the start-up phase and scale
management) increasingly important for both
significantly. Of the healthcare technology
Changes in EBITDA — 2017
payers and providers. As a result, venture
companies that received their first round of
capital and private equity investments in health-
venture capital funding between 2010 and
Exhibit 7 of 10
care technology service vendors have skyrock-
2012, 41% went on to receive additional rounds
eted. The number of first-round venture capital
of funding and 31% were later acquired, often
in­vestments in healthcare technology has
through strategic purchases by other health-
EXHIBIT 7 Average facility EBITDA by system market share
in that facility’s CBSA, 20161,2
%
> 50 (371 facilities)
13.2
25 –50 (696 facilities)
12.9
12.5– 25 (487 facilities)
< 12.5 (1,972 facilities) 11.4 10.1 CBSA, core-based statistical area; EBITDA, earnings before interest, taxes, depreciation, and administration. 1 Excludes rural hospitals, hospitals without reported revenue (e.g., government-owned psychiatric facilities), and hospitals with margins above 50% and below –50%. 2 Industry EBITDA margin is 10.6%. Market share is based on admissions. Sources: American Hospital Association hospital survey; Medicare cost report data 11 McKinsey analysis based on Capital IQ and Pitchbook data. 9 The future of healthcare: Finding the opportunities that lie beneath the uncertainty Changes in EBITDA — 2017 Exhibit 8 of 10 EXHIBIT 8 Evolution of financial results for 50 largest US health systems,1 grouped by type of inorganic growth strategy pursued2 Operating margin, % 2012 2015 8 6 No significant M&A activity Growth in distributed sites of care 4 2 0 Payer/provider integration Core hospital business growth 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Median system revenue, $ billion M&A, mergers and acquisitions. 1 Based on 2012 revenues reported by systems; includes large acute care systems and acute long-term care systems. 2 Health system M&A activity is classified by type based on the frequency of mergers and acquisitions of each type of organization. (“Distributed sites of care” includes health IT companies and non-acute, outpatient, post-acute centers, etc. “Core hospital business growth” includes acute care hospitals and physician groups. “Payer/provider integration” includes health plans.) The classification is based on M&A activity only and does not include organic new business development, joint ventures, partnerships, or other affiliations. Sources: McKinsey Hospital System Financial Database 2012–15 based on aggregation of audited financial filings; Levin Associates; Dealogic; McKinsey analysis care technology companies. (The comparable benefit managers (PBMs), and retail phar­ numbers for the 2007−09 cohort of companies macies. Not all have benefited, though. were 35% and 23%, respectively.) The high level of investment activity in healthcare technology PBMs and retail pharmacies captured a in 2015 and 2016 suggests that this activity is greater share of total profits from the phar­ likely to continue in the coming years.12 maceutical value chain in 2016 than in 2012 Pharmaceutical value chain (Exhibit 10). This increase came almost 12 McKinsey analysis entirely at the expense of hospital systems’ based on Capital IQ data. 13 The data underlying this analysis came from a wide range of sources, including Express Scripts Drug Trend reports (2012–16); US Bureau of Labor Statistics; US Centers for Medicare and Medicaid Services; Office of Statewide Health Planning and Development, State of California. share of profits from drugs; manufacturers were largely able to maintain their share. Growth has been strong in the pharma­ceu- During this time, hospitals saw their margins tical and biotech profit pool in recent years, from drug sales decline by almost 30%. driven largely by growth in specialty phar­ Hospital spending on drugs grew by 7% maceuticals. Growth has also been strong to 11% per year, far outstripping growth in the profit pools for many other actors in in reimbursements from both com­mercial the pharmaceutical value chain, including and government payers (estimated at 3.5% wholesalers and distributors, pharmacy to 5% and 1% to 1.5%, respectively).13 McKinsey & Company Healthcare Systems and Services Practice 10 Our research suggests that the manufac­turers’ aware of the potential of technology-driven profit pool is likely to continue to grow. Mean- disruption, as front-of-store pharmacy revenues while, downward pressure on generic prices have been virtually flat since 2012 due to the could challenge future profits for wholesalers digital trans­formation of the retail in­dustry. (The and retailers.14 pharmacies have experienced revenue growth below 1% for general merchandise and 2% for The threat of technology-driven disruption over-the-counter medications; the comparable of the pharmaceutical value chain is also numbers in the overall US market are about becoming real. This threat made headlines 2% and 4%, respectively.16) Although the op- with Amazon’s apparent intention to enter the portunities for Amazon or a similar technology market, as reflected in its hiring of pharmacy Changes in EBITDA — 2017 entrant are significant, so are the challenges. Exhibit 9 of 10 of wholesale drug, medical device, and Several primary arguments underlie the belief supply licenses in at least 12 states by October that such a company could suc­cess­fully dis- 2017.15 Retail pharmacies are already acutely rupt the pharmaceutical value chain. First, the professionals in May 2017 and its acquisition EXHIBIT 9 Venture capital activity and projected EBITDA growth rates by healthcare technology segment Revenue cycle management Clinical information systems Population health management Clinical decision support Telemedicine Patient engagement 22 – 28 EBITDA CAGR, % 2015–20 (est.) 18 –22 14 –18 10–14 8 –12 5– 9 84 New VC-backed companies 2015–16 43 31 40 49 25 Tools that enable Tools that deliver productivity improvements improved care and outcomes Tools that support member-centric care CAGR, compound annual growth rate; EBITDA, earnings before interest, taxes, depreciation, and amortization; VC, venture capital. Sources: Capital IQ; IDC; MarketsAndMarkets; Gartner; McKinsey analysis 14 Sozdatelev A et al. Trends disrupting pharmacy value pools and potential implications for the value chain. McKinsey white paper. November 2017. 15 Reuters staff. Amazon gains wholesale pharmacy licenses in many US states: Report. Reu­ters. October 26, 2017. 