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1、Fight for survival:how GLP-1s have created an existential threat to US providersPhoto by Krzysztof ZmijewskiKearney,WarsawThe dawn of glucagon-like peptide-1 agonists(GLP-1s)is a defining moment for healthcare.Many analysts have declared them a medical miracle due to their unprecedented impact on th

2、e risk of a range of diseases.This disruption is creating anxiety among some stakeholders.For many US healthcare providers,the anticipated erosion of demand for several clinical services severely threatens their financial viability.This Kearney report,based on the latest medical research,illustrates

3、 the potential US provider profit at risk from GLP-1s by patient segment.We estimate that across eight key therapeutic areas,about 60 percent of profit will be at risk by 2029,equating to about$7.5 billion in revenue loss.The 19 percent growth in profit we anticipate from an uptick in demand for fiv

4、e select procedures will not sufficiently compensate for these financial losses.We conclude by highlighting several strategic options that can help providers survive and thrive in the GLP-1 era of healthcare.Introduction 1Methodology 2Results:profit losses for shrink procedures 4Cardiovascular proce

5、dures 4Vascular procedures 6Orthopedic procedures 8Bariatric surgery 8Results:growth procedures profit increases 10Caveats to this analysis 13Insights 14Protect volume of current procedures 15Sense and shift fixed-cost bases 16Pivot toward growth procedures 16Embrace alternative payment models 17Con

6、clusions 18Authors 19Appendix 20In-depth:methodology 20In-depth:caveats to the analysis 21Not since the development of statins has the healthcare and life sciences industry experienced such fevered speculation about the potential impact of a drug class on public health,the pharma industry,and health

7、 systems.Global economies are buckling under the steepening cost of care curve and our populations are becoming increasingly overweight and unwell from a host of interlinked health conditions.GLP-1s,originally developed for blood sugar management in diabetes,could be a big part of the answer to thes

8、e seemingly intractable challenges.Obesity,diabetes,heart disease,kidney disease,liver disease,and many other economically significant disease areas are positively impacted by GLP-1s.As a consequence,we expect GLP-1s to provoke a radical transformation in demand for healthcare services.However,this

9、transformation will create sizable challenges for several industry stakeholders.Lowered disease risk will result in reduced demand for many drugs,procedures,and healthcare services.Previously,Kearney published a report on the 21 to 23 percent of revenue at risk for med tech and pharma companies due

10、to the effect of GLP-1s across key therapeutic areas.In our current report,we consider the impact of reduced demand for healthcare services on the profits of US provider systems.Using a unique analytic approach,we connect the latest medical research data on the risk-modifying impact of GLP-1s with a

11、ctual and projected five-year US provider financial data.Because the GLP-1 story is still emerging and data is limited,we believe this is the most effective analytic method for generating a projection of the profit at risk for providers.IntroductionWe expect GLP-1s to provoke a radical transformatio

12、n in demand for healthcare services.1Fight for survival:how GLP-1s have created an existential threat to US providersMethodologyOur analysis aims to present an estimate of the impact on procedure profit for a typical US healthcare provider system across eight“shrink procedures”and five“growth proced

13、ures”(see figure 1 on page 3).We acknowledge that the real-world impact of GLP-1s on a given provider system may differ from our estimate due to unique procedure revenue and cost structures,as well as the uncertain impact of GLP-1s on procedure volume over the medium term.While the assumptions used

14、in this report are intended to be illustrative,they are representative of a typical US provider system and demonstrate the magnitude of risk for providers.Furthermore,the underpinning methodology can be adjusted for any given provider systems unique financial structure to offer a more precise estima

15、te of their profit at risk from GLP-1s.We summarize the methodology used to model the financial impact of GLP-1s in figure 2 on page 3.An in-depth methodology can be found in the Appendix at the end of this report.Our analysis presents an estimate of the impact on procedure profit for a typical US h

16、ealthcare provider system across eight“shrink”and five“growth”procedures.2Fight for survival:how GLP-1s have created an existential threat to US providersSource:Kearney analysisFigure 2We modeled the financial impact of GLP-1s across these procedures using assumptions of provider cost structure and

17、GLP-1 impact percentageRevenue and profit calculationsGLP-1 impact calculationsRevenueVolume x reimbursement rate calculated for each procedure and inflation adjusted to 2029Total costsAssumed a net profit margin of 5%for Medicare and 20%for commercialFixed costsAssumed 60%of total costs are fixedVa

18、riable costsAssumed 40%of total costs are variableProfitRevenue total costs GLP-1 impactCalculated by the GLP-1 impact%for each procedure Adjusted revenueDeduct the GLP-1 impact%from the revenue to get the adjusted revenueAdjusted fixed costsKeep fixed costs the same as without GLP-1 impactAdjusted

19、variable costsMultiply adjusted revenue by net profit margin(5%for Medicare and 20%of commercial)and then again by 40%(%variable costs)Adjusted profitAdjusted revenue total costsStart with the best available medical research data on baseline GLP-1 impact for each procedureMultiply by the%to reflect

20、GLP-1 impact under real-world conditionsMultiply by%of these procedures that would be performed in patients who may be eligible for GLP-1s under optimal market conditionsMultiplying these three factors together gives the overall volume multiplierBaseline GLP-1 change%FactorsWithout GLP-1 impactWith

