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Advisors, Private Equity

Beneath The Surface: 4 Emerging Healthcare Trends Investors Should Consider

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Nearly 2000 years ago Marcus Aurelius, the Roman philosopher-emperor, encouraged humankind to “look beneath the surface; let not the several quality of a thing nor its worth escape thee.” While his mind was undoubtedly on other matters, he could have easily been asking us to consider what lies beneath the sizzle and pop of healthcare M&A activity today.

Healthcare and New Trends

For years, the U.S. healthcare market has successfully resisted necessary disruption and innovation. As Roy Smythe notes in Forbes, “medical care in America is still structurally delivered as it was more than fifty years ago — to those with acute problems, inside small boxes (outpatient clinics) or large boxes (hospitals), where doctors lay waiting for them to arrive, wielding a vast array of high-technology tools.” This orthodoxy is reinforced by payment schemes that favor office visits and treatment events over outcomes.

However, there is significant evidence of change. Urgent care centers and other emerging outpatient models suggest more profound innovation is forthcoming in the healthcare marketplace. These developments merit investor attention in the near future.

Trend 1: Transactional Transparency

While you can quickly go on Amazon and compare the cost and specifications for a nebulizer, it’s often much tougher to determine the expense of a simple medical procedure. The Pioneer Institute, a Boston-based public policy group, recently contacted nearly 100 dentist, ophthalmologist, dermatologist, and gastroenterologist practices seeking the price of five basic services as required by Massachusetts law. Even putting aside the distortion of health insurance reimbursement (they asked for the cash-only price), dental cleaning exams ranged from $57 to $245 and routine eye exams varied from $80 to $327. In many cases, practices found it nearly impossible to respond to the question.

In our new consumerism, the transparency of a transaction has at least two elements. One, the provider of healthcare understands their cost structure and cash flow. Second, the provider can communicate the price with confidence and clarity to the customer.

Complex procedures often deserve more careful examination. Still, consumers want and deserve to know more of the details, and if informed, are much more likely to trust a provider and become a loyal customer. The entrepreneurs who successfully address this issue deserve investment (and possibly a Nobel Prize).

Trend 2: Value Is Measured In Time

A number of years ago UNESCO conducted a worldwide study of the value of time vs. money and found that time was ultimately more valuable. Whether in a subsistence culture in sub-Saharan Africa or urban area on the East Coast of the US, the results were the same. In our increasingly demanding lives, with many adults working multiple jobs or long hours in addition to parenting and other responsibilities, the price of time has outpaced inflation.

Time-ineffective healthcare models are quickly falling out of favor: think visiting an urgent care clinic vs. the purgatory of the ER. There are many other customer-centric resources emerging. I can now quickly schedule a routine screening visit or have an exam for a persistent cough, then pick up my prescription and some groceries at the same location. Increasingly, more and more complex medical needs will be treated in retail, community-based clinics.

Trend 3: Let The Data Speak

Most people want to live and die in their home. But somehow our healthcare practice moved away from physician home visits to office and facility-based care for even the most basic of medical procedures, with cost-effectiveness often used as justification. However, initial results from the Independence At Home (IAH) Demonstration launched by the Centers for Medicare and Medicaid Services (CMS) showed that recently implemented primary care services provided to elderly citizens with multiple medical conditions in their own home resulted in a 32% cost savings in multiple cases and increased patient satisfaction.

The potential savings for providers (one participating non-profit received an incentive payment of over $1 million in the first year) increase the chances that this trend is here to stay. The opportunities for entrepreneurs are abundant, especially when the emphasis is on reimbursement that increases overall health and wellness. There are multiple other examples in related markets, especially substance abuse treatment, which remains a bastion of old traditions based on undocumented results.

Trend 4: Health Lies Beyond Integration

One of the most challenging imperatives within the marketplace is the attempt to fully integrate all areas of healthcare, especially chronically underfunded services like behavioral health and substance abuse intervention. This has spurred healthcare reform legislation, along with the a major expansion of treatment facility development and acquisition activity (driven in part by new reimbursement opportunities. Some argue this makes enormous sense — but there may be a need for more long-term thinking.

Given the new consumerism, a healthier aging population, and the preceding trends, these types of strategies may focus too strongly on integrated behavioral healthcare, not fully integrated healthcare itself. For example, co-location of services for separate behavioral healthcare and primary care practices does not guarantee integrated healthcare. When the service/outcome data is of good quality, reviewed jointly, and then used to guide a unified implementation of healthcare intervention, we will approach true integration.

This is such a new area that the ultimate healthcare integration model has yet to be fully implemented. Regardless, technology-enabled options that improve service and outcome data analytics will accelerate this development, offering excellent investment opportunities.

In placing healthcare at the head of its Top 5 Industries for Disruptive Growth in 2015, Inc. 5000 noted that we spent $2.9 trillion in 2013 on healthcare services and products. Investors pay heed: There is pent up innovation energy in healthcare. We’re still early in this game.

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