16 The data underlying this analysis came from a wide range of sources, including annual financial fillings (10-K) for CVS, Walgreens, and Rite Aid; Euromonitor; The 2017 Economic Report on US Pharmacies and Pharmacy Benefit Managers, Pembroke Consulting, Inc., and Drug Channels Institute. 11 The future of healthcare: Finding the opportunities that lie beneath the uncertainty Changes in EBITDA — 2017 Exhibit 10 of 10 EXHIBIT 10 Evolution of pharmaceutical value chain profit pools, 2012–16 Approximate distribution of profits from drugs, by actor in the value chain, %1 100% = 138 billion 175 billion PBMs2 7 9 Pharmacies 9 Hospital systems 12 9 Wholesalers and distributors 5 5 Annual growth in profits from drugs, by actor in the value chain, 2012 –16, % PBMs2 10 Pharmacies Hospital systems Drug manufacturers 14 68 68 11 –3 Wholesalers and distributors Drug manufacturers 2012 7 6 2016 PBMs, pharmacy benefit managers. 1 Figures may not sum to 100%, because of rounding. 2 Includes profits from mail-order pharmacy. Due to uncharacteristically low margin performance for PBMs in 2012, 2012 PBM share of profits has been adjusted to reflect median margins for 2011–13 among the top three PBMs. Sources: Wells Fargo and IbisWorld industry reports for PBM; IMS Health—Medicines use and spending in the US 2017; 10-K annual filings; Office of Statewide Health Planning and Development, State of California size and attractiveness of the market ($500 (e.g., through start-ups like Pill Pack and Lem- billion in revenues) could warrant aggressive onaid Health) have started gaining traction.17 investment. Indeed, pharmacy is the secondlargest retail category in the United States and The challenges facing a potential technology the only large category in which Amazon does entrant to the pharmaceutical value chain are not yet have a meaningful presence. Second, meaningful. An online vendor would need to the eco­nomic spread across the value chain is overcome operational and regu­latory challenges. large and could be ripe for potential disruption. In addition, it would need to find and partner Nearly $100 billion in gross margins are being with willing stakeholders in other parts of the retained by intermediaries across the pharmacy healthcare industry, including (but not limited value chain. Finally, evidence exists that de- to) payers and pharmaceutical companies. mand for direct purchasing of drugs online Nevertheless, if an online vendor is able to by consumers could be on the rise. Although overcome these chal­lenges to gain a foothold growth in the pene­tration of mail-order phar- in the pharmacy market, the potential disrup- macies has waned in recent years, initial tion to the pharmaceutical value chain and attempts to sell prescription drugs online industry profit pools could be significant. 17 Sozdatelev A et al. Trends disrupting pharmacy value pools and potential implications for the value chain. McKinsey white paper. November 2017. McKinsey & Company Healthcare Systems and Services Practice Capturing the opportunities care models, or all three. Investment A company that wants to win in a health- new business models with significantly care market that is growing yet variable, lower costs, and a reorientation from uncertain, and prone to disruption must delivery-centric models to consumer- do the following: centric ones should receive priority in the creation of new clinical pathways that improve care delivery and outcomes, over traditional approaches. • Innovate to create unambiguous value for the stakeholders who consume • Become active managers of your portfolio and pay for healthcare—consumers, of assets. Divestitures, M&A, and partner- employers, and governments. ships will be important to align with the greatest sources of value creation. • Understand the evolution of the industry’s profit pools at a granular level, including • Build an agile organization, one that has the underlying source of the company’s both a robust, stable axis of core functions profit pool and its sustainability. Profit that deliver—efficiently, effectively, and pools generated in certain ways—for repeatedly—in a manner fully compliant example, by increasing productivity to with all regulations, and a dynamic axis lower costs, improving healthcare delivery capable of rapid innovation and business and healthcare outcomes, or offering model change. Leadership and talent better consu­mer engagement—are likely capable of operating in this bifocal world to be sustainable over time, given the will be essential. large scope for improvement and the value placed on those elements by stakeholders. • Reinvent the business by aggressively reallocating capital and resources toward future business models, either through investments in technology (including medical science and technology, machine learning/artificial intelligence, advanced analytics, or digital), care delivery models (i.e., distributed sites of care), managed Shubham Singhal (Shubham_Singhal@ mckinsey.com), a senior partner, is leader of McKinsey’s Global Healthcare Practice. Brian Latko (Brian_Latko@mckinsey.com) is an associate partner in McKinsey’s Wash­ ington, DC, office. Carlos Pardo Martin (Carlos_Pardo_Martin@mckinsey.com) is an associate partner in the New York office. The authors would like to thank Elina Onitskansky, Rob May, Nikhil Seshan, Manuel Valverde, and Rasagya Kabra for their contributions to this article. Editor: Ellen Rosen For media inquiries, contact Julie Lane (Julie_Lane@mckinsey.com) For non-media inquiries, contact the authors Copyright © 2018 McKinsey & Company Any use of this material without specific permission of McKinsey & Company is strictly prohibited. 12 Building the Healthcare System of the Future ORACLE WHITE PAPER | FEBRUARY 2017 Introduction Healthcare in the United States is changing rapidly. An aging population has increased demand for services and the need to manage healthcare plans and benefits. Technology is becoming a major factor both in the delivery of healthcare and payment for services. Costs continue to soar, and payers are faced with the need to keep premiums low while providing adequate coverage. Despite all of the attempts to lower healthcare costs with subsidized fees or renegotiated terms, the United States still has one of the highest per capita spends in the western world. Unfortunately, that spending has not produced better outcomes. This trend in healthcare spending and poor outcomes is unsustainable. The current economy cannot continue to spend more than it can sustain without having better quality and outcomes. Multiple solutions are being put into play to help determine the future of healthcare. These ongoing policies will continue to evolve until there is a winning model that improves healthcare by creating quality and cost-effective outcomes. But one thing is for sure: the future of healthcare will focus on putting consumers back in charge of their health through implementing a requirement from the government to protect the payers’ outcomes, lower costs and increase care. This new approach will focus on the care of the patients rather than the costs of their claims. As a result, healthcare payers and providers are asking themselves if they have the right technology for the future. Companies need the right technology roadmap to maximize their access to data, tools, efforts and time to carry out and build a platform for the future. The need for agile and open systems is crucial to addressing the new market demands and, more importantly, to provide new opportunities for organizations as they meet the challenges that will come from this new paradigm. 