The Future of Healthcare is Simply Being More Human
Current State of Healthcare Today
Today’s incumbent healthcare companies (payers, providers, GPOs, and pharmaceutical companies) are inflexible, tech illiterate, hierarchical, and slow-moving. That said, the COVID crisis is an eye-opening moment for the broader healthcare field because it not only forces dominant healthcare enterprises to rethink tele-health and legacy modernization, but also prioritize patient health through non-obvious revolutions in analytical decision making and value-based care (VBC).
The current healthcare reimbursement model is centered on “fee-for-service” (FFS) where healthcare providers (hospitals, clinics, etc.) are compensated for each procedure regardless of the treatment outcome, incentivizing quantity of care rather than quality and leading to unnecessary procedures and healthcare inequity. Providers aren’t compensated when addressing holistic patient care and preventative care, effectuating burgeoning in-patient costs that cause Americans to spend more money per year on healthcare than any other country.
Thesis
The value-based care model compensates providers on the quality of care they provide based on patient health outcomes, connecting all aspects of patient care (eg., primary care to specialists to surgery to physical therapy to pharmacy) and leading to a team-oriented patient-centric care approach with an added focus of preventative medicine.
Shifting towards a value-based care model can:
- Increase the value of American healthcare
- Improve health outcomes and lower cost
- Prioritize proactive prevention over responsive treatment
- Solve for the lack of centralization and communication in patient health, where HEDIS, CAHPS, and STARS metrics don’t measure true value
- Promote population health research and identify those who need extra care
Market Trends
COVID’s disproportionate impact and high-mortality rate on low-income, minority, urban populations were driven by inequity in quality of care exploited by the fee-for-service model. A podcast transcript by the Commonwealth Fund highlights that Black Americans were 2.7x more likely o be hospitalized than white patients, due to a combination of wealth disparity, chronic health conditions, and racial discrimination. These factors are social determinants of health (SDOH), in part, that stem from and continue to perpetuate health inequity. A report by the CDC, makes this point even more clear that despite COVID-19 cases amongst Black Americans being only 1.1x than White Americans, the death rate is 1.9x. The recent publicity of these events is driving insurers and large health systems to shift models.
Well how can VBC help?
A recent study from the Oregon Health & Science University proves that VBC bundled payment models reduces health disparities for Black patients. Researchers examined health outcomes for 700k patients undergoing joint replacement procedures through Medicare from 2013–2017, studying differences in outcomes before and after April 2016 when Medicare adopted the Comprehensive Care for Joint Replacement model, essentially bundling payment for those treatments. The result of the retrospective study showed improved outcomes for Black patients compared to those who are white.
Beyond social changes, the global value-based care payment market is expected to grow from $1.5B in 2020 to $2.3B in 2021 with a 50% CAGR, and a projected market size of $4B in 2025 driven by the need for care management services and personal health technology to reduce in-patient visits. Optimistically, when value-based care replaces the entire FFS model in ~20–30 years, the entire healthcare market will run on value-based care leading to a market size in the trillions.
Roadblocks
While value-based care is not necessarily a novel concept, the Centers for Medicare & Medicaid Services (CMS) have been emphasizing it since 2008, it has been muffled by large, long-standing healthcare provider networks that considered it a threat to their businesses.
The major risk with healthcare shifting to a value-based care model is the downstream effects of adopting new technology for health systems. With a potential decrease in assured revenue streams in the FFS model, there’s risk of a bottleneck of cash flow entering provider systems and networks. Limited healthcare capital could potentially lead to tighter budgets on new innovations and technologies for healthcare professionals to use for treating acute patients, perhaps negatively impacting standards of care at the macro-level for traditional healthcare.
A widespread shift towards value-based care could, however, provide less reliance on the, currently, damaged hospital systems as the primary care center for the masses, and instead encourage innovation for other recent trends in healthcare including: patient-centric virtualized care, remote patient monitoring, retail clinics, and subscription-based healthcare.
This transitioning to VBC from FFS leads to the widely discussed “Two-canoe problem” where providers cling to the safety of assured revenue streams via the fee-for-service model while trying to transition to value-based care without putting the business at risk. That said, there are companies building towards this goal…
Companies Paving the Way
The competitive landscape in value-based care is rapidly growing and fueled by health-tech startups building software to help transition the Kaiser Permanente’s of the nation away from the FFS model, by showing providers they can maintain revenue streams in VBC and giving patients control over their care.
Stellar Health, backed by Primary VC, focuses on empowering providers improve quality of care through notifications and incentives. Stellar partners with under-performing providers to not only complete a granular checklist of patient care actions that will lead to successful patient outcomes, but also provide real-time financial reporting and accountability so physicians who may be concerned about receiving payments have complete transparency.
OM1, backed by General Catalyst, is the largest value-based care company focused on leveraging outcomes measurements and predictive analytics to yield ROIs competitive against FFS models.
Current Health is bringing healthcare from the hospital to the home through tailored clinical monitoring with AI that will identify signs of health deterioration and bring care to the home.
Aver.io is pushing for value-based care from the payer-side by managing and analyzing claims data to connect all healthcare stakeholders and redefine healthcare pricing and bundling.
Additionally, companies like Lighter Health and Livongo that manage chronic diseases and provide care management are also indirectly decreasing the need for traditional, FFS in-patient care through auxiliary methods like managing patient diet, mental health, nutrition, and comorbidity factors.
Final Thoughts
It is an exciting time to be in early-stage healthcare investing right now. The pandemic has shed light into the deep crevasses of this highly regulated and closed-off industry and proven the instability of its structure. It’s time for healthcare to modernize like the financial systems have been doing over the past few years. While this may rock-the-boat of incumbent players, I hope that this movement can be a beacon instead, signaling a future where healthcare is truly in the hands of the patient in order to keep them safe, happy, and healthy.
