The healthcare sector has now passed the $4 trillion watermark, growing nearly 10 percent in 2020, following years of steady 4-6 percent growth. It’s growth like this combined with the many untapped opportunities to reduce friction points throughout healthcare that keeps investors interested.
These days, backers are examining the scalability of new models of care delivery — such as acute care at home and digital health — in the context of the substantial value they must create. As investors size up the horizon for 2022, here are seven trends worth a second look.
1. Chronic incrementalism has opened the door to new disrupters
Healthcare incumbents have historically moved slowly, which allowed disrupters to enter the market and make noticeable inroads. Novel solutions are coming from every corner, including some retail giants that could easily school the healthcare industry on consumer-facing relationships. This trend challenges traditional service providers to rethink their approach.
Investors might find their best opportunities among innovative companies that are taking revenue away from the legacy brands, but competition for those assets will be tight. Targets will command higher deal multiples, which increases the pressure on earnings growth.
2. Care is increasingly extending into the home
As COVID-19 drove consumers and their care teams into digital channels, telehealth became a viable choice for routine checkups and chronic care, especially for behavioral health conditions. However, reimbursement almost exclusively drives delivery. Policies that will remain in place at least for the duration of the public health emergency are helping support this pivot, but most provider groups want to see the pandemic accommodations for telehealth become permanent.
Virtual care means more than a video visit, however. Home-centered care is coming into its own, expanding from straightforward telehealth all the way up to select acute-care applications. And best of all, home-centered care aligns with value-based models. While hospitals and health systems are just beginning to test their initial efforts, there’s plenty of opportunity to enable new service lines with emerging technologies and clinical supports. Investment around the care-at-home trend makes perfect sense.
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3. New primary care models are delivering value
Value-based primary care is a frontrunner in the race toward cost containment. Observers frequently point to the relative newcomer Oak Street Health and its 110 care centers, which produced Q3 2021 total revenue of $388.7 million, up 78 percent year over year. About 65 percent of its 131,500 patients are enrolled in risk-based Medicare Advantage plans, and they represent the largest portion of revenue by a landslide.
Primary care providers are still the chief stewards of comprehensive care, but unwieldy processes and unreimbursable services eat into their margins. That’s why the segment needs improved technology that optimizes care team workflows and effectively tracks the metrics required for value-based payment. And equally important, payers are more willing to partner with practices that can demonstrate value.
4. Tech can enable almost anything
Technology advances bring with them new challenges to the operating model, which in turn, offers a burgeoning opportunity for new solutions. But it’s more than that. With at least 47 percent of physicians reporting burnout and 50 percent of nurses saying they’re ready to leave their positions, any new technologies absolutely must reduce workloads or thwart the fatigue associated with EHR clicks, clinical alerts, and the like.
Meanwhile, it goes without saying that hacking and data breaches present ongoing risks. Multimillion dollar verdicts are common, even among well heeled companies that likely have the strictest protocols in place already. Breaches are costly from a litigation stand point as well as in loss of confidence and credibility in the market.
5. The talent shortage is ominous
Healthcare providers have been particularly hard hit by the downward spiral of employee burnout, leading to resignations, which produced short-handed situations, causing even greater burnout. In fact, staff shortages are the top concern among hospital CEOs.
As healthcare businesses shell out big bonuses and pay hikes to ensure adequate clinical staffing levels — with nurses getting paid as much as $1,400 a shift — their costs will rise. That can drag down margins, something investors should have on their radar, even among digital models. Less staff to deliver care means less growth potential.
6. An increased focus on health equity is highlighting gaps
The pandemic further revealed inequities in healthcare, and the awareness among lawmakers has added tailwinds for new solutions that promise to improve tracking and collection of related patient data. Amazon and Walmart are two of the goliaths looking to make impact, investing millions in companies working on improving health outcomes for underserved and under-represented communities. Their efforts will no doubt set the course for others to follow.
Looking ahead, new federal funding to support the health equity quest could potentially supplant or combine with existing social determinants of health initiatives. Favorable legislation is always a good indicator of an attractive opportunity for investors.
7. Healthcare business ownership is under scrutiny
Private equity (PE) has provided capital to healthcare businesses, helping them grow and innovate. That’s a good thing. But the focus on short- or medium-term financial returns has some observers questioning the influence of PE on cost, quality, and access.
Case in point: A June 2021 MedPac report responded to a specific Congressional inquiry to identify the role of PE investments related to cost, beneficiary experience, and provider experience. The debate about whether PE is friend or foe will surely continue, but for now, regulators seem to be examining investor engagement with the market from a distance.
The alignment between the mission of delivering quality healthcare in communities and the economics of investment is the crux of the debate. PE firms must create economic models that go beyond near-term profits, seeking to advance any and all forward progress in the healthcare ecosystem.
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