1 | BUILDING THE HEALTHCARE SYSTEM OF THE FUTURE The Current State of IT Healthcare System Players in the healthcare industry have been relatively successful at IT adoption, but they continue to struggle with successfully managing the myriad stakeholders, regulations, and privacy concerns required to build a fully integrated healthcare IT system. The IT healthcare system within the United States is not efficient in its current state. With over 1.7 trillion dollars invested annually in IT healthcare, current systems still lack the functionality needed to compete in today’s market much less to compete in the future where players need to improve the quality of care and reducing the cost of providing care. For example, on the providers’ side, their systems cannot align themselves with new healthcare regulations, nor do they address many of the issues needed to accurately measure any information that is crucial for a patient’s care. These systems do not have the capacity to accommodate a patient’s need by sharing information, monitoring guidelines or improving performance. On the payers’ side, legacy architecture was not built for the new business model and most companies do not have the money, resources, or time to replace their core system and start over. Nor do they have the option of continuing to try and find workarounds within the current system. Integration challenges lead to a more complex and difficult environment to support, which can potentially drive the cost of serving customers as well as increasing the risk. Integration, data consolidation and operational efficiency remain one of the many challenges for players in the healthcare industry. Many prevailing solutions do not address the challenges that are currently being faced by many providers and payers. That’s why stakeholders in healthcare have been coming together to reshape the future of health care. Using new advancements in data, technology, and modern tools, institutions across the country are building a health care system that should work better in the future. Trends and Opportunities in Healthcare Technology As the focus in the future is on patient outcomes and decreasing costs, health insurers need to embrace transformation to digital health, which supports improving the quality of the care provided to patients, making wellness and disease management a priority and reducing the cost of providing care. There are several trends and opportunities related to this new paradigm. » Change in providers’ compensation - One of the main drivers of health care costs is fee-for-service payment that pays for the volume of services. Under this payment method, each visit, screening, and procedure is rewarded while other tasks such as discussing a patient’s care plan with a specialist, or working with a nurse to address the side effects of a patient’s medications are not compensated. These other tasks are essential in providing higher quality of care to patients and need to be compensated. As such, one of the trends in the future is to move away from fee-for-service to other methods of payments. The opportunity related to this trend is for healthcare organizations to have a flexible system that can support not only fee-for-service payment but also other types of payments such as: » Capitation payment method, which is managed by a care organization to control the cost of health. This type of payment has fixed a payment amount that is usually determined by age, individual and services provided in a geographical area per time period. » Shared Savings Program that includes services established for Medicaid and Medicare, which is leading the way in value-based reimbursement plans. This program allows a more fluid process between providers and patients by improving and ensuring optimal healthcare for those under Centers of Medicare and Medicaid Services (CMS). » Pay for Performance, an incentive payment plan that is used to improve the quality of healthcare through a collective collaboration. The payment is measured through a variety of factors such as overall patient care and resources. 2 | BUILDING THE HEALTHCARE SYSTEM OF THE FUTURE » Bundle Payment, which involves a single payment made to providers or healthcare facilities based on treatments and conditions. This particular method of payment was designed to focus on improved care that providers could clearly follow in order to maximize their payments. Healthcare organizations that have a flexible technology that can support these types of payments will be able to compete better in the future. » Change in data sharing – In the new paradigm, players in healthcare collaborate to create a coherent care experience. Currently, providers and payers capture patient data that can be used to reveal patterns in patient health, allowing for preventive rather than reactive measures. Unfortunately, data often can’t move from one system to another because of incompatibilities between electronic systems. Even when there aren’t technological barriers, health systems sometimes don’t want to release the information. However, the trend in the future is to share this data so that everyone can use it to improve the quality of care provided to patients. The opportunity here is to use technology to manage structured and unstructured data and to use analytics to evaluate provider and treatment effectiveness as well as analyzing claims to help identify patterns in a patient’s health. The idea is then to share this data with patients and providers so that they can see everything that has or hasn’t worked for a given condition and to improve patient outcomes. » Change in cost structure – one of the focuses in the future is to