Predictions for US Healthcare 2022
Or 'my hot takes on everyone else's hot takes on healthcare'
tl;dr -
US healthcare is a >$5T industry; over $4T is locked in traditional healthcare spending (i.e. reimbursement by third-party payers, government spend, etc.) while the remainder is an estimate on ‘consumer healthcare’ spend (i.e. gym memberships, dieting, health & wellness, etc.)1
US healthcare is currently unsustainable2 given how the high per capita cost has not resulted in better healthcare outcomes vs. other comparable economies3
Much of this is driven by inefficient allocation of healthcare spend - a multi-factorial phenomena caused by various factors including (but not limited to) value capture by intermediaries4, increasing bar for transformative life science innovation5, opacity regarding cost of care6 (including cost to patients7), and focus on patient populations & unmet needs with guaranteed ROI vs. contributors to healthcare spend8
Solving for inefficient allocation of spend is the root ancestor of all solutioning in US healthcare, manifesting primarily as a) freeing up resources by spending less on inefficient solutions; or b) creating new healthcare products & services that can result in better healthcare outcomes
Recent years - especially 2021 - have seen an overwhelming increase in available capital & funding for new solutioning in healthcare9; in tandem, budget holders (i.e. payers, employers, etc.) have looked to ‘free up’ resources by pushing greater cost burden onto patients10 & reexamining reimbursement rates for various products & services11
2022 represents a battleground year as the system at large grapples with understanding what innovations - i.e. life science innovations, care delivery models, etc. - should be paid for & what should not; particularly for new digital health offerings where outcomes data is scant12
***
I want to set some expectations here - healthcare is complex and is composed of many interlocking subsectors. Dynamics that occur at the life science level - like pharma / biotech - will differ from those at the provider level, and so forth. Yet, all of these changes stem from that central root cause - how can we ensure future sustainability of the US healthcare system because, well, without a healthcare system there is no market to enter. That being said, to keep this digestable, I’m going to call out one 2022 trend per sector (even though I recognize there are many more) - and throughout the year, I’ll revisit my thoughts to see how accurate I am. Without further ado, let’s begin.
Pharma / biotech 2022 Trend - increasing bifurcation between innovation-forward & commercial-forward operating models
With the cost of life science innovation decreasing over time - especially with the advent of new discovery tools13 and potentially more agile regulatory processes14, the cost calculus on where should you put your money as a pharma CEO is changing. For many years, pharma has focused the majority of its spend on commercial (i.e. marketing & market access) vs. R&D15 (and if you don’t believe, go and calculate R&D vs. commercial as a percentage of sales in any 10-K yourself) because a dollar in commercial is more closely attributed towards a dollar earned than a dollar fueling the risky bet of uncovering a new therapeutic16. With new tools, however, this ROI equation may increasingly being to favor R&D vs. commercial, especially as payers show no sign of stopping in continuing to exert downward price pressure on options they perceive as ‘incrementally’ better. The end result? A strategic choice that pharma & life sciences now face between maximizing their operating models for R&D - including sourcing & identifying M&A deals - vs. commercial. My prediction is that we will see the more digitally enabled companies - Novartis, Lilly, Amgen, Genentech, etc. - continue to gear their operating models to greater R&D productivity while smaller companies will gear towards commercial excellence. This ‘operating model purity’ is something already hinted at with the upcoming break-up of J&J17 and has been evidenced previously by companies like Pfizer.18
Payer 2022 Trend - continuing integration with provider & care delivery to create a full healthcare stack
