2024 Outlook for Health Care and Life Sciences

By Asif Dhar, M.D., US Life Sciences & Health Care leader, Deloitte Consulting LLP

Most consumers expect to get more when they spend more. In the United States, however, the cost of health care has risen steadily for years,¹ but longevity has remained relatively flat. The average life expectancy is 77.5 years—up 1.1 years from 2021, but still below the pre-COVID average of 78.8 years.² Americans also have more chronic diseases than people in other countries and a worse life expectancy trajectory.³ So, if consumers aren’t winning, who is? Did health systems and health plans earn record profits in 2023? Did biopharmaceutical price-to-earnings skyrocket? The simple answer is no.

In 2023, the health care and life sciences sectors dealt with persistent financial challenges. The cost of capital, for example, is higher than it has been in more than 20 years.⁴ Additionally, fragile supply chains, patent expirations, federal price negotiations for some drugs, labor shortages, pharmaceutical shortages, and rising costs contributed to profitability challenges throughout the industry. More than 70% of people who participated in our recent webcast said they don’t expect the financial situation will improve much in 2024. (Watch our 2024 Life Sciences and Health Care Outlook Dbriefs webcast on-demand.)

While U.S. topline inflation and other macroeconomic factors have improved recently, underlying economic issues for the health care and life sciences industry appear to have created some pessimism among executives.⁵ In this industry, business as usual may no longer be an option.

Last year, I wrote that necessity is the mother of invention (see my 2023 Outlook for Health Care and Life Sciences). And indeed, we saw the emergence of generative artificial intelligence (AI), new drugs that can effectively treat obesity, and breakthrough treatments for sickle cell disease and other chronic conditions. In addition, some retail companies moved deeper into the health care industry, and consumers began to demand and have interactions that mirror experiences from the entertainment, technology, and financial services sectors.⁶ However, invention on its own cannot generate strong institutional performance. Industry transformation is generally required to improve efficiency, diversify profit pools, and transform benefits and financing. My outlook for 2024 is that necessity will continue to be the mother of invention, but also of transformation. However, the transformation of an entire industry will likely take place over several years. The industry is currently in a transitional period.

7 trends that may influence health care and life sciences in 2024

The COVID-19 pandemic led to some profound changes in consumer expectation for health care and life sciences. Cost and consumer convenience appear to be driving a re-orchestration of health care and wellness services. Additionally, some employers have taken on a larger role in the health of their workers. As the world moves forward in 2024, these new stakeholders of health care and life sciences—as well as incumbent players—might encounter the following trends, which could help accelerate transformation of the industry to The Future of Health^TM:

1. Generative AI could help co-pilot digital transformation: The excitement surrounding generative AI could help drive digital transformation. The adoption of AI could be a co-pilot for care management, earlier detection of disease, and core operations. Radiologists, for example, are beginning to use AI to scan vast numbers of images to accelerate the diagnosis and treatment of acute illnesses such as stroke.⁷ In light of growing clinician burnout, generative AI could also help health systems reduce the burden on clinical staff by automating various administrative tasks (see From fax machines to GenAI, are hospitals ready?). Reducing administrative friction could give clinicians more time to spend with patients, potentially leading to better outcomes and higher clinician and patient satisfaction. And as workforce needs evolve, some organizations may consider buying versus building digital transformation capabilities. Some biopharmaceutical companies are already using AI to streamline administrative processes and to match drug targets with new molecules that can treat or cure disease (see Can life sciences companies unlock the full value of GenAI?). More than 90% of surveyed biopharma and medtech respondents said they expect that generative AI will impact their organizations this year (see our 2024 Outlook for Life Sciences). Generative AI may also help address the cost challenges in health care. In our 2023 Consumer Survey, more than half of respondents (53%) said they believe generative AI could improve access to health care, and 46% said it had the potential to make health care more affordable. People who had experience with generative AI were more optimistic—69% thought it could improve access, and 63% said it had the potential to make health care more affordable. Nevertheless, organizations will likely need to ensure they have an updated technology infrastructure (including cloud), trust and compliance frameworks, data modernization, and operational workflows to fully support this new capability—all of which could spur a new generation of digital transformation in the industry.
   