reduce the cost of providing care. Many payers within the healthcare industry know that they need to invest in technology in order to compete in the new reality, but they cannot afford a complete overall with new hardware or software that is necessary to compete in the future. Instead, many companies are currently trying to salvage their age old systems with various tweaks to meet the new market demand. However, this model doesn’t work because the tweaks that are made today will require more maintenance in the future. In addition, these legacy systems are not flexible, agile or operationally efficient. There is opportunity for healthcare organizations to reduce their spending while still keeping the business competitive. They can shift their expense from capital to operating expenditure by outsourcing part of their business or using cloud-based technology. There are many well-known benefits of cloud computing services, and they all contribute to cost reduction. The cloud eliminates the need for companies to configure new hardware, manage updates, run data centers, and much more. Essentially, the cloud breaks through the barriers and allow organizations to adapt to market changes quicker and take more risks, as they are no longer bound by legacy IT constraints. Building the Healthcare System for Your Future The changes in the way payers compensate providers, share data and reduce costs are transforming healthcare in the future. To be able to compete in the future, insurers need to take into accounts these trends. So building a successful healthcare system need to have several key components such as: » System agility and flexibility – Agility and flexibility allow insurers not only to meet changing market demands but also to support the emergence of value-based contracting models. Insurers need a technology solution that is quickly configurable to support traditional models, evolution of traditional models towards newer models and completely new models. Current and emerging approaches require flexibility in terms of setting up value-based models, getting the sources of information for triggering payments, calculating amount to be paid, and making payments. The system should fully automate the processing of traditional models and value-based models so that changes can be brought to market faster. » Data infrastructure and analytics – Managing large amounts of data to identify past patterns opens windows to the future and makes it possible to improve patient outcomes by providing best practices. Data becomes critical to manage costs and outcomes in the future. For this reason, data analytics play a vital role in evaluating various provider and treatment course effectiveness today and into the future. Insurers need technology that allows them to manage structured and unstructured data and to combine, read, interpret, and act on data from clinical and claim information. » Cloud delivery model – Insurers will be looking to shift IT costs from a capital expenditure to an operational expense. This will require different software delivery models, and the cloud will become an important option. The cloud perception is slowly changing as industry-specific, core SaaS applications are becoming widely available in the healthcare industry. Cloud adopters have proven that the benefits of going off-premises are too numerous to ignore. Greater agility, cost savings, and strengthened security are a few of the advantages that the SaaS model 3 | BUILDING THE HEALTHCARE SYSTEM OF THE FUTURE provides to the healthcare industry. Multiple studies show resounding agreement among analyst firms, research organizations and IT experts that the future is in the cloud. Finally, the healthcare system for the future needs to leverage the latest technology and should have an open, webbased architecture that is compatible with many insurers’ architecture and technology requirements. It should provide easy integration with other back-office systems and existing legacy systems. The system also needs to be able to integrate with other components and come with standard integration points and a number of web services that support the real time exchange of provider records and network structures such as a self-service provider network. Oracle Solutions Oracle offers flexible, modern solutions for the healthcare industry. The products and services are designed to meet the needs of the health insurers of the future. Oracle takes a strategic approach to the healthcare industry by combining the best of high-performance industry technologies with vertical capabilities integrated into every level of Oracle’s stack of solutions. Oracle offers a service-oriented architecture with the flexibility for health insurers to choose only the components they need to satisfy their business requirements. To take advantage of the opportunities created by changes in the healthcare business, it is critical that health insurers look to a strategic partner that can provide a solid IT foundation. Health insurers need an adaptive IT foundation that provides the agility and flexibility to respond to a changing market. Oracle solutions are: » Easy to configure and flexible so insurers can launch new products faster to meet shifting market conditions and capitalize on new opportunities » Open and scalable to handle increased membership, managing both structured and unstructured data as well as to consolidate disparate systems » Intelligent to provide insight into specific products, markets, populations, and providers essential to continued growth » Cost effective so that insurers can use the system not only to increase operational efficiency and automation but also to implement different delivery models such as cloud Oracle’s health insurance applications and services are built on a service-oriented architecture that provides insurers with the flexibility needed to implement them in the method that best meets the insurer’s unique requirements, whether that’s on premise, in the cloud, or a hybrid model. Oracle solutions are component-based solutions, developed specifically for healthcare vertical, and easily integrated with underlying technology and mission-critical applications. The component based approach gives insurers the flexibility to continue adding solutions as they need them and as the industry continues to evolve. Conclusion The landscape continues to change rapidly for health insurers. There is no question that the changes in providers’ compensation, data sharing, and cost reduction will present significant risk and opportunity for many insurers. It is up to healthcare providers and payers to evolve and adapt in order to succeed in these opportunities of the future. Their success and survival depends on having insight, agility and operational efficiency. In order for insurers to maximize their outcomes they need viable solutions, that include systems that provide support for value-based payment models, data analytics and cloud delivery model. Oracle provides health insurers with flexible, modern technology to accelerate speed to market, reduce overall risk and prepare for the new business paradigm. 