Payers serve as the budget holders and chief controllers in directing healthcare spend. Outside of models like Kaiser - who own their own HCPs & care delivery channels19 - the separation between payers & providers (including health systems, private practice, etc.) has resulted in a great deal of conflict. Many companies have built their entire businesses on the ‘space’ between payers & providers (including PBMs!) but misaligned incentives continue to plague the US healthcare system.20 This has begun to change as payers realize that one easy way to align incentives is simply to own everything, resulting in previous major mergers & acquisitions (i.e. CVS buying Aetna21, Cigna merging with ExpressScripts22, etc.). We expect this to continue - particularly regarding new technology such as telehealth23, innovative platforms24, and innovative providers.25
Digital Health 2022 Trend - continuing market consolidation, hesitancy in 2022 funding
One can view the massive wave of IPO & SPAC activity in 2021 as a sign of confidence for digital health companies26; however, the pragmatic view is that this is a sign of weakness in the marketplace27. Weakness in digital health - specifically, the focus on B2C-forward followed by a transition to reimbursement either via employer or traditional payer markets - has always been present, especially evidenced by Livongo allowing itself to be acquired by Teladoc28 just a year after a hugely successful IPO with strong revenue figures (Teladoc, for the record, has been performing pretty poorly29). What all of this suggests is that 2021 is the year of realizing ROI for digital health investors, leaving behind companies that now are at the mercy of the public markets with potentially unrealized business models. Many of these companies have failed to build organs for sustainability - focus on clinical outcomes, strong relationships with payer stakeholders, etc. - which decreases their ability to differentiate their offering & maintain success. We see a 2022 extinction event for digital health as companies die off, merge to survive, or are snapped up by bigger fish looking for a good deal - and as a result, we also predict hesitancy in funding digital health companies moving forward. Companies that succeed in 2022 are most likely ones who focus on generating evidence of clinical benefit & successfully integrate into the current reimbursement system as opposed to relying solely or primarily on B2C.
Provider 2022 Trend - Continuing commoditization of primary care
For years, we’ve seen primary care increasingly being transformed into a commodity offering30 - and that trend is likely to continue into 2022. While this is often framed positively as ‘opportunities for HCPs to become more independent,’ this also exposes HCPs to risks that your Uber driver has already been facing for a while regarding gig economy work - such as inconsistency in revenue generation & lack of (ironically) health insurance coverage. We’ve already seen hints of the impact of uberization in 2021, as evidenced by this fantastic Forbes article on mental health company Cerebral - and as providers look to capture more value with declining reimbursement rates & continuing COVID-19 disruption, this is likely to continue. We’ve already seen resultant trends from this commoditization - for example, the rise of direct primary care models31 but it’s still unclear what the endstate will be.
Patient 2022 Trend - Reduction in consumer healthcare spend; will require helping patients understand & realize value of products / services to gain adoption
With an on-going pandemic, disruption due to the virtualization of work, and continuing wealth inequality, we predict a decline in discretionary spend from patients on healthcare outside of traditional services. This means that anything perceived as ‘health & wellness’ rather than medical care - your WeightWatchers, your gym memberships, and even your OOP mental health start ups - will face headwinds from weakening consumer demand. Consumers will likely grow more cautious with their spending, meaning building greater degrees of trust & creating certainty that a healthcare intervention will meaningfully improve their lives will be paramount balancing overall business sustainability, creating patient value, and reducing risk due to macroeconomic uncertainty.
There you have it - five trends in US healthcare! Hope you’ll all join me in a few months at the half-year mark when I revisit these trends & see how well I did characterizing the future of US healthcare. Until then, there’s still a great deal more to write on & explore, so I’ll see you next time!
-WY
PS: Yes, that Oracle x Cerner fanfiction is still coming. Promise.
