The Healthcare market is dynamic, constantly expanding and evolving in ways that can be hard to predict. Last year, we made a few macro-level predictions. What can we expect in 2025?
Now more than ever, Healthcare enterprises are wrestling with evolving patient expectations, the high cost of care, technological advancements and manpower challenges. Leaders know they need to make transformational change to advance health outcomes and optimize costs.
The reality is that many hospitals, clinics, ambulatory surgery centers, medical groups and home healthcare providers are not making expected profitability and, in some cases, are even drowning in debt. The reimbursements from insurers and Medicare/ Medicaid have shrunk, while costs for physicians and clinicians, as well as administrative support staff, have risen drastically – and such talent is getting harder to source.
In this scenario, one would expect healthcare payers to be very profitable as reimbursements go down. But, no. Payers are also struggling to maintain profitability because of the quantity of claims, the number of claim dollars and the overhead costs.
This means both payers and providers are suffering from reduced profitability, which is inhibiting additional healthcare facilities and increased insurance choices for members and patients. The country sorely needs both.
What Are the Trends to Look Out for?
- The public is dissatisfied with healthcare. The financial burden for care has been on the rise for members and patients year over year. In 2024, Americans saw a 6% increase in health insurance premiums over the year prior, and projections for the next three years are similar. Medicare Advantage companies are seeing membership numbers plateau. The public is also generally dissatisfied with insurance payer policies, especially around deductibles and the lack of coverage for certain types of care. This came to the fore after the New York shooting of the United Healthcare CEO.
- Impending federal legislation will have an impact on drugs. The role pharmacy benefit managers (PBMs), pharma companies and private equity firms play in drug dispensation will affect patient care. Legislation may be introduced to make the PBMs and pharmas partner less and will be beneficial for lower patient medication costs.
- Mergers and acquisitions activity makes its mark. M&As that involve pharmacies, PBMs and pharma companies that belong to the same parent company are being scrutinized for conflicts of interest and some are potentially being dismantled. It is expected that, unlike the past few years when we saw more cross-vertical M&A activity, e.g., a provider and a payer merging, we now expect more horizontal mergers as organizations try to avoid running afoul of Federal Trade Commission approvals.
- Workforce challenges cannot be ignored. Labor shortages are haunting the Healthcare industry. Providers are also finding it difficult to align the right talent to the specialized nature of the healthcare workflow. This leads to increased workloads and cases of burnout among healthcare professionals, including physicians and clinicians. There is no doubt these issues affect health outcomes and quality patient care.
- Technology and AI make an impact. Due to technological advances and bioengineering innovations, personalized medicine has come to the fore. Coupling genomic medicine and data analytics with AI facilitates personalized treatment plans that enhance care and patient satisfaction. Agentic AI is already positively impacting back office operations.
- Data improves medicine. Wearable healthcare devices will augment EMR data and greatly influence diagnoses and health outcome plans.
- Cybersecurity expenses will increase. Healthcare providers are becoming much more protective of their data as the last few years have proved that they are prime targets for hackers/ransomware.
What About Sourcing in Healthcare?
Both payer and provider Healthcare organizations are sticking to their core competencies and sourcing activities that support those competencies. IT & Business Process service providers can be very specialized and have proven to lower costs for Healthcare organizations. But Healthcare organizations need to ensure alignment between their technology investments and business processes. This means, if we look closely, we will find market synergies between IT outsourcing and business process outsourcing.
While Healthcare providers source workloads outside their core competencies with the goal of lowering costs, they are also looking to improve efficiency by automating specific workflows and to save money by deploying GenAI in the right use cases.
Specifically, healthcare payers are sourcing many workflows of the claims processing systems, e.g., provider data management and payment remittance. A lot of integrations involving Electronic Data Interchange (EDI) and Fast Healthcare Interoperability Resources (FHIR) are sourced or are ripe for sourcing, especially by niche service providers. Smaller payers, such as Medicare Advantage companies, are sourcing the entire claims process, including call centers, due to squeezed costs of providing service.
Sourcing as Cost Optimization
How can sourcing help optimize costs? Here are six ways:
- A multi-supplier sourcing model with centralized governance allows Healthcare organizations take advantage of multi-source possibilities, especially if a provider has a niche offering that can fill a need in their environment.
- Ensuring transformation is in at the start of the sourcing contract. will help ensure cost savings and innovation are both priorities. For example, savings from GenAI and automation can be shared between the healthcare organization and the IT or Business Process services supplier.
- Financial engineering with cash-rich service providers can help healthcare organizations that are cash poor accomplish their transformation requirements, by bundling projects with sourcing.
- Service providers can bring in new technological products or specialized subcontractors to help ensure success in both payer and provider markets.
- A small but noticeable trend shows that specialized workflow requirements are being either insourced or addressed with on-site resources as opposed to low-cost offshore resources as in previous years.
- IT and Business Process service providers that can support the deployment of wearable healthcare devices will help augment EMR data, which can influence diagnoses and health outcome plans.
How Healthcare Payers and Providers Should Prepare
As healthcare providers continue to struggle with profitability, we will see an uptick in M&A activity. Divesting and sourcing non-core competencies will continue, as will automation projects that address standard workflows in the healthcare provider environment. GenAI initiatives in non-clinical areas will continue to proliferate, and there will be growing interest in providing physicians and clinicians with GenAI tools that allow better diagnoses and specifically tailored treatment plans.
Medicare Advantage (MA) enrollment has been plateauing, and these once significantly profitable organizations will become more conservative. Automation initiatives in the claims pre-processing and post-processing workflows will continue. The new administration has promised to lower the cost of Medicare, but it will also chip away at the subsidies of the popular ACA programs as it does so.
In 2025, healthcare providers will be expected to share the risk along with insurance firms; the capitation model will become more prevalent. To free up more acute care beds, which are always in a short supply, hospital-at-home models will also increase. And drug prices will continue to come down as the federal government takes an increased interest in negotiating with pharma companies.
The Impact of GenAI on Healthcare
GenAI in healthcare is increasingly prevalent in non-clinical workflows for both healthcare payer and provider organizations in the industry. As an example, healthcare revenue cycle management (RCM) will see a drastic increase in possible use cases and pilots to address them. Currently use cases are very prevalent within the contact center and in standard workflows such as prior authorizations and coding initiatives. Clinical areas like radiology are adopting some GenAI tools to augment the information available to a clinician that enables better diagnoses. GenAI pilots that help create tailored treatment plans in personalized medicine will also be on the rise.
A number of companies have been using workflows involving prior authorizations as a use case for GenAI trials. This involves both healthcare providers requesting prior authorizations for their patients as well as payer insurance organizations fielding calls through an AI engine to approve standard cases or refer them to a human in the loop.
GenAI is also being used to record patient-physician interactions and transcribe them into accurate EMR notes, which can then be used for recording and billing purposes or for additional information synthesis for specialty treatments.
How ISG Can Help
There is no doubt that technology is changing healthcare. And yet many healthcare organizations don’t think of themselves as technology enterprises. ISG helps both healthcare payer, provider, PBMs and healthcare solution organizations assess where they stand in the current market, create a technology-forward strategy for the future and execute on plans that empower people and enhance patient satisfaction. Contact us to discuss how we can help you.
About the authors
James (Jamie) Burke
SG Anand