21、GLP-1 impactDescriptionReal-world impact factor%Procedure attributable factor%GLP-1 impact%MethodologySource:Kearney analysisFigure 1We selected 8 shrink procedures and 5 growth procedures for analysisProcedureDefinitionGLP-1impact17%20%16%11%16%10%15%8%+5%+5%+10%+8%+8%TypeCoronary artery bypass gra

22、fting(CABG)Coronary angioplastyPeripheral revascularizationCarotid artery stentingKnee replacementHip replacementBariatric surgerySpine fusionVaginal birthCesarean sectionNeuromodulator injection(Botox,Dysport,Xeomin,Jeaveau)Tummy tuck(abdominoplasty)Non-invasive skin tighteningShrink proceduresGrow

23、thproceduresSurgical procedure to restore normal blood flow to an obstructed coronary arteryProcedure to open an obstructed coronary artery using a stentRestoring blood flow to obstructed peripheral arteries via surgical or catheter-based methodsInsertion of a stent to widen the carotid arterySurgic

24、al replacement of a damaged knee joint with an artificial implantSurgical replacement of a damaged hip joint with an artificial implantSurgical procedures performed to aid in weight loss for obese individualsSurgery to join two or more vertebrae in the spine,eliminating motion between themNatural de

25、livery of a baby through the birth canalSurgical delivery of a baby through an incision in the mothers uterusInjection of substances that block nerve signals to muscles to reduce wrinkles and treat certain muscular conditionsCosmetic surgery to remove excess skin and fat from the abdomen and tighten

26、 musclesProcedures that use energy-based devices to stimulate collagen production and tighten skin without surgerySummary of growth and shrink procedures3Fight for survival:how GLP-1s have created an existential threat to US providersWe estimate that GLP-1-driven reduced demand across eight procedur

27、es in the United States will result in a loss of revenue of about$7.5 billion and a 60 percent reduction in procedure profits by 2029(see figure 3 on page 5).The dramatic reduction in profit is being driven by the high and,by definition,static fixed cost assigned to each procedure.As revenue decreas

28、es,the proportion of the fixed cost to revenue increases rapidly.Therefore,GLP-1 decreases in procedure volume cause an exponential decrease in net profit margin(see figure 4 on page 5).When breaking down the analysis by Medicare and commercial patient segments,we observe about a 172 percent change

29、in Medicare profit(-$9.5 million)and about a 48 percent change for commercial(-$23.6 million)(see figure 3 on page 5).Using real projected Medicare volume data through 2029,we estimate that every procedure(aside from spinal fusion)will become unprofitable to varying degrees for provider systems(see

30、figure 4 on page 5).Sensitivity analysis reveals the volume reduction impact of GLP-1s that can be tolerated before a procedure becomes unprofitable for a provider system(see figure 5 on page 6).Using our same net profit margin and cost distribution assumptions,we show that a GLP-1 negative impact o

31、f about 8 percent and about 29 percent would make procedures unprofitable for Medicare and commercial procedures respectively.1 Results:profit losses for shrink procedures1 Note in this section we present the financial data as:profit percentage loss($absolute loss for an illustrative 500 Medicare pl

32、us 500 commercial procedures).Cardiovascular proceduresThe SELECT clinical trial identified a 23 percent reduction in the need for coronary revascularization for patients receiving GLP-1s over a three-year period.There is significant overlap between the eligibility criteria of study participants and

33、 the real-world eligibility for GLP-1s(overweight and/or previous cardiovascular disease),which increases external validity and gives us a high confidence in these estimates.Considering the percentage of coronary artery bypass grafting(CABG)and percutaneous coronary angioplasty(PCI)procedures that a

34、re attributable to patients who may benefit from GLP-1s,we calculated a volume reduction of 17 percent and 20 percent respectively.We estimate that this will drive a decrease in CABG profits of about 74 percent(-$8.8 million per 1,000 procedures)and a decrease in PCI profits of about 84 percent(-$4.

35、3 million per 1,000 procedures)by 2029(see figures 6a and 6b on page 7).4Fight for survival:how GLP-1s have created an existential threat to US providersSource:Kearney analysisFigure 4At current reimbursement rates,the impact of GLP-1s will cause many Medicare procedures to become extremely unprofit

36、ableCABGCoronary angioplastyPeripheral revascularizationCarotid artery stentingKnee replacementHip replacementBariatric surgerySpine fusionMedicare actual projected profit change by 2029Loss(millons)Profit(millions)Profit without GLP-1 impactLoss with GLP-1 impactKeyRemaining profit with GLP-1 impac

37、t$159214%242%198%202%121%186%93%134%$199$83$120$25$5$8$15$139$140$85$118$118$14$9$211Change in revenue($million)Change in profit($million)Change in profitChange in revenue($million)Change in profit($million)Change in profitSource:Kearney analysisFigure 3GLP-1s driving reduced volume for high-margin

38、procedures threatens about 60%of provider profits across 8 procedures for an indicative volume of 1,00017%20%16%11%16%10%15%8%Coronary artery bypass grafting(CABG)Coronary angioplastyPeripheral revascularizationCarotid artery stentingKnee replacementHip replacementBariatric surgerySpine fusionTotalS

