Resilience (noun): the capacity of a person or system to maintain their core purpose, adapt, and grow in the face of a dramatically changed environment.
If there is anything that our two-year journey with COVID-19 has shown us, it is that the global healthcare ecosystem is highly resilient. During this volatile period triggered by the pandemic, the healthcare industry experienced its own volatility, from capacity constraints, provider burnout, financial losses, to ever-changing regulatory environments. Fueled by these new realities and the steadfast commitment from leaders in healthcare to reduce costs, improve quality, and improve the individual experience, new strategies reshaped healthcare delivery:
- Expansion of virtual health
- Shifting site of care to the community and home settings
- Increased investment in managing high cost spend categories
- Evolution of the supply chain to create more flexibility
- Increased and ongoing investment into mental and behavioral health services
The insights and perspectives from this disruptive and transformative period in healthcare create the backdrop for the coming year. Looking to 2022, we anticipate several key themes and trends will shape the healthcare industry, investing agendas, and M&A activity across healthcare:
Theme #1: Evolution of Risk-Based Primary Care Models
- Evolution of risk-based primary care models
- Cost control for high-cost drugs and expensive medical procedures
- Increased urgency to address behavioral health shortfalls
- Unlocking the troves of healthcare data to improve outcomes
There is a long-standing question in healthcare: how will the shift to new risk-based models empower primary care providers and impact the settings of care? A recent TripleTree Market Insights LIVE session
rovided some perspective on this topic, and we believe 2022 represents a year of momentum and opportunity for primary care across several important dimensions:
While not a new phenomenon, we are seeing accelerated interest and investment in models that enable primary care providers to assume and be rewarded for managing patients more holistically in support of value-based contracting.
These all-inclusive approaches to managing patient care are used heavily to meet the needs of senior and Medicare Advantage populations; however, and despite its ability to support high-risk patient outcomes, an underwhelming number of primary care physicians leverage these practices. A cornerstone to these groups is taking an integrated care team approach not only focused on primary care, but with dedicated specialists for pharmacy, behavioral, social, and chronic condition management. Technology supports care gap identification and workflow to deliver population management interventions on high-risk patients with the goal of demonstrated outcome improvement. Beyond Optum
, companies like Oak Street Health
, One Medical, Privia Health
, Crossover Health, Clinical Care Medical Centers, and Bright Health Group’s NeueHealth
are addressing primary care in senior, commercial or specialized care segments. Since the number of Americans expected to suffer from a chronic condition is expected to reach 171 million by 2030 (or 48% of the population), the healthcare playbook remains wide-open for the continued growth of solutions that manage chronic conditions. Further, payers have shown willingness to support physicians in addressing chronic conditions, with the goal of enabling better care, preventing, or delaying disease and unnecessary expensive admissions. Taking this more holistic approach has demonstrated benefit in reduced hospital admission/readmission rates, reduction of ED visits, and much higher patient satisfaction.
Moving beyond office-based primary care and extending care models into the home
has been a recent area of focus, and an area where we expect continued momentum in 2022. With hospitals representing one of the most expensive care settings for a patient to receive care, the transition to a home setting can significantly drive down costs and enable care to commence in a more holistic environment for the patient.
This shift is further supported by the networks of caregivers, Remote Patient Monitoring (“RPM”) capabilities, and personalized home-based care plans that promote positive patient outcomes through more tailored treatments and family involvement, which allow care to commence without the need for more expensive healthcare professionals to be onsite at all times. Each of these solutions allow patients to remain in a home setting with 24-hour remote care, providing comfort to patients while also combating Social Determinants of Health (SDoH).
Community-Based Clinical Resources to Address Clinician Shortages. Clinician shortages have been lingering in the background of the healthcare ecosystem for years, and were only exacerbated by the pandemic, provider burnout and general labor shortages. One estimate predicts that by 2023, the demand for healthcare will outstrip supply – by more than 38,000 physicians.
Pricing Challenges Associated with Specialty Pharmaceuticals.
However, we are beginning to see the impact of eased regulations that are helping address this shortfall. The evolution of the neighborhood pharmacy as a convenient destination for clinical care is one example of this shift, helping close the patient and primary care provider gap while still providing quality care and outcomes. This is an exciting opportunity within the healthcare industry, as it further validates non-traditional locations of care as an opportunity to address the medical labor shortage crisis. In fact, the marketplace is already witnessing large investments from major pharmacies to expand their role and leverage their retail footprint. One of the larger examples from 2021 includes Walgreens Boots Alliance invested $5.2B in VillageMD
, a provider of full-service primary care practices, to expand value-based primary care. The VillageMD investment shows the emphasis on providing alternatives to traditional care settings, easing the pressure of the physician shortages. CVS, too, is driving this trend with significant investments in its MinuteClinic and Health Hub store strategy. With 95% of Americans living within 5 miles of at least one pharmacy, this march towards community-based care has the opportunity to transform how we all experience healthcare.
