Health in 2020: battle lines are drawn

After a lacklustre 2019, global health spending will accelerate in 2020.

However, the US election campaign will raise huge questions for the future. For the healthcare and pharmaceutical sectors, 2020 will bring many of the trends of the past few years into sharp focus. In the US, the debate on health reform will intensify as November’s presidential election approaches. In the UK, Brexit will raise more questions about funding for the National Health Service (NHS). China, meanwhile, will reach its deadline, set a decade ago, to provide “safe, effective, convenient and affordable” healthcare for all by 2020. Everywhere, the challenge will be to improve health provision without raising costs too much.

Key forecasts
Across the 60 countries covered by this forecast, we expect health spending to accelerate, with growth of 6.2% nearly double that reported in 2019. Growth will be fastest in the transition economies of the former Soviet bloc, and the Middle East and Africa, while Asia will see spending accelerate again. However, the crucial US market will see spending growth slow ahead of November’s presidential election.

Efforts to reduce pharmaceutical prices, particularly in China and the US, will lead to a sharp slowdown in sales growth. We expect sales to rise by just 3.1%, down from 6.3% in 2019. With global health spending set to accelerate, we expect it to reach US$8.7trn, or around 10.2% of global GDP in 2020. However, this spending will be very unevenly spread. The US alone will account for around 44% of total health spending, while Asia and Western Europe will each account for over 20%. That will leave less than 10% of spending to be shared across the rest of the world.

Even so, healthcare provision will expand rapidly in these lower-spending regions. The former Soviet transition economies will see spending rise by 10% in 2020, making this the fastest-growing region. Growth will be led by a recovering Russia, where in February 2019 the president, Vladimir Putin, challenged all regions to provide access to good medical services by 2020. This is an extremely tight deadline, given the ground that needs to be regained, but the government will begin by boosting infrastructure spending and reforming primary care.

The Middle East and Africa will also see strong growth. In the Gulf region this will reflect an economic recovery as oil prices stabilise, while in Egypt, South Africa and Nigeria it will reflect plans to roll out health insurance to more of the population. In Asia, meanwhile, access to health care will keep improving. Pakistan has promised healthcare for all districts in 2020, while India is revamping up to 40,000 health centres under its new national scheme.

In Europe, spending growth will be slower; Germany’s economic slowdown will constrain its ability to expand budgets, while Brexit will weigh on UK spending—despite politicians’ promises to support the NHS. However, Latin America will be the slowest-growing region. New governments in Brazil, Chile and Argentina have plans to overhaul existing public health systems to improve quality or coverage. The region as a whole, however, will be dragged down by continuing economic problems in Argentina and Venezuela, as well as economic and political uncertainty in Mexico.

Twin peaks
The two most important healthcare markets will remain the US and China, where dynamics will differ markedly. In China, spending will accelerate as the Healthy China 2020 target date arrives. With broad health coverage now in place, the challenge is to deepen and improve health provision. The government will hasten implementation of the Healthy China 2030 plan outlined in 2016. This aims to improve care for chronic diseases, the elderly and residents in China’s rural areas, and to increase life expectancy to 79 years by 2030.

Meanwhile, despite the economic slowdown, Chinese citizens’ willingness to spend on their own healthcare and that of elderly relatives will increase as better private care and insurance becomes available. As a result, we expect that China’s total health spending will rise by 4.8% in US dollar terms in 2020, up from just 2.2% in 2019. In local-currency terms, growth will be much stronger, at 8.7%, as the Chinese currency continues to weaken.

In the US, by contrast, we expect health spending growth to slow to 3.9% in nominal terms, down from 4.4% in 2019. Mr Trump will be running for re-election buoyed by his partial success in reining back Obamacare, the healthcare system launched by his predecessor. By removing the individual mandate that obliged Americans to buy health insurance, and introducing lower-cost employee schemes, Mr Trump claims to have reintroduced more choice. However, the number of Americans without insurance rose to 27.5m in 2018—the first increase in almost a decade.