39、hrink procedure profit analysisMedicare proceduresGLP-1impactCommercial proceduresCombinedChange in revenue($million)Change in profit($million)Change in profit4.22.03.21.11.30.81.01.715.3#of procedures500500Profit margin5%20%Fixed costs60%60%Variable costs40%40%MedicareCommercial214%242%198%134%202%

40、121%186%93%172%2.61.32.00.70.80.50.61.19.59.24.58.32.23.11.82.33.434.858.7%66.5%54.4%36.7%55.3%33.2%51.0%25.5%48%6.23.15.71.52.11.21.52.323.613.36.611.63.34.32.63.35.150.174.5%84.3%67.1%47.1%69.2%41.5%65.0%33.0%60%8.84.37.72.22.91.72.23.333.1Key assumptions5Fight for survival:how GLP-1s have created

41、 an existential threat to US providersNote:This model can be modified to each providers specific procedure net margins with various GLP-1 impact assumptions.1 We assumed a profit margin of 5%for Medicare procedures and 20%for commercial procedures.Furthermore,we assumed 60%of costs were fixed and 40

42、%were variable.These assumptions were informed by expert interviews and in the real world will vary by procedure and provider system.Source:Kearney analysis Figure 5GLP-1-driven volume reductions decrease profit exponentially,with Medicare procedures becoming unprofitable faster than commercialGLP-1

43、 sensitivity analysisVolume decreaseGLP-1 impact(%)Adjusted netprofit marginVolume increaseCommercialMedicareLegendUnprofitableProfitable40%30%20%10%0%10%20%30%40%50%60%70%80%90%60%50%40%30%20%10%0%10%20%30%40%50%60%Key graph featuresAs GLP-1s impact decreases(increases procedure volume)As GLP-1s im

44、pact increases(decreases procedure volume)Profit margin increases slowerProfit margin decreases fasterThreshold of GLP-1 impact where procedure becomes unprofitable1Medicare:8.1%Commercial 29.4%Vascular procedures A randomized controlled trial evaluating the impact of Liraglutide(a GLP-1)on the prog

45、ression of peripheral arterial disease in patients with type 2 diabetes demonstrates a 40 percent reduction in clinically meaningful progression of disease.Extrapolating this data to peripheral artery revascularization procedures,we assigned a GLP-1 impact of 16 percent.This calculation took into co

46、nsideration the fact that most patients in this study would not have undergone a revascularization procedure in any case due to insufficient severity of their disease.Based on this,we estimate a reduction in profit of about 67 percent(-$7.7 million per 1,000 procedures)by 2029,with medium certainty(

47、see figure 6c on page 7).For carotid artery stenting procedures,we have assigned a GLP-1 impact assumption of 11 percent,resulting in a profit loss of about 47 percent(-$2.2 million per 1,000 procedures).There is little to no reliable evidence on the direct impact of GLP-1s on carotid artery stenosi

48、s.Hence,we gained expert consensus on this risk-reduction assumption based on insights into the GLP-1 effect on atherosclerosis-related vascular pathology.We therefore have a low certainty in this estimate(see figure 6d on page 7).6Fight for survival:how GLP-1s have created an existential threat to

49、US providersNote:CABG is coronary artery bypass grafting.Source:Kearney analysis GLP-1 impact on shrink procedures(2029;indicative 500 Medicare and 500 commercial patients per procedure)Figure 6Coronary and peripheral vascular procedure profit is projected to fall by 47-84%depending on the specific

50、procedure type6a)CABGHigh6b)Coronary angioplastyHigh6c)Peripheral revascularizationMedium6d)Carotid artery stentingLowWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactRevenue($million)Profit($million)Revenue($million)Profit($million)Revenue($million)Profit($million)Revenue($

51、million)Profit($million)Without GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impact17%77.163.833.627.072.360.730.827.511.83.05.10.811.43.

52、84.72.574%20%84%16%67%11%47%Certainty in estimate7Fight for survival:how GLP-1s have created an existential threat to US providersOrthopedic proceduresData of variable quality suggest an approximately 40 percent reduction in the risk of requiring knee replacement surgery in cohorts taking a GLP-1.In

53、 determining our estimated percentage reduction,we considered the likely reduced impact of GLP-1s that would be observed in real-world cohorts and the fact that many knee replacements occur in patients who experience osteoarthritis,despite not being significantly overweight.We therefore assigned a G

54、LP-1 impact effect of 16 percent with medium certainty,which resulted in a profit loss of about 69 percent(-$2.9 million per 1,000 procedures)by 2029(see figure 7a on page 9).Data on the direct impact on hip replacements is also ambiguous.One observational study identified that for every 1 percent o

55、f body weight loss in patients with painful hips at baseline,there was a 1 to 5 percent reduced risk of hip replacement.We used the lower end of this estimate to set the baseline reduction at 15 percent,considering this is the approximate percentage weight loss reported in the latest GLP-1 weight lo

56、ss studies.We further reduced the GLP-1 impact estimate to 10 percent when considering the imperfect overlap between the study cohort and real-world populations who would be eligible for GLP-1s.We estimated that this GLP-1 impact would reduce hip replacement profit by about 42 percent(-$1.7 million

