Episode Details

Many Americans struggle with the rising cost of healthcare. Analysts Terence Flynn and Erin Wright explain how AI might bend the cost curve, from Morgan Stanley’s 23rd annual Global Healthcare Conference in New York.

Read more insights from Morgan Stanley.

----- Transcript -----

Terence Flynn: Welcome to Thoughts on the Market. I'm Terence Flynn, Morgan Stanley's U.S. Biopharma Analyst.

Erin Wright: And I'm Erin Wright, U.S. Healthcare Services Analyst.

Terence Flynn: Thanks for joining us. We're actually in the midst of the second day of Morgan Stanley's annual Global Healthcare Conference, where we hosted over 400 companies. And there are a number of important themes that we discussed, including healthcare policy and capital allocation.

Now, today on the show, we're going to discuss one of these themes, healthcare spending, which is one of the most pressing challenges facing the U.S. economy today.

It is Tuesday, September 9th at 8am in New York.

Imagine getting a bill for a routine doctor's visit and seeing a number that makes you do a double take. Maybe it's $300 for a quick checkup or thousands of dollars for a simple procedure.

For many Americans, those moments of sticker shock aren't rare. They are the reality.

Now with healthcare costs in the U.S. higher than many other peer countries on a percentage of GDP basis, it's no wonder that everyone – not just investors – is asking; not just, ‘Why is this happening?’ But ‘How can we fix it?’ And that's why we're talking about AI today. Could it be the breakthrough needed to help rein in those costs and reshape how care is delivered?

Now I'm going to go over to you, Erin. Why is U.S. healthcare spending growing so rapidly compared to peer countries?

Erin Wright: Clearly, the aging population in the U.S. and rising chronic disease burden here are clearly driving up demand for healthcare. We're seeing escalating demand across the senior population, for instance. It's coinciding with greater utilization of more sophisticated therapeutics and services. Overall, it's straining the healthcare system.

We are seeing burnout in labor constraints at hospitals and broader health systems overall. Net-net, the U.S. spent 18 percent of GDP on healthcare in 2023, and that's compared to only 11 percent for peer countries. And it's projected to reach 25 to 30 percent of GDP by 2050. So, the costs are clearly escalating here.

Terence Flynn: Thanks, Erin. That's a great way to frame the problem. Now, as we think about AI, where does that come in to help potentially bend the cost curve?

Erin Wright: We think AI can drive meaningful efficiencies across healthcare delivery, with estimated savings of about [$]300 to [$]900 billion by 2050.

So, the focus areas include here: staffing, supply chain, scheduling, adherence. These are where AI tools can really address some of these inefficiencies in care and ultimately drive health outcomes. There are implementation costs and risks for hospitals, but we do think the savings here can be substantial.

Terence Flynn: Great. Well, let's unpack that a little bit more now. So, if you think about the biggest cost buckets in hospitals, where can AI help out?

Erin Wright: The biggest cost bucket for a hospital today clearly is labor. It represents about half of spend for a hospital. AI can optimize staffing, reduce burnout with a new scribe and some of these scribe technologies that are out there, and more efficient healthcare record keeping. I mean, this can really help to drive meaningful cost savings.

Just to add another discouraging data point for you, there's estimated t