https://www.modernhealthcare.com/opinion-editorial/healthcare-unsustainable-trajectory-requiring-renewed-push-transformation
https://www.commonwealthfund.org/publications/issue-briefs/2020/jan/us-health-care-global-perspective-2019
https://pubmed.ncbi.nlm.nih.gov/31674806/;
https://ecommunications.thinkbrg.com/44/2328/uploads/brg-pharmaceutical-supply-chain-2022.pdf?intIaContactId=riKu01DfjODk4QVpT0YeKQ%3d%3d&intExternalSystemId=1
https://www.bps.ac.uk/publishing/blog/september-2018/drug-discovery-challenges-now-the-low-hanging-frui
https://pubmed.ncbi.nlm.nih.gov/27392753/
https://thehealthcareblog.com/blog/2022/01/05/simple-bills-are-not-so-simple/
https://www.healthcaredive.com/news/digital-health-funding-record-291b-2021-rock-health-bubble-2022/616980/;
https://www.biospace.com/article/life-sciences-funding-remains-strong-as-2021-winds-down-/;
https://www.beckershospitalreview.com/innovation/hospital-innovation-skyrockets-in-2021-10-notable-initiatives-from-northwell-cleveland-clinic-more.html
https://www.kff.org/health-costs/issue-brief/americans-challenges-with-health-care-costs/
https://www.beckershospitalreview.com/payer-issues/new-jersey-hospitals-cut-contract-with-unitedhealthcare.html
https://www.biopharmadive.com/news/drug-rebate-net-price-decrease-pharma-report/596227/
https://www.brookings.edu/blog/techtank/2021/10/05/using-digital-health-to-improve-health-outcomes-and-equity/
https://www.exscientia.ai/
https://www.fda.gov/regulatory-information/search-fda-guidance-documents/considerations-use-real-world-data-and-real-world-evidence-support-regulatory-decision-making-drug
https://www.ahip.org/new-study-in-the-midst-of-covid-19-crisis-7-out-of-10-big-pharma-companies-spent-more-on-sales-and-marketing-than-rd/
https://www.cbo.gov/publication/57126#:~:text=Only%20about%2012%20percent%20of,than%20%242%20billion%20per%20drug.
https://www.cnbc.com/2021/11/12/jj-shares-jump-after-ceo-says-health-giant-plans-to-break-up-in-wsj-report.html
https://www.pfizer.com/news/press-release/press-release-detail/pfizer_announces_closing_of_joint_venture_with_glaxosmithkline_to_create_a_premier_global_consumer_healthcare_company
https://about.kaiserpermanente.org/our-story/news/public-policy-perspectives/integrated-care
https://totemsolutions.com/benefits-consulting/patients-vs-healthcare-the-systems-misaligned-incentives/#:~:text=Soaring%20expenses%20in%20healthcare%20have,on%20health%20care%20by%202027.
https://cvshealth.com/news-and-insights/press-releases/cvs-health-completes-acquisition-of-aetna-marking-the-start-of
https://newsroom.cigna.com/Cigna-Completes-Combination-with-Express-Scripts-Establishing-a-Blueprint-to-Transform-the-Health-Care-System
https://www.forbes.com/sites/brucejapsen/2021/02/26/cignas-evernorth-to-buy-fast-growing-telehealth-provider-mdlive/?sh=237bd2c612fe
https://www.fiercehealthcare.com/tech/unitedhealth-group-s-optum-to-buy-change-healthcare-for-nearly-8b
https://press.humana.com/news/news-details/2021/Humana-Completes-Acquisition-of-Kindred-at-Home/default.aspx#gsc.tab=0
https://mercomcapital.com/digital-health-ipo-boom/
https://www.statnews.com/2021/12/16/health-tech-digital-ipo-spac/
https://www.fiercehealthcare.com/finance/teladoc-finalizes-blockbuster-deal-livongo-less-than-three-months
https://www.nasdaq.com/articles/investors-might-be-losing-patience-for-teladoc-healths-nyse%3Atdoc-increasing-losses-as
https://www.fisherphillips.com/news-insights/healthcare-and-the-gig-economy-a-marriage-of-risk-and-reward.html
https://www.dpcare.org/
Great article describing the trends in healthcare. I want to also through an idea for your research for your future update. I believe there is this issue of payers controlling the cost. There is a need for large providers such as health systems who have the greatest visibility to direct patient care to directly receive payment from the government rather than through payers. As it stands now, it is an unlevel playing field where payors make the profits while majority of the hospitals operating with little to no margins