57、per 1,000 procedures)by 2029 with a medium certainty(see figure 7b on page 9).We applied the same logic to spinal fusion procedures.We assumed that approximately half of spinal fusions will be performed for indications other than those directly modifiable by GLP-1s(for instance,disc herniation),to s

58、ettle on a 7.5 percent risk reduction impact with a low certainty.By 2029,we estimate that this will reduce provider profits by about 33 percent(-$3.3 million per 1,000 procedures)(see figure 7c on page 9).Bariatric surgeryEstimates of the impact of GLP-1s on bariatric surgery are highly variable.In

59、 a previous Kearney analysis,we argued that for many health systems,bariatric surgical demand far outstrips the capacity of the health system to supply this procedure,hence GLP-1s may have no net impact on actual procedure volume.Other experts expect to see about 10 to 20 percent reduction,although

60、it is worth noting that this is highly uncertain due to payors often preferring to cover bariatric surgerys one-off payment rather than the recurring cost obligation of GLP-1s.In the present analysis,we present the median scenario of a 15 percent volume reduction,although we assign a low certainty t

61、o this estimate.This will result in a reduction in profit of about 65 percent(-$2.2 million per 1,000 procedures)by 2029(see figure 7d on page 9).We estimate that GLP-1-driven reduced demand across eight procedures in the US will result in a 60 percent reduction in procedure profits by 2029.8Fight f

62、or survival:how GLP-1s have created an existential threat to US providersSource:Kearney analysis GLP-1 impact on shrink procedures (2029;indicative 500 Medicare and 500 commercial patients per procedure)Figure 7Even small decreases in orthopedic and bariatric procedure revenue will cause large drops

63、 in profit(33%-69%)7a)Knee replacementMedium7b)Hip replacementMedium7c)Bariatric surgeryLow7d)Spine fusionLowWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactRevenue($million)Profit($million)Revenue($million)Profit($million)Revenue($million)Profit($million)Revenue($million)P

64、rofit($million)Without GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impact16%26.824.267.662.54.21.34.22.43.41.210.16.869%10%42%15%65%8%33

65、%Certainty in estimate26.822.422.018.79Fight for survival:how GLP-1s have created an existential threat to US providersSource:Kearney analysisFigure 8GLP-1s could drive increased demand for certain procedures,which creates new growth opportunities for provider systems 5%5%10%8%8%Vaginal birthCesarea

66、n sectionNeuromodulator injection(Botox,Dysport,Xeomin,Jeaveau)Tummy tuck(abdominoplasty)Non-invasive skin tighteningTotalGrowth procedure profit analysisCommercial proceduresGLP-1impactChange in revenue($million)Change in profit($million)Change in profit(%)+0.7+0.9+0.1+0.6+0.2+2.4#of procedures1,00

67、0Profit margin20%Fixed costs60%Variable costs40%Commercial17.0%17.0%34.0%25.5%25.5%19%+0.4+0.60.0+0.4+0.1+1.6Key assumptionsAcross five growth procedures,we estimate that GLP-1s will drive about a 19 percent increase in profits and approximately$3.8 billion in increased annual revenue across the Uni

68、ted States(see figure 8).In contrast to the exponential decline in profitability with volume reduction,we only observe an asymptotic increase in net profit for GLP-1-driven volume increases.This is because as procedure volume increases,the proportion of the overall costs that are fixed decreases whi

69、le retaining the variable costs of a procedure,which increase linearly with volume.Results:growth procedures profit increases10Fight for survival:how GLP-1s have created an existential threat to US providersThere is a paucity of evidence on the degree to which GLP-1s may increase demand for these pr

70、ocedures,making precise estimates difficult.One randomized clinical study demonstrated that the reproductive rate of overweight women with polycystic ovarian syndrome(PCOS)receiving exenatide(a GLP-1)was more than double that of those receiving metformin.Given that this was in a subpopulation of pat

71、ients with PCOS(population prevalence about 10 percent),which is known to significantly reduce fertility,the positive GLP-1 effect would likely be significantly reduced in the general GLP-1 population.We therefore hypothesized that the GLP-1 impact would be a 5 percent increase in the rates of vagin

72、al and Caesarean section(C-section)births,with a low certainty.This would drive an increase in profit of about 17 percent by 2029 across these two procedures,corresponding to a+$0.4 million and+$0.6 million increase in profit per 1,000 commercial patients for vaginal birth and C-sections respectivel

73、y(see figures 9a and 9b on page 12).We also anticipate an increase in demand for aesthetic procedures,as patients lose weight and focus more on body image.Analysts note a recent increase of about 10 percent in sales for Botox from one of the largest US manufacturers possibly linked to GLP-1 usage.Ex

74、trapolating this onto our baseline spend data we predict an increase in profit of 34 percent from neuromodulator injection procedures by 2029(see figure 9c on page 12).Other aesthetic procedures we hypothesize will see increases in demand include abdominoplasty(tummy tuck)and non-invasive skin tight

75、ening.As patients lose weight,it is common for excess skin to cause alarm for patients and occasional clinical difficulties such as recurrent infections.There is no evidence regarding the likely magnitude of the increase in demand for these procedures.Consequently,we have used the baseline assumptio

76、n of 10 percent applied to Botox and reduced this to 7.5 percent,considering the greater invasiveness and expense associated with these procedures.We therefore predict an increase in profit of about 26 percent by 2029 for both abdominoplasty and non-invasive skin tightening,with a low certainty(+$0.

