Status quo vs. change: unraveling the knots in the current health-care system will require strategies bigger than any single enterprise.

That today's health-care system is a jumble of workarounds, redundancies and paradoxes will hardly come as a news flash to industry leaders. Serious problems include Byzantine pricing, discounting and rebating systems; uncoordinated care and coverage; high costs but h)w levels of customer service; state-mandated insurance features that make basic risk coverage unaffordable of unavailable: value accruing heavily to specialists and sophisticated medical centers; a pharmaceutical industry in which patent attorneys and defense lawyers are major profit drivers; and multiple layers of government that mandate services for which they know they don't pay enough.

Structural crises seldom coalesce rapidly. However, the confluence of health information technology, consumer-directed health plans, Medicare Part D implementation, Medicaid shortfalls and cutbacks, and the ever-looming baby boom crunch may finally set off this ticking time bomb.

A serious examination is needed now, to correct longstanding and deep structural flaws in the system.

In many ways, 2006 will not be a time of great upheaval for the health-care industry, but rather a strategic extension of the past year. We expect to see solid strategies to realize consumer-directed health plan potential, initiatives to ramp up and fine-tune Medicare Part D plans, and consolidation moves. We also hope to see leaders beginning to investigate the long-range possibilities of a re-imagined industry structure and their places in it.

The dynamic of the health-care industry maintaining the status quo while moving toward significant change will play out within individual sectors. The insurance sector will see the continuing battle for the employee-benefits value chain and, ultimately, ownership of the customer. The business is already being redefined and in some cases fragmented, which is a significant risk to existing players.

Insurers and plans now need to focus on product offerings and a broader conceptualization of health savings accounts. Consolidation should focus on market dominance and to a lesser extent, enterprise-level synergy. We also expect acquisition and partnering to build the full suite of services needed for consumer-directed health plans.

The provider sector will probably continue to take a wait-and-see approach on consumer-directed health plans, but it shouldn't. These plans ate not on the radar screens of most providers, who either act as if they ate unimportant, of worse, that the magic wand of health information technology will help them meet whatever challenges they encounter.

The key to gaining competitive advantages under consumer-directed health plans and benefiting from health information technology is understanding the structural opportunities they create. While the transparency and technology of CDHPs can be scary, the opportunities for provider competitive advantage are huge. Chief among these are creating new customer relationships and new business relationships with physicians, especially procedure-based specialists who drive most hospital revenue and profits.

In the pharmaceutical sector, the biggest unknowns ate the actual impact (vs. promise) of the Medicare Part D benefit, and the implications of growth in consumer-directed health plans. Initial data suggest current financing schemes favor a short-term approach to evaluating drug benefits, while a consumer-driven approach could torce a longer-term shift to prevention and related therapeutics. The potential bad news is that price-sensitive consumers have proven much more likely to use generics as their therapy of choice. Therefore, the sector must convince consumers and their physicians that branded drugs and innovative therapies have economic and health benefits that merit the premium cost.

Any significant change rests on the industry's willingness to take the first major steps of a fundamental reassessment. It may be a job too big for any one enterprise; perhaps each major sector should begin association-level explorations. It may even be too big for any one sector; perhaps work driven top-down as part of the technology initiative will be needed.

More than likely, it will take one of two visionary firms in each sector to undertake serious inquiries and develop hypotheses to mobilize a larger examination and a broader, more integrated consensus. Quite simply, we need a new and accurate understanding of how the total health-care system adds value, how best to deliver that value to customers, and how some of that value can be returned to shareholders and the public purse for future growth and tax sanity.

Contributors: Gary Ahlquist is a senior vice president in the Chicago office of Booz Allen Hamilton. Gil Irwin and David Knott are vice presidents in Booz Allen's New York office. They may be reached at [e-mail].