A big-data revolution is under way in health care. Start with the vastly increased supply of information. Over the last decade, pharmaceutical companies have been aggregating years of research and development data into medical databases, while payors and providers have digitized their patient records. Meanwhile, the US federal government and other public stakeholders have been opening their vast stores of health-care knowledge, including data from clinical trials and information on patients covered under public insurance programs. In parallel, recent technical advances have made it easier to collect and analyze information from multiple sources — a major benefit in health care, since data for a single patient may come from various payors, hospitals, laboratories, and physician offices.

Fiscal concerns, perhaps more than any other factor, are driving the demand for big-data applications. After more than 20 years of steady increases, health-care expenses now represent 17.6 percent of GDP—nearly $600 billion more than the expected benchmark for a nation of the United States’s size and wealth.¹ To discourage overutilization, many payors have shifted from fee-for-service compensation, which rewards physicians for treatment volume, to risk-sharing arrangements that prioritize outcomes. Under the new schemes, when treatments deliver the desired results, provider compensation may be less than before. Payors are also entering similar agreements with pharmaceutical companies and basing reimbursement on a drug’s ability to improve patient health. In this new environment, health-care stakeholders have greater incentives to compile and exchange information.

While health-care costs may be paramount in big data’s rise, clinical trends also play a role. Physicians have traditionally used their judgment when making treatment decisions, but in the last few years there has been a move toward evidence-based medicine, which involves systematically reviewing clinical data and making treatment decisions based on the best available information. Aggregating individual data sets into big-data algorithms often provides the most robust evidence, since nuances in subpopulations (such as the presence of patients with gluten allergies) may be so rare that they are not readily apparent in small samples.

Although the health-care industry has lagged behind sectors like retail and banking in the use of big data—partly because of concerns about patient confidentiality—it could soon catch up. First movers in the data sphere are already achieving positive results, which is prompting other stakeholders to take action, lest they be left behind. These developments are encouraging, but they also raise an important question: is the health-care industry prepared to capture big data’s full potential, or are there roadblocks that will hamper its use?

Read more on McKinsey Insights & Publications

1. This estimate is based on a measure developed by McKinsey, “estimated spending according to wealth,” which is derived from a regression analysis of income and spending data from other countries in the Organisation of Economic Co-operation and Development. It allows us to estimate how much a given country would be expected to spend on health care based on per capita GDP.