77、5 million and+$0.1 million per 1,000 procedures respectively)(see figures 9d and 9e on page 12).We anticipate an increase in demand for aesthetic procedures,as patients lose weight and focus more on body image.11Fight for survival:how GLP-1s have created an existential threat to US providersSource:K

78、earney analysis GLP-1 impact on growth procedures (2029;indicative 1,000 commercial patients per procedure)Figure 9GLP-1s will drive increase in demand for other procedures,which will create new growth opportunities of about 19%for provider systems9a)Vaginal birthLow9b)Cesarean sectionLow9c)Neuromod

79、ulator injectionLow9d)Tummy tuck(abdominoplasty)Low9e)Non-invasive skin tighteningLowWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1

80、 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactWithout GLP-1 impactWith GLP-1 impactRevenue($million)Profit($million)Revenue($million)Profit($million)Revenue($million)Profit($million)Revenue($million)Profit($million)Revenue($mill

81、ion)Profit($million)13.213.82.63.1+5%+17%17.418.33.54.1+5%+17%0.60.70.10.28.69.21.72.2+10%+34%+8%+26%2.22.30.40.5+8%+26%Certainty in estimate12Fight for survival:how GLP-1s have created an existential threat to US providersCaveats to this analysisSeveral factors contribute to uncertainty in our esti

82、mates of the financial impact of GLP-1s on providers.First,there is the variability in the true reimbursement value and net margins of these procedures for each individual provider system.Second,there are notable gaps in the research on the extent to which GLP-1s reduce the risk of diseases and the

83、knock-on effect on demand for associated procedures.Third,there are numerous other market considerations that will determine the true impact of GLP-1s on US providers,including payor coverage and cost-sharing,supply chain constraints,and patient compliance.Fourth,GLP-1s will likely have a broader gr

84、owth impact than that which was practical to include in this analysis,including in dietetics,physiotherapy,and psychiatry.An in-depth review of these caveats can be found in the Appendix.Despite these limitations,we believe that our studys approach of drawing from the best available primary research

85、 data and projecting it onto rigorously compiled financial assumptions provides a compelling and industry-leading perspective on the potential commercial implications of this drug class for providers.Finally,it is important to note that our framing of GLP-1s as predominantly a financial headwind to

86、providers pertains mainly to US provider systems.In systems where population-based payment models dominate,such as in many European countries,the volume-eroding effect of GLP-1s is more likely to be regarded as a positive.Provider financial structures tend to operate within fixed budgets rather than

87、 revenue being predominantly linked to volume.As such,reductions in demand for healthcare preserve provider cash reserves that can be redirected toward improving the quality of or improving access to existing clinical services.The reduced burden on government wallets also means that more money can b

88、e spent on upstream public health interventions,or even on expanded coverage of GLP-1 drugs themselves through a self-reinforcing cycle.13Fight for survival:how GLP-1s have created an existential threat to US providersInsightsA worrying element of the evolving story for US providers is that GLP-1s p

89、romise to disproportionately reduce demand for many of their highest-margin procedures.Obesity,vascular disease,diabetes,and other metabolic conditions are the predominant risk factors that drive population demand for these highly profitable procedures.GLP-1s are akin to a silver bullet in operating

90、 across multiple body systems to modify the risk of these conditions and hence dampen provider profit.Our analysis indicates that about 60 percent of provider profit is at risk across only eight procedures.For an individual provider performing an indicative 1,000 of each of these procedures split eq

91、ually between Medicare and commercial segments,this represents a$33 million loss of profit.At a national level we estimate about$7.5 billion of revenue at risk by 2029.While GLP-1s will also present growth opportunities,the 19 percent estimated profit increase equating to about$3.8 billion of revenu

92、e nationally will not compensate sufficiently for these losses.As such,our analysis shows that GLP-1s pose an existential threat to many provider systems in the US.Large health systems will be more resilient to this headwind for a variety of reasons.First,they will likely have a more diversified set

93、 of clinical services where their overall profitability will be less impacted due to still performing many procedures less vulnerable to GLP-1s.Second,larger health systems are more likely to achieve a higher average net margin per procedure due to economies of scale enabling greater spread of their

94、 fixed cost base across higher-volume service lines.This will mean they have greater runway to tolerate the increasing proportion of fixed costs per procedure as volume reduces,thereby delaying the point at which a given procedure becomes unprofitable.Finally,providers that are integrated with a hea

95、lth plan may be further protected due to diversification of financial risk.While the provider side of the integrated system may suffer from reduced revenue,the health plan side will benefit due to reduced reimbursement disbursement.Creating a financial structure where the change in these dollar flow

96、s is spread across the payor and provider side of the business will help reduce the financial risk posed by GLP-1s.Small providers that do not have these risk-mitigating levers will suffer.We therefore hypothesize that one underexplored impact of GLP-1s will be creating a healthcare market that furt

97、her strengthens the relative position of larger health systems,driving increased merger and acquisition of smaller providers.14Fight for survival:how GLP-1s have created an existential threat to US providersOur analysis also highlights that GLP-1s will put further pressure on the already ambiguous p

