We believe that prioritization is essential to understanding the state of healthcare. There’s a lot of noise in this industry—demographic shifts, emerging competitive threats, policy changes, clinical and technological innovations, and more. That makes it difficult to discern what’s truly meaningful and to separate the “signal” from the “noise.” And that's why we begin our research each year by first identifying meaningful (if granular) signals—data points, dates, and developments. From that curated set of signals, we’re able to distill a yet-smaller set of core “messages” about the present and future state of the industry. And from those messages, we converge on a feasible number of action steps for senior executives to prioritize in any given year.
Our team spent the month of January largely focused on the first step of that annual (and ongoing) research process: identifying the market signals we think are critical for 2023. Our next two posts will cover the 12 that we landed on, beginning with the six that we're watching in the policy and investment spaces.
What this signals: While the PHE does not formally end until May, the unwinding process will effectively begin sooner than that. And the PHE has had far-reaching implications for the healthcare industry that extend well beyond Medicaid. As the PHE unwinds, the federal government, state legislatures, and industry members themselves will face important decisions about what to keep (whether literally or effectively), and what to let go. Keep in mind: The end of the Medicaid continuous enrollment provision likely also signals the end of the pandemic-induced era of “peak insurance”. While many individuals facing dis-enrollment (largely children and young adults) will be eligible for re-enrollment in Medicaid or other forms of insurance, historical precedent suggests that many will instead become uninsured. A worsening economy would also lead to declines in employer-sponsored coverage. In other words: there’s every reason to expect the uninsured rate to increase in the coming year.
What it doesn’t mean: That there’s a sudden Medicaid cliff approaching. Declines in coverage are likely to be gradual, and highly variable by state.
What this signals: That the era of drug price controls has (finally) begun. After years of effort on the part of multiple administrations, the Inflation Reduction Act has advanced what we believe to be a meaningful reform to drug prices. What it doesn’t mean: That drug prices will decrease unilaterally. In an effort to protect revenue (and the R&D pipeline), manufacturers are likely to raise list prices where possible, and potentially to leverage larger price increases on employers in the face of tighter controls on the Medicare side.
What this signals: This is a non-healthcare policy that would have significant implications for the healthcare industry, specifically for physicians, who have historically been prohibited from transferring their patient panels when switching employers. Were this to stand, it would be yet another layer to the growing scrutiny on vertical consolidation and physician aggregation in healthcare.
Keep in mind: As written, the proposed rule exempts not-for-profit organizations. So not-for-profit health systems—who employ the majority of physicians as of 2022—would not be subject to the ban.
What it doesn’t mean: That vertical consolidation is likely to slow anytime soon. The rule is expected to face an uphill legal battle. Still, we think it’s an important signal of what to expect in the future, and what policymakers have their eye on.
What this signals: Pandemic-fueled investments are swiftly being right-sized following the explosive growth seen across 2020 and 2021. We would argue that a good dose of that investment was the result of an excess of enthusiasm to begin with. We never bought, for example, the argument that Skilled Nursing Facilities would be displaced by home-based care providers amid a surge in patient preference for aging in place (if consumer preference were the rate-limiting factor on SNF occupancy, they would have fallen by the wayside long ago).
Keep in mind: Deal value in the home health space was actually up, due to the CVS Health-Signify Health and UnitedHealthcare-Landmark Health mega-deals.
What it doesn’t mean: That the home-based care and behavioral health markets are collapsing. Utilization levels are still well above pre-pandemic norms (in some cases, by many orders of magnitude).
What this signals: That investors are increasingly looking to align business opportunities with areas where they can make meaningful progress on worthy problems. Women's health and more specifically, maternal health, emerged as major areas of interest at both HLTH and the J.P. Morgan Healthcare Conference, with investors expressing enthusiasm over the convergence between a commercial opportunity and a chance to make headway on a major health equity issue.
What it doesn’t mean: That investors will be able to successfully marry these two ambitions. In fact, some of the hottest areas of women's health investment largely cater to wealthy consumers—meaning they could actually widen the equity gap.
What this signals: The investment landscape is tipping in favor of larger, established players, who see an opportunity to pick up smaller companies who are increasingly desperate to sell.
What it doesn’t mean: That the era of the mega-merger is over. Interest rate hikes are making large deals, which require significant borrowing from buyers, much more expensive. But this effect will be temporary, and buyers are still selectively pursuing large deals where they’re strategically relevant (see signal #4 above).
We'll be back next week to talk about the six signals we're watching from the healthcare workforce and patient base.
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