4 | BUILDING THE HEALTHCARE SYSTEM OF THE FUTURE Oracle Corporation, World Headquarters Worldwide Inquiries 500 Oracle Parkway Phone: +1.650.506.7000 Redwood Shores, CA 94065, USA Fax: +1.650.506.7200 CONNECT W ITH US blogs.oracle.com/insurance facebook.com/oracleinsurance twitter.com/oracleinsurance oracle.com/insurance Copyright © 2017, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only, and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. 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UNIX is a registered trademark of The Open Group. 0217 Building the Healthcare System of the Future February 2017 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 Youth Perception of Corporate Social Responsibility: Does Concern About Social Impact Convert to Consumption? Donald Amoroso, Auburn University Montgomery, Montgomery, USA Francisco Limcaoco Roman, Asian Institute of Management, Makati, Philippines ABSTRACT This research assesses the importance of corporate social responsibility (CSR) as it affects the perception of millennials regarding the socially responsible corporation that, in turn may influence their intention to purchase. The findings show that loyalty and trust appear stronger among olderage consumers than among the younger-age consumers, but both loyalty and authenticity are strong indicators of continuance intention. Younger-age consumers clearly analyzed authenticity to build trust and advocacy, whereas older-age consumer built trust with clearly communicated awareness of CSR initiatives. The managerial implications clearly highlight the importance of awareness for older-age consumers while authenticity was important for younger-age consumers. This offers opportunities for further development on the behavior of the two categoriews of consumers as well as strategies for practitioners to employ CSR to influence continuous purchases. Keywords Advocacy, Authenticity, Continuance Intention, Corporate Social Responsibility, Trust 1. INTRODUCTION This paper discusses how corporate social responsibility (CSR) influences the youth and how youth empowerment, in turn, may pave the way for the future success of CSR. Youth, after all, are the future managers of the corporate world and their perception of CSR will be a vital influence to business organizations and other stakeholders. CSR is defined as a business practice and concept whereby organizations consider the interests of society and integrate these interests into their strategy by taking responsibility for the results of their activities on consumers, suppliers, employees, communities, etc. as well as on the environment. CSR influences and benefits society. Not only through specific projects, but also through initiatives such as forums, philanthropy and awareness programs, and activities like give-a-ways and fund-raisings. CSR efforts have captured the attention of the youth and engaged them through programs organized by specific youth-centered groups and organizations. These programs each have their own set of causes and goals that the organizations wish to promote through the practice of CSR. CSR Initiative entails responsibilities that companies are supposed to adopt such as self-regulation mechanisms to monitor and ensure adherence to laws, ethical standards and norms. Social responsibility has a positive impact upon consumers and other constituents guiding their moral responsibility and, at DOI: 10.4018/IJABIM.2019010101  Copyright © 2019, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.  1 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 the same time, considering their interests. More practically, CSR translates into social responsibility and the influence of CSR can generate a strong cause-brand fit. (Waller, 2010; Bigne-Alcaniz et al., 2012). The Sustainable Business Council (2015) found that the youth represent a vehicle to implement CSR in their business, and youth-centered activities including student scholarships, donations, and volunteering are growing. Youth are becoming more involved in CSR through projects in social entrepreneurship and social innovation. Youth will increasingly play an important role in the economic development of a country as future employees and consumers. Cone Communications (2015) states that millennials represent more than $1 trillion of purchasing power and are hyperaware of CSR policies and the initiatives in organizations with which they interact. Moreover, perceptions of the youth will influence business strategy. They also report that millennials have high expectations for CSR finding that millennials will analyze CSR policies and initiatives to influence what to buy or where to shop. CSR initiatives will focus more on the development and empowerment of the youth because they are perceived to have an influential role as the future generation and will boost the consumer base of a firm. The empowerment of youth influences organized development orientations and motivates the private sector with the support of government-funded agencies (Nair, 2015). More than 80 percent of younger-aged shoppers believe that brands support the community and they give to good causes (Chahal, 2013). In this same study, actual awareness of the term “corporate social responsibility” is at 42 percent of those 11-17 yearolds compared with 62 percent of 18-25 year-olds; while 92 percent agreed that companies should play a more responsible role in society. Nielson (2014) found that consumers will care about CSR with their wallets. In a survey of 29,000 respondents in 58 countries, younger-aged consumers (21-29) were much more likely (+24%) to spend more on goods and services from companies that have implemented CSR programs and give back to society. It was found that 55 percent of respondents are willing to pay extra for products and services from companies that are committed to social and environmental impacts. They found that consumers in the Asian Pacific region will pay significantly higher than North America and European consumers by 22-24 percent. Swinard (2014) found that 70 percent of young