98、rofit potential from Medicare lines of business.Many providers tolerate losses from Medicare patients because the volume enables absorption of some of their fixed cost base that they would bear in any case to serve their commercial patients.However,already narrow Medicare margins mean that GLP-1s wi

99、ll drive relatively greater downward pressure on the percent of Medicare profits compared to commercial lines of business.CMS will come under pressure to increase reimbursement rates for these shrink procedures to prevent a serious healthcare access issue due to some providers being unable to afford

100、 serving Medicare patients.Our analysis also demonstrates the fact that profits for many healthcare procedures are extraordinarily volume-sensitive.Because fixed costs remain static,we observe an exponential decline in profit for incremental volume losses in shrink procedures(see figure 5).Healthcar

101、e as an industry is hamstrung by its high fixed-to-variable cost ratio.The cost of highly skilled permanent staff,huge clinical physical space needs,and the need to build services that can respond flexibly to acute surges in demand all contribute to this issue.The COVID-19 pandemic exposed this:shar

102、p drops in revenue and escalating costs meant provider systems relied on large government relief packages to retain positive operating margins.We propose that GLP-1s pose a similar threat to provider financial viability.While the threat may be less acute than that of a pandemic,the financial impact

103、will be more sustained,and there will be no government relief funding to offset it.Further exacerbating the anxiety that provider systems should be feeling is the sheer uncertainty of the impact of GLP-1s over the medium and long term.As we have discussed,extrapolating the currently limited GLP-1 ev

104、idence onto future changes in healthcare demand is fraught with imprecision.Additionally,the range of different disease areas that GLP-1s may ultimately be found to impact will almost certainly expand beyond those considered in this analysis.These uncertainties understandably increase the hesitancy

105、of healthcare executives to act and predispose them to a strategy of watching and waiting.The drawback of this approach is that the root of the problem lies in provider systems high fixed-cost bases,which are incredibly slow and difficult to shift.Consequently,failing to respond boldly now to the th

106、reat of GLP-1s could be a fatal decision for many provider systems.We present several strategic options for provider systems to protect and potentially even grow their profits relative to their competitors in the dawning GLP-1 era.Protect volume of current proceduresThe sensitivity of provider profi

107、t to changes in procedure volume means that protecting against volume erosion should be a central part of the counter strategy.The percentage volume decrease is unmodifiable by providers given that it is dependent on factors outside their control,such as the pharmacological effectiveness of GLP-1s a

108、nd their market penetration.However,the total clinical service absolute dollar profit is modifiable,given it is also determined by overall procedure volume.Providers could seek to boost volume by demonstrating the superiority of their outcomes,thereby enticing greater numbers of patients to choose t

109、hem over their competitors.Investments in establishing the provider system as a recognized center of excellence could boost referrals from other providers.Mergers and acquisitions could also be a fruitful approach in increasingly hyper-competitive markets.Pooling patients from across disparate geogr

110、aphies will generate the dual benefit of increasing volume and achieving economies of scale through consolidation of fixed-cost bases.The vulnerability of small provider systems to the threat of GLP-1s means mergers may be a mutually beneficial approach for large and small systems and enables contin

111、ued provision of healthcare to their patient populations.15Fight for survival:how GLP-1s have created an existential threat to US providersSense and shift fixed-cost basesA major factor that increases provider systems vulnerability to the impact of GLP-1s is their high burden of fixed costs.Executiv

112、es must therefore build effective sense-and-shift processes,where changes in demand are quickly detected and translated into agile pivots in the fixed-cost base strategy.For example,consider a provider that identifies a month-on-month decline in the demand of coronary stenting services.This could tr

113、igger a temporary or permanent shift in working schedules for the physicians performing this procedure that moves them away from the interventional cardiology procedure room to the wards so that they can address other types of heart disease.The interventional cardiology procedure room itself could t

114、hen be reprioritized for heart valve replacement cases,which will be unaffected by GLP-1s.This requires a staffing recruitment strategy that values physicians with a greater diversity of skills who can pivot across different clinical service areas in response to changes in demand.Additionally,provid

115、er systems will need to build agile operational capabilities that enable changes in patient flow and flexibility in clinical space usage to accommodate different types of patient caseloads.Pivot toward growth proceduresOur analysis identified about 19 percent of potential growth in profit from five

116、procedures.We also predict that other new opportunities will emerge for providers from the disruption of GLP-1s.For example,vast numbers of new patients will be taking a drug whose effectiveness relies on optimizing compliance and monitoring for side effects.This will drive growth in telemedicine as

117、 a scalable and efficient means of delivering these services.There is evidence that a significant proportion of the weight loss from GLP-1s is secondary to muscle loss,and the appetite suppressant effect has implications for the general nutritional status of patients.Providers will therefore come un

118、der increasing pressure to provide holistic metabolic and nutritional services to their ever-growing population of patients on GLP-1s.Finally,finding a pharmacological solution to weight gain has promulgated the idea that obesity is a disease in and of itself.Patients who are overweight may therefor

119、e increasingly seek medical input for a variety of weight-associated issues,including fatigue,mobility,and psychological health.Providers should therefore bolster their clinical services in these areas in anticipation of increased demand.This will require recruitment of relevant healthcare professio

120、nals,contracting with payors,and marketing these services to patients and providers.We predict that other new opportunities will emerge for providers from the disruption of GLP-1s.16Fight for survival:how GLP-1s have created an existential threat to US providersEmbrace alternative payment modelsThe