Moreover, Mr Trump’s policies have backfired with some voters. According to opinion polls, most Americans now support Obamacare and nearly three-quarters want a public healthcare option. Some Democratic candidates for the presidency have proposed health reforms that go beyond Obamacare, including the two Medicare for All systems proposed Bernie Sanders and Elizabeth Warren. Mr Trump has dismissed these plans as “socialist”, but even he is under pressure to extend insurance coverage.

Trump’s challenge
In his campaign, however, we expect Mr Trump to focus less on health insurance and more on drug costs, where he is on surer ground. His administration has already introduced measures to bolster competition and price transparency in the pharmaceutical market. Better focus on drug costs, particularly for pensioners, will feature on his election platform, along with further efforts to encourage competition. His opponents are also planning radical measures to cut prices, including, in Ms Warren’s case, the establishment of a state-owned generics manufacturer.

Getting legislation approved for any of these reforms will be difficult. However, we do expect the pressure on US drug pricing to intensify. This will have a major impact on pharmaceutical companies globally, given the size of the US market. With Canada introducing a national pharmacare system, to make purchasing more efficient, we expect growth in North America’s pharmaceutical spending to slow to 4.6%, down from 5% in 2019.

In Europe, meanwhile, drug spending will decline by 1% in US dollar terms as the euro weakens, while other regions will also see a sharp slowdown in spending growth. As a result, we expect global pharmaceutical spending to rise by just 3.1% in 2020, less than half the 6.3% reported in 2019. For new opportunities, companies will look to China and other developing nations, where uptake of innovative medicines will rise rapidly as governments and individuals combat a rise in chronic diseases. However, even here, generics prices in particular will come under increasing pressure.

Given these trends, faster treatment approvals and better protection of intellectual property will become priorities in 2020. The nature of that intellectual property will change, too. Use of health data, including genomics, will gather pace, aiding diagnosis and the planning of health services. Digital apps, such as Tencent’s WeDoctor in China or Babylon Health in the UK, will start to take patients away from traditional doctors. However, integrating these systems will remain a huge challenge, while some innovations will come under scrutiny. A global moratorium on gene editing is possible as scientists mull the ethics of designer babies. This is unlikely to be the end of the matter. Next year Purdue will file for bankruptcy, if a final deal is settled by April 2020, as expected. With around 2,700 opioid lawsuits pending, J&J and the others are reported to be discussing a US$48bn settlement to limit their exposure. However, this would still not be enough to offset the full costs estimated by the CDC. Moreover, other countries, though less prone to lawsuits, have not escaped the opioid crisis and could launch their own actions.

Drug makers with revenue flowing in from well-established, patent-protected blockbuster drugs will remain insulated from the effects in the short term. J&J, for one, is still upgrading its profit forecasts, despite a series of patent expirations in 2019. However, costs related to action on opioids will begin to drive up expenses and drive down profits at several pharmaceutical companies. Global insurers, too, could be affected by the huge payouts that will be needed.

In the longer term, if lawmakers use the huge tobacco settlement of 1998 as a model, then the financial impact of the opioid crisis could climb even higher. The crisis may also prompt further changes to US drug regulations and oversight. At present, the US Food and Drug Administration has little power to control the marketing and promotion of approved drugs. Meanwhile physicians receive little independent training in how to prescribe them, unlike in neighbouring Canada. That may change, giving the crisis the power to reshape the US pharmaceutical sector in the long term.

Legal action over the opioid crisis will dent pharma companies’ profits in 2020 and could lead to regulatory shifts. The US opioid crisis has been a long time coming. According to the US National Institute on Drug Abuse, more than 130 people a day in the US have died of overdoses from addictive painkillers since the late 1990s. The US Centres for Disease Control and Prevention (CDC) estimates that the economic burden of prescription opioid misuse amounts to US$78.5bn a year. The cost in human terms is incalculable. In 2020 this national crisis will come to a head, and the impact on those companies that sell opioids will also become clear. This process has already started.