Theme #2 – Cost Control for High-Cost Drugs and Expensive Medical Procedures
In recent years, we’ve observed the explosive growth of specialty drug cost trends that not only increased focus on access, but also on adherence, ongoing condition management, and the shift to lower cost infusion centers. As we think about the coming year, we expect heightened focus on cost controls, fueled by several important market realities:
Specialty pharmaceuticals are a growing and challenging market igniting a lot of interest in medication adherence. Specialty pharmaceuticals represent 75% of the drug development pipeline, while also representing close to one-third of total pharmacy revenues (Drug Channel Institute 2020). However, momentum driving this specialty pharmaceutical trend does not come without any deterrents; specialty drugs like Aduhelm—Biogen’s latest Alzheimer’s drug—are one of many examples whereby the benefit is packaged with a hefty price of $56k p.a.
, driving significant Medicare Part B premiums in 2022, prompting a whole host of new challenges.
Adherence is Not That Simple.
Typically, adherence rates of 80% or greater are needed for favorable therapeutic outcomes. However, it is estimated that adherence to chronic medications lags behind at around 50%
and uncertainties related to the pandemic are working directly against healthcare professionals’ best efforts to promote adherence. There remains significant concern over whether the pandemic amplified feelings of patient hopelessness and reduced the desire to adhere to prescription therapies. We anticipate seeing a continued investment in platforms that promote adherence by eliminating challenging logistical aspects of these treatments.
Continued Focus on High-Cost Procedure Management.
With cost of healthcare procedures continuing to increase into 2022, we expect to see a greater emphasis on risk sharing and guaranteed outcomes, shifting risk onto providers. On this topic, it is likely we will see reform across the board working to improve benefit management policies and compliance for large spend categories, such as imaging and high-cost centers for payers like MSK and Oncology. Momentum in this space is continuing to find traction; it is anticipated that by 2027, almost 50% of all Physical Therapy contracts will include a value-based care (VBC) structure, as compared to 28% in 2021 (see graphic below). As we enter 2022, we expect to see the industry become increasingly focused on the value provided to patient and procedural success rates.
Location of Care and their Disproportionate Impact on Medical Claims. As noted earlier in this blog, the shift to home-based care is becoming a powerful tool to help bend the healthcare cost curve. One example of this powerful new tool is the sharp contrast in outpatient versus at-home infusion treatments. Research has shown that at-home infusion claims can be up to 34% less than their hospital outpatient counterparts, suggesting at-home care may serve as an outlier in managing a variety of high-cost treatments.
As we think about the near-term, this shift will only continue as reimbursement tailwinds, growing hospital-acquired infections, technology advancements, and an increasingly older population are each fueling the push towards at-home healthcare. We are excited to see this momentum as an important tool to manage growing healthcare costs.
Theme #3 - Increased Urgency to Address Behavioral Health Shortfalls
In a recent blog
, we shared perspectives about the growing importance, focus, and investment activity impacting the behavioral health sector. In fact, 2021 finished out as another banner year for behavioral health transactions, with several key transactions highlighting how the market has addressed the accelerating behavioral health crisis. The following transactions are just a subset of a very active behavioral health category in 2021:
- Therapy Brands, a behavioral health software provider was acquired by KKR (April 2021) highlighting the need to a robust IT infrastructure to support behavioral health businesses
- Community Psychiatry Management’s Acquisition of MindPath (May 2021) – Acquisition sought to address the Pandemic’s negative impact on quality mental health treatment services
- Cerberus and Abry Partner’s Investment in Lighthouse Autism Center (June 2021) – Investment highlights the market’s need to scale up within the autism market and serve children and families in need
- Ginger and Headspace came together (August 2021) in a $3B digital behavioral health mega transaction
- CareSource’s Acquisition of The Columbus Organization (October 2021) – Acquisition strengthens the industry’s care coordination services for individuals with intellectual/ development disabilities and behavioral health challenges
As we think about the coming year, it is becoming more and more apparent that COVID-19 will continue to challenge the resiliency of the world’s health systems and create an ever-present detriment to mental health. We expect this ongoing situation will fuel continued interest in the behavioral health sector, with the following forces shaping activities in 2022:
Pandemic Accelerating the Behavioral Health Crisis.
The Pandemic has caused an estimated 53 million new cases of major depressive disorder and 7 million new cases of anxiety disorders.