121、central issue for US provider systems is the predominant model by which they are paid for the healthcare they deliver.The fee-for-service(FFS)structure means that net profit is closely linked to the volume of procedures performed.Alternative payment models(APMs)such as bundled or capitated payments

122、may create a more attractive path to profitability in the GLP-1 era.Both of these APMs create a payment framework where providers bear financial risk for the outcomes of patients.Where providers can reduce downstream costs through improved prevention or more efficient initial management of disease,t

123、hey will benefit from a larger profit pool.GLP-1s ability to reduce risk of a range of health conditions will result in reduced downstream provider expenditure and therefore increase the size of profit under APMs.Using hip osteoarthritis as an example,a bundled payment would cover the cost of a care

124、 cycle,including pain relief,physiotherapy,hip replacement surgery,rehabilitation,and so on.GLP-1-driven weight loss and optimized cardiovascular health would lower the risk of these patients incurring additional costs owing to fewer perioperative adverse events and reduced length of stay.This would

125、,in turn,benefit providers bottom lines.APMs have experienced slow uptake,in part due to the perception that the path to profit is more ambiguous than under the FFS model.GLP-1s could dramatically increase provider appetite for APMs and give the entire value-based care agenda the traction it has bee

126、n searching for.GLP-1s could dramatically increase provider appetite for APMs and give the entire value-based care agenda the traction it has been searching for.17Fight for survival:how GLP-1s have created an existential threat to US providersGLP-1s are creating a once-in-a-generation disruption to

127、the healthcare and life sciences industries.Some commentators see GLP-1s as miracle drugs that will meaningfully flatten the cost of care curve that has been the source of significant concern for global health system leaders and governments.Others see GLP-1s as a threat to stakeholders whose profits

128、 rely on a predictable and growing burden of disease.In the not-too-distant future,more payors will provide GLP-1 coverage amid mounting evidence of their clinical and cost effectiveness.We also predict an easing of current supply chain constraints.Together these trends will lead to sharp increases

129、in GLP-1 market penetration,moving it toward the$100 billion market that is projected for 2030.For provider systems,this will mean that the theoretical risk of GLP-1s will soon become very real,and the impact will reverberate across the industry.ConclusionsOur analysis brings the commercial realitie

130、s of the effects of GLP-1s to life by connecting the medical research data to the projected profit impact for provider systems.We estimate that about 60 percent of profits derived from a mere eight procedures are at risk over the next five years.This is a burning platform for providers that demands

131、a response.Particularly for US providers operating under an FFS system,strategic indecision could be fatal.Provider systems must urgently evaluate their own preparedness for this looming disruption and consider the potential strategies we have presented for mitigating the volume erosion anticipated

132、from GLP-1s.Those that adapt appropriately stand to thrive in the new GLP-1 era of healthcare.Particularly for US providers operating under an FFS system,strategic indecision could be fatal.18Fight for survival:how GLP-1s have created an existential threat to US providersChris PaddisonPartner,Dallas

133、 Cian WadeConsultant,London Betty PioPartner,San Francisco Amelia WhitworthConsultant,New York Authors19Fight for survival:how GLP-1s have created an existential threat to US providersIn-depth:methodologyStep 1:We selected eight“shrink procedures,”procedures that we hypothesized would experience vol

134、ume reductions due to the headwind effect of GLP-1s.We also selected five“growth procedures,”procedures for which GLP-1s will likely serve as a tailwind(see figure 1).A range of DRG codes applicable to these procedures were identified within Centers for Medicare&Medicaid Services(CMS)and commercial

135、pricing data sources.2 Step 2:We calculated a weighted average reimbursement price for both Medicare and commercial patient segments based on annual CMS discharge numbers,with inflation adjustment through 2029.3 Step 3:We modeled the total revenue expected for an illustrative provider system perform

136、ing 1,000 of these procedures annually(evenly split between 500 Medicare patients and 500 commercial patients).We selected 1,000 procedures based on the rough number of these procedures performed annually across US provider systems.Step 4:Having calculated expected revenue in 2029 for each procedure

137、 by patient segment,we next needed to calculate the net profit for the 1,000 illustrative procedures.Our assumptions on net profit margin for Medicare(5 percent)and commercial(20 percent)and the distribution of fixed(60 percent)and variable(40 percent)costs were informed by industry financial expert

138、s(see figure 2).AppendixStep 5:We modeled the estimated impact on net profit margin by assigning a“baseline GLP-1 change percentage,”the percentage volume reduction or increase caused by GLP-1 to each procedure.These assumptions were based on analysis of the best available medical research on the im

139、pact of GLP-1s on relevant clinical or disease events related to these procedures.A“real-world impact factor percentage”was applied to this baseline percentage to reflect the fact that factors such as patient compliance,sociodemographics,and comorbidities will influence the actual GLP-1 effect seen

140、outside of clinical study conditions.A“procedure attributable factor percentage”was applied to account for the fact that a certain percentage of the baseline procedure volume is for clinical indications and patients where GLP-1s will not have a risk-modifying impact.For example,patients who are not

141、eligible for GLP-1s because they are not obese,diabetic,or suffering from heart disease may still require a given procedure despite the absence of these risk factors.We then settled on a final volume multiplier(“GLP-1 impact percentage”)by multiplying out each of these percentage changes.2 Commercia

