January 29, 2020
In a welcome change of pace for the J.P. Morgan Healthcare Conference, the clouds parted and the sun shone down on San Francisco and some of the brightest minds in healthcare. This year, we decided to poll these innovators, investors, entrepreneurs, and business leaders to get a pulse on the industry. Here are some of the findings and our takeaways on them:
1. Big Tech in Healthcare: Amazon Continues to Conquer
Big Tech has carved a path into consumers’ lives, enabling them to drive adoption of relevant healthcare innovations.
However, Amazon, with 60% of the vote, was named the Big Tech company most likely to meaningfully advance healthcare in 2020, followed by Google (22%). Here are some of the notable ways Amazon is advancing the industry:
o Amazon Web Services (AWS) is making cloud infrastructure a utility for healthcare start-ups and incumbents. Like many Oak HC/FT portfolio companies, Cerner recently named AWS as its preferred cloud provider for strategic innovation, sending a clear signal of support to the market.
o Amazon is a distribution giant, but its acquisition of PillPack, in 2018, beat out traditional retail giants like Walmart, bringing the tech company one step closer to creating an Amazon Prime for healthcare.
That said, we shouldn’t count out Microsoft, Google, and Apple. Microsoft’s installed base across healthcare and Azure, Google’s Cloud AI and marketing prowess, and Apple’s iOS and ability to get devices into the hands of patients and providers alike all position them favorably in the future.
We should expect these players to continue to entrench themselves in healthcare in 2020, but Oak HC/FT’s bet is on Apple as the dark horse. Reaching consumers — anywhere they are — is crucial to success in healthcare.
2. Controlling Costs of Healthcare: Fee-for-Service and Legacy Technology Paralyze the System
Fee-for-service (FFS) and financial alignment is the biggest impediment to controlling healthcare costs, according to more than 60% of respondents. We, at Oak HC/FT, agree that FFS is holding us back due to the misalignment of incentives, but our recent conversations with the Centers for Medicare & Medicaid Services (CMS) have us feeling hopeful for what’s to come.
In our view, legacy infrastructure tied to electronic medical records (EMRs) and payers’ claims systems, which were initially designed for FFS, are bigger constraints. Too often we hear of providers being frustrated with the time it takes to enter data into EMRs, and payers being equally discouraged by the challenges of creating and monitoring programs due to claims system limitations. Accessing data without approval from the EMR vendor is equally challenging, as discussed in this recent alarming article.
We see a tremendous opportunity to create an intermediary between legacy systems and modern user experiences. The financial services industry has been navigating this chasm over the last three decades, and healthcare is on a similar path. Some of the companies leading the charge in addressing these administrative workflow issues include Notable, Olive, and OODA Health.
3. Lowering Healthcare Costs: Full Risk Care Models are the Solution of the Future
One third of experts polled believe global cap and full-risk primary care has the most promise for reducing healthcare costs in 2020. Over the decade, CMS and CMMI have shown remarkable ability to drive value-based care adoption across healthcare regardless of the administration in power. This is precisely why we are looking forward to the ideas that Oak HC/FT alum Brad Smith (Co-Founder & CEO of Aspire Health) will bring to the table as Director of CMMI.
Here are some key initiatives that we believe will make an impact in the years ahead:
o Direct contracting entities: An evolution of the ACO model, allows for broader range of physician groups to contract directly with CMS to take risk on historically fee-for-service beneficiaries. This is a massive win for primary care models looking to take risk on existing FFS patients.
o Value-based insurance design: Affords qualified Medicare Advantage (MA) plans flexibility to offer a broader range of benefit design options tailored to address specific chronic conditions or socio-economic needs.
o Expansion of telehealth coverage: Starting in 2020, Medicaid Advantage (MA) plans offer broader coverage for telehealth care vs. traditional FFS Medicare, increasing patient access to innovative hybrid care delivery models tailored to their health needs.
o Expansion of supplemental benefits: Starting in 2020, MA plans can offer non-primary health related benefits, such as transportation and food, to the chronically ill. This is a huge nod to the role of social determinants of health (SDoH) in impacting total healthcare costs.
o Medicaid section 1115 waivers: An equally important development to supplemental benefits in MA, these waivers provide expanded funds and flexibility for states to design innovative programs (incorporating SDoH needs) for their most vulnerable populations.
4. Over-Invested, Over-Hyped: Employer Benefits and Retail Healthcare Take the Lead
Employer benefits is an over-invested category of healthcare, according to nearly 28% of respondents. Other categories include retail healthcare (22.2%), Medicare Advantage (18.5%), care-coordination (16.7%), and telemedicine (14.8%).
Let’s unpack this a bit…
o Employer benefits started the first wave of healthcare IPOs (including BenefitFocus and Castlight, and more recently Teladoc and Livongo, and soon to be One Medical Group), because employers were motivated buyers directly impacted by rising healthcare costs (and the fact that they have smaller populations to insulate from cost variability compared to national insurers). However, the flood of competing solutions paired with difficulty to gain scale across any one employer population has made it harder for start-ups to grow efficiently.
o Medicare Advantage is a very different bet. Despite UnitedHealthcare and Humana leading the charge with increasingly vertically integrated models, massive investments in start-ups like Devoted Health and Bright Health will lead to Medicare Advantage eventually overtaking Medicare FFS. We see plenty of greenfield opportunity to create choice for consumers, and if CMS’ recent signals are an indicator, there is plenty of runway for every player to innovate and thrive as the senior tsunami threatens to drown our healthcare system.
o Care-coordination & telemedicine, despite being disparate categories, are key components of a broader full-risk strategy. Any company looking to successfully manage risk and reach consumers in a time of need will require an integrated solution with both capabilities to succeed. Teladoc has been a bell-weather in the telemedicine space, but don’t count out other players offering similar capabilities leveraging their own providers.
These trends clearly show: healthcare remains wide-open for innovation and investment.
5. Biggest Hope for the Future: The Next Generation of Entrepreneurs
While there are many reasons to be hopeful for the future of healthcare in the U.S., the fact that respondents believe that next-generation entrepreneurs are the most enabled to enact major changestood out to us the most. We love seeing entrepreneurs with cross-industry experience bring their key learnings to the table to help solve issues healthcare has long ignored, like user experience.
Healthcare has a bright future, and a lot of it is tied to innovators driving change from their dissatisfaction with the status quo. Our annual trek to JPM is a great reminder of this, and this year’s conference left us more excited than ever to partner with the next generation of bright minds.