For Healthcare, This Time Really is Different

The challenges we face in American healthcare are so well known they almost require no introduction. Costs of American healthcare — now at nearly 18% of GDP, with estimates showing ~$3.5T spend on healthcare in 2017 alone — are currently as high as the outcome numbers are low, with the U.S. ranked last on the infant mortality, life expectancy, and overall health care outcomes. Rinse and repeat those statistics, add a dash of an industry full of entrenched players plus complex, fraught policies, and pessimism about the stagnation in the sector can definitely take the air out of a room.

But the truth is, there has never been a time with more cause for optimism. We are in the middle of major tectonic shifts in the American healthcare ecosystem, all of which have the potential to completely transform both the demand and supply side of the healthcare landscape in the United States. These shifts are creating a rare and powerful window for new entrants to define that landscape in the coming decade.

The era of the empowered consumer

There’s been talk about the shift towards consumer-centered healthcare for years. But this time really is different, due to the combination of two primary drivers: 1) increasing cost and 2) increasing expectations. On the demand side of the equation, consumers are paying more out of their pocket than ever before. Premiums and deductibles are rising, and employers no longer can or want to foot the whole bill. Healthcare insurance coverage now costs more than $20,000 for an average family of four, and the average family premium has increased 55% since 2008. That’s 2x as fast as workers’ wages, and 3x as fast as inflation. The average deductible has also increased, by 212% since 2008. The result of all this rising cost is that individuals will be incentivized, if not forced, to take more ownership in their healthcare decisions.

Add to that new consumer expectations. With instant access to more services than ever before on their phones, consumers are increasingly looking for on-demand solutions in the healthcare system in the same way that they use software to order a car, book a flight, or buy groceries. This new kind of healthcare consumer takes a greater interest in managing their care on a day-to-day basis, and actively looks to leverage new technology and health information. And they are already challenging the status quo by seeking care outside of a traditional hospital and doctor’s office.

In a way, this dispersal of medicine services out of the four walls of hospitals or medical offices is a “back to the future” moment. Before around 1940, house calls comprised nearly 40% of physician visits in the US. As medical technology advanced — along with urbanization and transportation — so did the incentives for volume-based care, eventually leading to healthcare being almost entirely confined to the four walls of hospitals and large health systems. By the 1980s, house calls made up less than 0.6% of care delivery.

That tide has turned again. Changing consumer demands have created an expansion of new care delivery models centered around easier access, lower cost, and a richer experience. This is actually one of the driving reasons behind the explosion of urgent care clinics in the US — which we now have more of (~7.7K) than ERs (~5.3K). Already, there is a range of entirely new ways to “see your doctor”: one survey showed that 60 percent of consumers with employer-based insurance have received care in an urgent care center, 25 percent in a retail health clinic and 11 percent by video visit. New entrants capitalizing in primary care — One Medical, Forward Health, Paladina, and others — offer a range of “on-demand” online services like same day appointment booking, immediate virtual doctor visits, accessible medical records, and prescription renewals. None of this is to say that healthcare will ever become as easy as ordering a pizza, but healthcare is already increasingly being offered at consumers’ fingertips, with consumers accessing medicine (or telemedicine) with a simple button.

Dissolving silos

The complex architecture of silos in the American healthcare system often feels intractable: many different stakeholders all acting in their own silo with disconnected incentives, often driving for volume and not value. But these silos are beginning to dissolve, creating a new opportunity to rethink how we deliver, pay, and experience high level care at a foundational level.

Let’s take the two classic silos between a payor and a provider. In a traditional “fee for service” system, hospitals and clinics might be incentivized for volume and not necessarily for the total cost of care and outcomes. But in order to better align incentives and address the gaps and fragmentation in care, we are beginning to see the lines between payors and providers start to blur. A few weeks ago, for example, Blue Cross and Blue Shield of Texas announced its plan to open ten “advanced primary care centers” in partnership with Sanitas, a global healthcare network of hospitals and clinics. This partnership creates a new value-based care delivery model that is takes a holistic approach to improving one’s health: from primary care, urgent care, lab and diagnostic imaging services, to wellness and disease management programs, these medical centers will accelerate the ability to coordinate care across one patient’s journey while reducing costs and improving outcomes.

Other effective models use tech to merge these two entities together seamlessly and at scale. Devoted Health, for example, an early stage Medicare Advantage company, describes itself as a “payvidor” (payor+provider) entity. Devoted Health uses software from Day 1 to plan, coordinate, and communicate with patients to enable a shift towards a more proactive delivery system for seniors. With systems like this, Devoted can deploy care teams directly to a loved one’s home at the first warning signs and before they deteriorate and need an expensive emergency visit to the hospital — which is obviously good for the patient, and good for the system too. The winners of this new world will be those who are focused on comprehensive, end-to-end solutions that win on outcomes, cost, and experience.

Clash of the Titans

Historically, established industry incumbents would look for ways to incorporate technology into their systems and workflows — ie, tech was a product to be purchased and implemented, often with less-than-ideal results. New entrants in the healthcare space are increasingly being built with technology at their core, with technology built into the DNA of the company — and with a consumer-centric sensibility. In some cases, these are technology incumbents that move into healthcare, like Amazon. In other cases those entrants are companies built from scratch with tech at inception in the healthcare space — tech-native.

Add to that retail giants who have the advantages of scale who see the enormous opportunity in dis-intermediating middlemen and can directly reach consumers. These new “non-traditional” entrants are creating increased competitive pressures across the board: payors and providers will face both accelerated pressure on margins as well as a customer base that will inevitably shop for superior user experiences at lower costs. This is again driving the creation new non-traditional alliances (e.g. Berkshire/Amazon/JPM). The CVS/Aetna transaction, for example, combined one of the nation’s largest retailer and pharmacy benefit managers, together with one of the largest health insurers. With over 10,000 stores and 1,100 minute clinics, this new entity hopes to become the “new front door to healthcare.” Imagine a world where Amazon can not only deliver your drug prescriptions to your front door (e.g. PillPack), but also provide subsidized telehealth services to Prime members. Or a world in which you could you see your primary care doctor in a Walmart store, while you shop for a new tire or groceries.

This is Our Time

We have reached a moment where the various stakeholders in the healthcare industry themselves all recognize that we are at a breaking point. Costs cannot continue to rise, outcomes cannot remain stagnant or fall, and political pressure will only continue to intensify. There is a perfect storm brewing — and, while it may be destructive, it can also revitalize a drought-stricken landscape. There has never been a bigger opportunity for entrepreneurs to build highly valuable companies. This time, the stakes are different.

We are in a time of great realignment in healthcare. Much will shift; there will be value creation, and value destruction. But above all, this is a moment to reimagine our healthcare system. What else might happen in American healthcare as a groundswell of innovation meets with a tsunami of change?

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