142、l pricing estimates were calculated using pricing data from four different hospitals:Mount Sinai Hospital,Baylor Scott&White All Saints Medical Center-Fort Worth,Tristar Centennial Medical Center,and the University of Kansas Health System.Cosmetic procedure price estimates came from the 2022 America

143、n Society Plastic Surgery Procedural Statistics Release.3 Cosmetic procedure price estimates did not require a weighted average of DRG codes,as the direct prices are listed in the 2022 American Society Plastic Surgery Procedural Statistics Release.20Fight for survival:how GLP-1s have created an exis

144、tential threat to US providersStep 6:We applied the“GLP-1 impact percentage”to the estimated revenue and net profit for 2029 to calculate the overall percentage and absolute dollar impact of GLP-1s on both Medicare and commercial patient segments.Given the variable quality of the evidence underpinni

145、ng the baseline GLP-1 change percentage,we have assigned a high-low certainty to these assumptions.We also calculated a high-level estimate of the impact on revenue across the entire United States,assuming a 50:50 volume split between Medicare and commercial patients(only Medicare discharges for the

146、se procedure codes are known).These estimates on the impact on revenue were corroborated as directionally correct based on external sources and publications.The medium-term impact of GLP-1s will be determined by a myriad of factors,including the true risk-modifying effect in the general population,p

147、atient compliance,and market access variables.We therefore performed a sensitivity analysis to demonstrate the breakeven pointnamely the point at which a given percentage of GLP-1-driven volume reduction would cause a procedure to become unprofitable.In-depth:caveats to the analysisThere are several

148、 caveats to our analysis that create uncertainties in the estimated financial impact of GLP-1s on these procedures.First,there are uncertainties in the assumptions made concerning the baseline net profit of the selected shrink and growth procedures.We relied on the weighted average of historic reimb

149、ursement data for Medicare and commercial segments,using codes that were applicable to the procedures of interest.Reliance on the accuracy of historic coding and inherent commercial contracting variability between different provider systems and payors means that the real-world reimbursement for any

150、given provider will vary.In terms of cost structure,each provider system will have their own procedure net profit margins and distribution of fixed and variable costs.For the purposes of our analysis,we obtained industry expert input to corroborate our selected net profit margin by patient payor seg

151、ment and the distribution of fixed and variable costs.These same assumptions were applied to every procedure.Our assigned fixed cost percentage of 60 percent is on the conservative side,with many healthcare procedures having a higher assigned fixed cost than this.This means that our analysis likely

152、provides an underestimate of the true extent of profit at threat from GLP-1s.Additionally,there is no reliable data on the actual volume of these procedures performed for commercial patients in the United States.As a result,our analysis uses a representative volume of 500 Medicare and 500 commercial

153、 patients to calculate the absolute dollar amount net profit change(although note that percent profit loss will be unaffected by this assumption).While we believe that these assumptions are representative of the average provider system in the United States,inevitably our analysis is only illustrativ

154、e,and each provider systems profit loss model would be driven by its unique procedure cost structure.21Fight for survival:how GLP-1s have created an existential threat to US providersGiven the relatively early stage of much GLP-1 research,there are also uncertainties about the degree to which GLP-1s

155、 will affect demand for these and other medical procedures.While evidence from robust randomized-controlled studies increases our confidence in the estimates of some procedures(for example,coronary revascularization),poorer-quality evidence makes the estimate less certain for others(for example,hip

156、and knee replacements).Furthermore,these studies frequently use different versions of GLP-1s,with therapeutic benefit potentially varying between each formulation.The recent explosion of interest in GLP-1s means that more is being invested in higher-quality studies,which in time will provide more pr

157、ecise estimates of their impact on procedure volume.Adding further uncertainty are the market access considerations surrounding GLP-1s,which will ultimately determine the extent of their impact on the population.Payor coverage varies for such factors as clinical criteria for prescription,type of GLP

158、-1 formulation that is reimbursable,and the patient cost-sharing burden.Currently,Medicare has still not approved GLP-1s for weight loss on its own.All these variables will contribute to patchy coverage and an uncertain trajectory of GLP-1 market penetration.To account for these uncertainties,we hav

159、e presented sensitivity analyses of the profit loss for possible ranges of GLP-1 impact on a given procedure.We provide a dynamic view of the anticipated impact on net profit margin,which can be adjusted as more evidence accumulates that shifts the point estimate of GLP-1 impact percentage for a giv

160、en procedure(see figure 5).It is also important to note that GLP-1s may have a far broader growth impact than we have considered in this analysis.It is anticipated that demand will grow for dieticians,physiotherapists,psychologists,and other healthcare service professionals involved in the holistic

161、management of patients undergoing rapid transformation of their metabolic and body states due to GLP-1s.Challenges in isolating reimbursement and patient volume data relating to these services meant excluding them from this analysis.Nevertheless,we anticipate exciting new growth opportunities in the

162、se allied healthcare service areas.For more information,permission to reprint or translate this work,and all other correspondence,please email .A.T.Kearney Korea LLC is a separate and independent legal entity operating under the Kearney name in Korea.A.T.Kearney operates in India as A.T.Kearney Limi

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