This increase in cases strains on society two-fold as it can lead to compounding mental health problems, such as increased rates of substance abuse or eating disorders. While the sheer increase in cases is staggering, they are not surprising for those in the mental health industry, where mental illnesses were among the leading causes of disability even before the pandemic. Even more alarming than the rapid increase in cases, is that the mental health physician shortage will expand to 6,500 professionals in the U.S. alone
, and less than 50% of those in-need receive treatment
Continued Investment in Several Behavioral Categories.
As an underserved chronic condition, several categories of mental and behavioral health have identified themselves as sectors that are poised for continued investment. We expect to see significant consolidation in 2022 and thereafter, as healthcare platforms and investors see the value in optimizing platforms across various sectors of this industry:
Virtual Care to Improve Access to Behavioral Health Resources.
- Substance Abuse – A study completed by the NIDA concluded that the estimated cost of drug abuse in the U.S. is more than $740B each year and growing. Drug overdose deaths have more than tripled since 1990, and “wonder drugs” like Narcan, which can prevent overdoses, only provide treatment to the US’s addiction symptoms, rather than the root cause of the problem.
- Autism – Autism Spectrum Disorder was declared one of the fastest growing developmental disabilities by the CDC, and diagnoses have grown to 1 in 44 children in latest studies. Assuming no increase in prevalence rates, this will reach an estimated annual economic cost of $461B+ by 2025. In a relatively defragmented market, we believe that significant room for scale and consolidation can take place.
In a recent blog
, we highlighted how the pandemic became the catalyst for new modes of behavioral health, including tech-enabled virtual solutions. This industry shift has put the power into the hands of the patient and is helping open access to behavioral health resources - a critical win as one-third of Americans live in mental and behavioral health “deserts” that lack sufficient professional coverage to support the population
. The previous mentioned Ginger and Headspace transaction is just one representation of accelerated interest in improving access to behavioral health. We expect to see this technology transformation continue in 2022, impacting the access, cost, and quality of behavioral health solutions across the country.
Finally, we are keeping our eye on other priority behavioral health care including outpatient mental health (Lifestance
, Refresh, MindPath Health, Nystrom & Associates and Happier Living
are examples), adolescent and school-based behavioral health support, especially considering COVID-19 impacts (FullBloom, Ascent Behavioral Health,
), and models that integrate primary care and behavioral health though a more holistic clinical and value-based approach (groups like Bluestone Physician Services).
Theme # 4: Healthcare Technology Market Evolution Accelerates to Meet New Care Models
While much of healthcare’s technology infrastructure was built to enable more efficient documentation of clinical information and the billing of procedures in a fee-for-service environment, significant investment will continue in 2022 to support the transition to value-based care models, improve transitions in care, and build-out community and home-based care settings to improve access and care support in these environments. Without these technology investments, it will be near impossible to evolve primary care models, improve healthcare outcomes while better controlling costs and supporting a more holistic care model including both physical and behavioral health.
Specifically, we are seeing significant interest, investment and procurement in multiple healthcare technology areas including:
- Data connectivity and integration
- Analytics focused on cost and quality improvement
- Clinical workflow improvement and care continuity, especially supporting patients in post-acute and home-based care settings
- Modernization of operational infrastructure and support for value-based contracting and payments
- RCM improvement and patient financial engagement
- Access to clinical and user-provided data for real world evidence and improvement to drug development and adherence
- Digital health, remote monitoring and virtual care infrastructure
- Patient access, navigation, engagement and a digital front door
2021 was a record year for healthcare technology investments and acquisitions we do not anticipate any slowing of interest and transaction volume. In fact, at the time of publication of this blog, Oracle has announced the largest healthcare technology transaction to date, with its pending acquisition of Cerner. While we see this as a major milestone for the industry, it is not that disruptive but rather signals a continued focus on investments required to evolve the HCIT market to solve healthcare’s large challenges.
These investments are allowing healthcare technology infrastructure to evolve to support the way payers, providers, consumers, drug companies and the supply chain interact with each other and strive to improve the overall experience and outcomes for patients and those that ultimately pay for care. These investments and the digitization of healthcare are leading to an explosion in healthcare data. The real opportunity for the ecosystem is to identify, integrate, and harness this data to create better treatments, better access, and a more personalized experience for all participants.
In short, we expect that 2022 will represent another year of continued innovation across the healthcare industry, driven by the realities of COVID-19 and fueled by the constant need to improve the access, quality, and cost of healthcare in the U.S. At TripleTree, we remain encouraged and excited about the industry’s resiliency and the ongoing quest to create a more effective healthcare system. Wishing you a healthy, happy, and prosperous 2022!