2. Trusted technology frameworks may accelerate adoption of AI: The use of AI in diagnostics, drug discovery, decision-making, claims processing, clinical delivery, and coverage decisions/authorization could create new opportunities for organizations. This technology may also lead to increased focus on ethical, legal, and policy frameworks given its potential to impact patient care, safety, and health equity. These trusted technology frameworks could be deployed along with new ways to work to optimize efficiency while addressing the trust requirements of consumers, clinicians, regulators, and stakeholders. Establishing guardrails for the safe and appropriate use of AI has become a top priority for the White House, Congress, and various federal agencies.⁸ In this early stage of adoption, a trustworthy and ethical approach to AI could help to make care more accessible and equitable (see From code to cure: How generative AI can reshape the health frontier).
   
3. Consumers could become CEOs of their own health: As consumers gain access to increasingly insightful data about their health, they are likely to feel more empowered to make more decisions about their care. Some consumers could begin to exert more pressure on the system. For example, high-deductible health plans—paired with a health savings account or health reimbursement arrangement—give consumers a bigger financial stake in their care decisions. For example, consumers who have had a virtual health care visit cited convenience (38%) or cost (27%) as the top reasons for the choice, according to Deloitte's 2022 Consumer Survey. In addition, a growing number of consumers see a correlation between their health and the food they eat. More than half of those surveyed consumers say they are willing to pay a premium for foods that contribute to their health and wellness (see Fresh food as medicine). This could force a realignment of resources, capabilities, and systems around consumers. In 2024, consumers might spend more on wrap-around products and services that address weight loss through medication—along with behavioral, diet and exercise programs. As consumers invest in their health, they are likely to demand and expect more from clinical teams, executives, and the system. Rising competition means health care organizations should focus on delivering results.
   
4. Employers could take on a bigger role in keeping workers healthy: After payroll, health care is often one of the largest expenses for employers. That means most companies are essentially health companies. But employers could be getting much more value from their investment. Employers that take steps to ensure the health of their employees are likely to benefit from a more productive and dedicated workforce. By 2040, our actuarial research indicates that the average lifespan of Americans could increase by 12 years and their health span (the time living in good health) could increase by 19.4 years (see Employers can spark healthy aging). Employers are beginning to look beyond traditional health insurance for help and may create wellness and other consumer-centric subsidies. Some employers might also build solutions to improve employees’ physical, mental, social, and emotional health—both within and beyond the workplace. The cost of health care for employers could prompt some large, self-insured companies to pursue alternative strategies for attracting and maintaining a productive workforce that feels more connected to their organization. Direct contracting, on-site care, virtual health, and embedding purpose could be key elements. Employers that prioritize employee health could gain advantages over competitors. With a healthier workforce, employers might spend less on recruitment and retention, and have more productive workers. That could create pressure for the incumbent industry to design new health, wellness, and care solutions that more effectively meet the needs of workers.
   
5. Merger and acquisition (M&A) activity may accelerate, and new models of integration could evolve: I expect M&A activity is likely to increase this year in response to the economic challenges in the industry. Whereas vertical and horizontal consolidation is likely to continue, a new type of integration between organizations, which sit in different industries, could emerge. Digital-diagonal integration occurs when a company uses technology from outside industries to build platforms that reduce friction by bringing care closer to their customers. This will likely occur in areas where traditional incumbents want to diversify revenue. Non-incumbents could use digital-diagonal integration to deliver a more consumer-centric, higher-value service at a lower cost than incumbents. Examples include women’s health and weight management. Working together on digital and connected health business models could create an opportunity to drive revenue across multiple revenue sources and consumer-centric value ecosystems. Incumbent organizations that have already started to acquire retail, technology, and consumer companies—or vise-versa—will likely need to integrate those acquisitions so that the emerging ecosystem can work effectively (see Advancing health through alternative sites of care). However, regulators might challenge consolidation that could raise costs for consumers.
   