millennials consider themselves to be social activists and that one in three will boycott or support businesses based on the causes that they care about. Thirty-five percent of younger-age consumers felt that companies only invest in CSR to improve their image but are hypocritical about implementing those policies. This is significant because the consumers’ perception of a single negative attribute may outweigh several positive attributes of a company and its products (Mittal et al, 1998). We found a gap in the research of younger versus older consumers with respect to both their perception of CSR and whether the awareness influences purchase behavior. This study focuses on the perception of CSR initiatives by comparing younger-age and older-age consumers to assess the factors that influence the consumer continuance intention to purchase. The key questions of this study are: (1) What are the factors influencing the purchasing decision and those factors that affect the consumers’ perception of corporate social responsibility? (2) Will the consumer ultimately continue to purchase products from companies that are not CSR compliant? (3) Is there a difference between younger-age and older-age consumers in their perception of CSR and their continuance intention? 2. CONCEPTUAL BACKGROUND AND HYPOTHESES We present the conceptual research model (Figure 1) to show the theoretical relationships of the constructs that are cited in previous studies. A preponderance of the theory and the relationships between the constructs come from the Balquiah, et al. (2011) research of corporate social responsibility. The relationships, which are hypothesized in this study, have been found to be statistically significant by previous research, which will be discussed subsequently, and the operationalization show in Appendix A. Each construct will be discussed with supporting theoretical findings. 2 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 Figure 1. Conceptual Research Model 2.1. CSR Awareness Construct CSR awareness is defined as consumers acquiring some knowledge of CSR activities in real consumer consumption. The definition of awareness then can be extended to describe how consumers become cognizant of the various CSR activities of a firm (Tienet al., 2011; Balqiah, 2011; Du et al., 2007). Tian et al. (2011) found that a higher level of consumer-perceived CSR led to a higher level of consumer responses to CSR. They also found that consumer awareness of CSR had a significant impact on purchase intention and a strong relationship between CSR awareness and the level of consumer trust. Huber et al. (2011) classified Chinese consumers based upon their awareness of CSR and perceived brand misconduct, if the organization was not CSR responsible. Wu et al. (2014) hypothesized that increased consumer perceived value increases purchase intention, at least with respect to online environments. The study by Balqiah et al. (2011) evaluated the relationship between CSR awareness and loyalty mediated by CSR beliefs, company ability (CA) beliefs, quality of life, and company reputation. The following construct definitions were presented and adopted in this research: awareness, hypocrisy, corporate reputation, loyalty, and advocacy. The authors also found that CSR awareness was important because it influenced consumer beliefs and hypocrisy. Managers should understand the importance of CSR communications because it impacts CSR awareness. Determining the level of awareness of CSR is important because of the underlying assumption that CSR can enhance the profitability and value of a firm (Servaes & Tamayo, 2013). CSR can have an impact on the overall financial performance of a firm and can improve cost efficiency and market differentiation (Diwar & Klein, 2004). More firms have begun to adopt and integrate CSR into their corporate strategy. Lee et al. (2012) found a strong relationship between consumer perceptions of CSR activities and consumer trust and ultimately consumer loyalty. Beliefs of whether a company is practicing CSR translates into corporate authenticity. In CSR, awareness is the first step in changing purchasing behavior for both internal and external stakeholders. For stakeholders—consumers, creditors, suppliers and the like— awareness represents education that consequently could lead to positive perception and action—such as repeat purchases, better credit terms, and long-term supply chain relationships. Thus, this paper notes that: H1a: Awareness relates positively to authenticity H1b: Awareness relates positively to trust 3 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 2.2. CSR Authenticity Construct CSR authenticity is defined as the propensity that an organization that has CSR policies and initiatives will execute what it has promised. Authenticity is a specific form of beliefs, which are shaped by the consumer’s knowledge and attribution regarding the motives of a company engaged in CSR (Bhattacharya, Du, & Sankar, 2011). Hypocrisy sets in when organizations do not implement what they promise and consumers start to doubt the CSR initiatives. CSR awareness is a precursor of consumer CSR authenticity. A consumer believes that a firm or brand implements its CSR initiatives and the belief in authenticity can also mean that the firm has the ability to produce and deliver products (Balqiah et al., 2011; Du et al., 2007). If it does not, a consumer could perceive it to be hypocritical (Wagner et al., 2009). Authenticity can influence loyalty, reputation, advocacy, and trust. Positive beliefs in the CSR of an organization can influence the perception of a consumer or target groups, based on the theories of consumer-company identification and relationship marketing as a relational outcome of CSR belief. Hillenbrand et al. (2013) found a strong relationship between beliefs about CSR of the organization and trust towards the organization. Knowledgeable consumers are more inclined to use CSR information in their purchasing decisions. Consumers may change their brand if they find out the company producing their favorite product is socially irresponsible, showing a significant relationship of authenticity to advocacy (Rizkallah, 2012). Negative performance can influence satisfaction and continuance intention more than the perception of positive performance (Mittal et al., 1998). Hence belief will shift to authenticity. Skarmeas and Leonidou (2013) found a strong relationship between CSR skepticism and overall consumer attitudes as manifested in loyalty, trust, and advocacy. Sweetin et al. (2013) found that a company’s social irresponsibility