November 28, 2022
Now in its fifth year, HLTH has unequivocally established itself as the “can’t miss” conference in the healthcare industry. Twenty members of the Oak HC/FT team joined the other 10,000+(!) attendees converging on Las Vegas to discuss, debate, and predict the biggest themes in healthcare.
Optimism is inherent at a conference aimed at “transforming the next decade of health” and our team certainly felt that enthusiasm as we listened to and met with stakeholders across the industry. The best businesses in our industry continue to increase access to care, improve outcomes, and lower costs – and are doing so at greater scale than ever before. Meanwhile, there is no shortage of ambitious entrepreneurs aiming to make an impact on this $4 trillion industry and investors continue to recognize and support those companies poised to take a leading role (in that vein, kudos to DispatchHealth and Maven, two Oak HC/FT portfolio companies who announced significant financings during HLTH!)
As always, the topics at HLTH spanned the gamut of healthcare. The journey towards value-based care was once again front and center. It was heartening to see the results demonstrated by several innovative companies (many of whom we proudly count as part of the Oak HC/FT portfolio) as they drive clinical savings and better manage risk while delivering incredible care to patients. Yet, a shifting regulatory landscape and the failure of some companies to deliver on their initial promises put even more onus on the leading players in the space to continue to produce strong results. We’re especially curious to see what the newest entrants will bring to the market, as they learn from some of the challenges of the past.
Another common topic of discussion centered on the best ways for innovative solutions to actually reach patients – particularly when it comes to the pros and cons of the employer channel, most of whom find themselves struggling to sort through the bevy of vendors and how to best serve their populations. As we heard from both benefits leaders and vendor CEOs, even when solutions are in place, friction still exists when it comes to employee adoption and awareness. The encouraging news is that both sides of the equation seem committed to solving these challenges with the shared goal of improving physical and mental health for the employees being served.
However, the most prevalent topic of conversation this year was the state of the market itself. Since HLTH 2021 in Boston, the financial markets have been flipped upside down and the impact of that has rippled throughout our industry. Digital health companies – particularly those founded over the past few years – are facing questions they haven’t been asked before and no one can deny there is a shift in the mood across the market. Panels like “Unicorns Aren’t Real” and “Doom or Boom? Digital Health’s Financial Future” addressed these concerns head on.
With that in mind, we wanted to share our perspective on what we heard at HLTH and how we think about the market heading into 2023:
Sustainability is the new growth
As we head into 2023, the new north star for companies should be to demonstrate sustainability. In 2009-2011, on the heels of a low growth environment during the Great Recession, different metrics were applied by investors to analyze business quality: companies with enduring retention rates, stable gross margins, and even single-digit growth rates were deemed “high quality.” We are in a similar situation today, where the companies that can demonstrate long-term durability will emerge as the winners over the next several years. The business models able to stand on their own two feet – rather than be propped by access to cheap capital – are the ones that the marketplace will recognize as the long-term successes.
Many (if not most) investors, CEOs, and entrepreneurs we spoke with shared this sentiment. We’ve seen countless businesses execute painstaking pivots and restructurings to reduce burn and solidify their footing. However, this approach is certainly not a consensus view and many companies – some more justifiably than others – remain aggressive. One CEO we spoke with said he has been telling his leadership team, “If my daughter can figure out how to ensure her lemonade stand makes money, so can we.” While another founder said his message to employees is, “See that Pizza Hut down the street? It’s profitable…but it’s not special. Let’s do something special.” Likewise, for every CEO that told us they expected to double or triple revenue next year, another conversation would cite public company earnings calls that noted softening demand and hazy guidance for next year – a sign that 2023 could be much more difficult than many are expecting.
Stay nimble and maintain flexibility
The key for all companies in 2023 will be to stay nimble and maintain flexibility. Every company’s budget and forecast should have levers that can be adjusted to either pull back or lean into spending and growth, depending on the continued shifting winds of the micro and macro economy. Management teams should have predetermined checkpoints but should be prepared to reassess their key metrics if needed. 2023 will present less margin for error than we have seen over the past decade though healthcare has proven to be a resilient sector, management teams need to be prepared for a range of scenarios this coming year with a primary focus on maintaining operational and financing optionality.
Investing in impactful and enduring companies
With this context in mind, what does it mean for our team at Oak HC/FT? Most importantly, we are unequivocally open for business – we have been through economic cycles before, and we are unflinchingly focused on the long-term.
Our team continues to believe in investing behind tremendous growth opportunities for the enduring companies who are changing healthcare for the better. Great businesses will separate themselves from the rest of the pack during this cycle and we remain eager to partner with them. The companies who are the most thoughtful, creative, nimble, and deliver clear ROIs for their customers will continue to win out. Oak HC/FT is committed to partnering with entrepreneurs that will transform healthcare and we will continue to support our portfolio of companies as they navigate the good times and the bad. The coming year will test our industry’s resilience, but we are confident that the thousands of innovators, providers, and leaders across healthcare are more than up for the challenge.