6. Breakthroughs powered by data sciences are likely to continue and may alter profit pools: AI has the potential to transform drug discovery by extracting concepts and relationships from data. It can also be used to cross-reference published scientific literature with alternative information sources, such as clinical trials data, conference abstracts, public data, and unpublished datasets. By mining such information, AI applications in drug discovery have already delivered new candidate medicines, sometimes in months rather than years (see Deloitte's 2023 report on R&D). For example, researchers are leveraging the mRNA technology behind COVID-19 vaccines to develop vaccines that may help prevent certain types of cancer.⁹ In addition, the U.S. Food and Drug Administration (FDA) recently approved two curative therapies for the treatment of sickle cell disease.¹⁰ The agency has also approved GLP-1 drugs—which have been used to treat diabetes since 2005.¹¹ In 2024, there are likely to be research and development (R&D) breakthroughs and curative therapies in cancer, neurodegenerative diseases, and other illnesses. About 30% of biopharma executives see R&D productivity as a key priority for 2024, according to our 2024 Outlook survey results. A robust pipeline could send ripple effects across industries. Biopharma executives who participated in this year’s Outlook survey expect drug pricing to have a “great impact” (58%) or a “moderate impact” (43%) on their organization in 2024. But drug-pricing challenges could spur experimentation with pricing models if new therapies push profit pools from health care organizations to life sciences companies. Some financial services companies might see an opportunity in helping to figure out how to manage higher drug costs and bigger out-of-pocket costs for consumers. We could also see pharmacy benefit managers (PBMs) evolve as they respond to market pressure and consumer demand for more affordable and accessible drugs.
7. Health equity could become more of an integrated priority: Some breakthrough drugs come with a steep price tag, which could make them less accessible to populations that need them. For example, people who have sickle cell disease tend to have access to fewer resources—and often experience worse health outcomes—than people who have other chronic diseases.¹² Heath care and life sciences organizations may look for ways to ensure their products are accessible to all populations that need them. The health equity officer of 2024 will likely need to forge closer ties to the chief operating officer, chief financial officer, the CEO, and the board. Health equity investments are likely to result in increased economic and organizational value. Health equity is not low-hanging fruit, but rather a reallocation of investment and requires business solutions. More than 80% of surveyed C-suite executives from life sciences and health care organizations see improved health equity as a top-10 goal for 2024, and nearly 50% expect to increase health equity investments this year (see the 2024 Outlook for Health Equity). I expect health equity will continue to move beyond corporate philanthropy to core operations this year.

Sow the seeds of transformation in 2024

In a world where stakeholders appear to be getting less for more, 2024 may be the year where things evolve in a major way. It may seem that dark clouds are hanging over the health care and life sciences industries. But clouds aren’t necessarily bad. They can provide the rain needed for seeds to take root and grow. As the sunlight breaks through the clouds, the seeds of invention and innovation could take root and flourish. I expect 2024 will be a year of transition for health care and life sciences organizations as they position themselves for further breakthroughs, new business and trust models, transformation, and growth. The industry’s continued efforts on interoperability and transparency could force policy changes around data, platform owners, and intellectual property. Data-driven changes could become increasingly important in the industry.

Acknowledgment: Jay Bhatt, D.O., managing director of the Deloitte Health Equity Institute and the Deloitte Center for Health Solutions

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Endnotes:

^{1_{US employers to see biggest healthcare cost jump in a decade in 2024, Reuters, September 21, 2023}}

^{2_{Centers for Disease Control and Prevention Vital Statistics Rapid Release, Number 31 (November 2023) (cdc.gov)}}

^{3_{U.S. Health Care from a global perspective, The Commonwealth Fund, January 31, 2023; Life expectancy at birth, World Fact Book, Central Intelligence Agency, 2023}}

^{4_{Cost of capital, Morgan Stanley, February 15, 2023}}

^{5_{Final 2023 data on tap for labor market, inflation as 2024 begins, U.S. News & World Report, January 2, 2024}}

^{6_{The 'care-ification' of retail is here, Fierce Healthcare, October 5, 2023}}

^{7_{How radiologists can expand the utilization of AI, Imaging Technology News, December 19, 2023}}

^{8_{Artificial intelligence use in health care faces greater scrutiny in 2024, STAT News, January 2, 2024}}

^{9_{Moderna vaccine could help patients in later stages of melanoma, MSN, December 14, 2023}}

^{10_{FDA Approves First Gene Therapies to Treat Patients with Sickle Cell Disease | FDA}}

^{11_{FDA Approves New Medication for Chronic Weight Management | FDA}}

^{12_{New sickle cell gene therapies pose cost and access questions (msn.com)}}

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