resulted in a negative attitude toward the brand, which in turn affected continuance intention. They also found that authenticity had a strong affect on the consumer’s “willingness-to-punish” the brand. Alhouti et al. (2016) found a strong relationship between CSR authenticity and consumer loyalty and continuance intention. Therefore it is posited: H2a: Authenticity relates positively to advocacy H2b: Authenticity relates positively to loyalty H2c: Authenticity relates positively to trust 2.3. Consumer Trust Construct Consumer trust is defined as the consumer’s overall perception of a firm’s ability, benevolence, and integrity (Keh & Xie, 2009). For consumers, trust is the expectation that a brand is reliable (Pornpratang et al., 2013). Consumer trust can be equated to the immediate consequences of a firm’s social performance and could affect the consumer’s attitudes and actions in response to CSR (Tian, 2011). As a result, trust can ultimately lead to positive continuance intention because it can reduce uncertainty and have an overall positive influence on buying behavior. Trust is an important factor in CSR and in sustainable development because it encourages a long-term relationship (Zur et al., 2012). It was found that companies that engage in CSR activities, such as green technology and environmental initiatives, were able to gain the support and trust of their consumers. CSR played a significant role in building that long-term relationship with consumers (Pornpratang et al., 2013). However, CSR trust does not automatically translate to continuance intention, as in the case of consumer response to CSR in China. Firms must be able translate their commitment into action before trust can yield a positive behavior, such as continuance intention (Tian et al., 2011). Keh and Xie (2009) found that consumer trust has positive direct effects on corporate reputation, which, in turn, has a positive effect on continuance intention. Companies with a favorable reputation will benefit from building trust and identification with consumers and can influence consumer commitment. While consumer commitment plays a mediating role, consumer trust has a stronger 4 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 effect on continuance intention than the price premium. While consumers may have deep trust in the organizations that they purchase products or services, tend to continue the relationship; and only consumers who are strongly committed are willing to pay higher prices. Thus, this paper notes that: H3a: Trust relates positively to Reputation H3b: Trust relates positively to Loyalty 2.4. Corporate Reputation Construct Reputation is defined as an outsider’s assessment about an organization, how well it meets its commitments and conforms to expectations, and how effectively its overall performance fits with the socio-political environment (Galbreath, 2010). Reputation is also defined as how stakeholders see firms as either good or bad. CSR is expected to have a positive influence on the assessment of firms with consumers. Several studies found that CSR reputation is associated with consumer satisfaction that can, in turn, influence continuance intention. A positive reputation benefits the firm by allowing it greater mobility in terms of addressing issues and adjusting prices. Corporate reputation can create value, and it can be difficult to replicate (Balqiah et al., 2011). High corporate reputation can strengthen consumer confidence, reduce risk perception, and ensure that companies with good reputation are perceived by consumers as more credible, reliable, responsible, trustworthy, quality, and prominent (Rindova et al., 2005). Moreover, corporate reputation can be enhanced through specific socially responsible product features, such as the use of organic cotton by Patagonia jeans (Galbreath & Ghosh, 2012). These authors went on to propose that the firm’s competitive position could thus be enhanced. Ali et al. (2015) found a strong relationship between corporate reputation and consumer loyalty, consumer trust, and consumer commitment to purchase, where trust was the antecedent of reputation. Trust can carry over into corporate reputation. For example, the general public perceived one Philippine family firm with a history of philanthropy and noblesse oblige as socially responsible. The López Group took over a government geothermal plant in an area that was later devastated by Super Typhoon Haiyan. The communities mobilized around the company’s disaster relief operations rather than relying on local government aid, not only because the company moved quickly and more efficiently, but also because of its long-established reputation supported by a public statement from the family firm owner-manager to focus first on employees and their families, then on the communities, and lastly on the company’s assets. Corporate reputation can be a double-edged sword because it requires an organization to invest in large resources and time to be regarded as a “good firm.” But if an organization is perceived to behave in a negative way, it can have a long-term, harmful impact even if the company has been doing much good. So corporate reputation is considered a fragile resource (Keh & Xie, 2009). It is also important to consider that reputation, specifically positive reputation, could have a beneficial influence on continuance intention (Ali, 2011; Keh & Xie, 2009). Thus, this research notes that: H4: Reputation relates positively to Continuance Intention. 2.5. Consumer Loyalty Construct Loyalty is defined as a desire on the part of the consumer to continue conducting business with a given company over time (Kumar et al., 2012). Loyalty causes people to become psychologically attached to and care about a company and its products, motivating them to commit to the achievement of its goals and to expend more voluntary efforts on its behalf— such as continuance intention (Bhattacharya & Sen, 2003; Maignan & Ferrell, 2004). CSR and loyalty are likely to be associated with a range of relational behaviors that go beyond the product purchasing decision (Lichtenstein et al., 2004) to consumers’ loyalty to a company’s 5 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 existing products (i.e., consumer retention), their willingness to try its new products (i.e., cross-selling opportunities), favorable word-of-mouth (Balqiah al., 2011), and resilience in the face of negative information about a company (Du et al., 2007). The perception of socially responsible behavior can strengthen commitment towards a brand because it transmits ethical character (Keller & Aaker, 1992; Brown & Dacin, 1997). Consumers reward these efforts with loyalty towards a firm (Maignan et al., 1999). A large number of consumers said they are more willing to buy products from companies involved in social causes. Hillenbrand, et al. (2013) found a relationship between the loyalty of consumers and their positive intent toward the organization. Balqiah et al. (2011) found a positive influence of trust on loyalty. CSR improves trust, which is a requirement for loyalty. CSR convinces consumers to believe that a firm is benevolent and thus increases their trust. CSR can have a direct effect on loyalty because consumer trends and opinions cannot be easily displaced. The more the impact of CSR projects and practices on consumers, the stronger the loyalty towards a firm. For initiatives that engage stakeholders, loyalty builds a continuing network of cooperative communities. For initiatives directed towards consumers, loyalty leads to behavioral change, for example, continuous intention. Both communities and consumers then provide the important word-of-mouth dissemination of the company and its good deeds - advocacy. Thus, this research notes that: H5a: Loyalty positively relates to Continuance Intention H5b: Loyalty positively relates to Advocacy 2.6. Consumer Advocacy Construct Advocacy is defined as any action that speaks in favor of, recommends, argues for a cause, supports, defends, or pleads on behalf of others. Advocacy is also defined as the consumers’ support for a firm and is measured through intention to consume the firm’s products and then to tell others about their good experience with the product (Du et al., 2007). Balqiah et al. (2011) found a strong relationship between company reputation and consumer loyalty and advocacy. Du et al. (2007) found that advocacy was strong when a consumer’s CSR beliefs were strong as well. This relationship was moderated through a firm’s reputation for achieving and implementing corporate responsible initiatives. The foundation of advocacy is the growing relationship between a company and its consumers (Yamaoka, 2004). Accordingly, organizations can benefit from advocacy behavior through favorable word of mouth (Aaker, 1996) or the intention to try a new product (Du, et al., 2007). Advocacy can also reflect resilience in the face of negative information. Overall, advocacy can lead to increases in sales and greater profit margins because advocacy provides extra value for an organization. Advocacy can influence consumers’ perception and awareness of a firm’s CSR programs. Consumers with a higher level of awareness of (or concern for) CSR are more likely to show positive advocacy toward a firm and its products, and a higher level of continuance intention (Tian, 2011). Thus is it noted that: H6a: Advocacy relates positively to Reputation H6b: Advocacy relates positively to Continuance Intention 2.7. Continuance Intention Construct Continuance intention is defined as a measure of the strength of a consumer’s intention to perform a specified behavior, such as repeat purchasing. It is a proxy of actual purchase behavior and the individual’s perceptions on the likelihood that he/she will engage in continuance behavior. Limayem et al. (2007) defined continuance intention as a form of post-adoption behavior and continuance intention does well in predicting future behavior. Any factors that influence behavior can act as indirect influences through to predict continuance intention. De Guinea and Markus (2009) concluded that emotion, not just cognition, might be a factor to the continuing use decision or intention formation. 6 International Journal of Asian Business and Information Management Volume 10 • Issue 1 • January-March 2019 Many studies show evidence of a strong relationship between attitudes and continuance intention, in many technology adoption contexts. Continuance intention was found to be a strong surrogate and measure of satisfaction, finding a robust reciprocal relationship between both satisfaction and continuance intention (Wu & Wang, 2005). Chen (2008) found a strong positive relationship between consumer satisfaction and continuance intention to continue to use self-service technologies. Wang (2012) foun,d in a study of online retail shops, that satisfaction using self-service technologies was directly related to consumers’ continuance intention to use those technologies in the future. Amoroso and Roman (2015) found that a higher level of consumer awareness of CSR led to the consumers’ more positive response to CSR for continuance intention through trust, loyalty, and other key constructs. Roper and Parker (2013) found a statistically significant relationship between CSR attributes and increasing continuance intention of consumers. Dodd (2014) found a strong relationship between an organizational involvement in CSR initiatives and consumer continuance intention. In those studies, continuance intention was found to be a strong surrogate of repurchase intention. 3. METHOD Building on the preceding literature review, the research model shown earlier (Figure 1) links CSR awareness, authenticity, and trust of a consumer with an organization’s reputation, loyalty and continuous intention. Each construct and related hypotheses is justified from the literature review and related findings. 3.1. Measures A survey instrument, based upon existing theory, was developed which examined consumer perceptions of CSR (Anselmsson & Johansson, 2006; Galbreath, 2010; Balqiahet al., 2011). The questionnaire was developed from the review of literature that studied CSR perceptions focusing on the seven constructs: CSR awareness, authenticity, trust, reputation, loyalty, advocacy, and continuance intention (see Appendix A for scale indicators). The survey used a standard five-point Likert scale (5 = very strongly agree, 4 = strongly agree, 3 = agree, 2 = weakly agree, and 1 = disagree). This generated an initial item pool for each construct. To keep the length of the instrument reasonable, three to five scales were selected for the measurement of each construct, keeping the wording similar to the original studies. This process ensured the content validity of the scales. 3.2. Sample and Data Collection The snowball sampling approach was used to collect data where students posted the survey link on their social media accounts asking potential respondents to complete the survey entirely. Kosinski et al. (2015) states that the positive feedback loop leads to self-sustaining studies wit... Purchase answer to see full attachment

  
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