Host:
Welcome to Insight Exchange presented by L.E.K. Consulting, a global strategy consultancy that helps business leaders seize competitive advantage and amplify growth. Insight Exchange is our forum dedicated to the free, open, and unbiased exchange of the insights and ideas that are driving business into the future. We exchange insights with the brightest minds of the day, the most daring innovators, and the doers who are right now rebuilding the world around us.
Andrew Garibaldi:
US healthcare spending continues to grow at a rapid pace. It already exceeds $4 trillion annually and accounts for nearly 20% of GDP. Healthcare providers and other stakeholders have been challenged as never before to find ways to meet care needs for a nation experiencing and ongoing pandemic, as well as manage unprecedented workforce shortages today's podcast episode, we'll cover five key trends that are impacting the industry and we expect will accelerate in 2022 and beyond. One, unprecedented staff shortages. Two, rise in unconventional partnerships and acquisitions. Three, increased adoption of value based care beyond primary care. Four, adoption of realtime clinical data solutions. And five, continued growth in home and virtual based models. Hello everyone. I'm Andrew Garibaldi and I'm a Managing Director at L.E.K. I've been with the firm for 14 years and I lead L.E.K.'s managed care practice. Joining me today, our Wiley Bell, Joe Johnson, and Andrew Kadar, who will discuss recent key healthcare services trends and how they are impacting the industry. Wiley, let's start with you. Would you please take a moment to introduce yourself?
Wiley Bell:
Hello everybody. This is Wiley Bell, Partner out of the New York office of L.E.K. I've been here for 10 years. I've been consulting since 1979 and I focus the bulk of my practice on the payer practice, managed care organizations, private equity, and the increasing intersection between the payers and the providers. Thanks for listening today.
Joe Johnson:
Hi everyone. This is Joe Johnson. I'm also a Partner and Managing Director with L.E.K. Based in our New York office. I've been in the healthcare industry for the last 20 years and I've focus my time in healthcare it and tech enabled services.
Andrew Kadar:
Hello everyone. I'm Andrew Kadar. I'm a Managing Director at L.E.K. based in San Francisco. I've been with the firm for 15 years and now focus entirely on private equity support within healthcare. So, buy side support, sell side support, and portfolio improvement.
Andrew Garibaldi:
Thank you all. We look forward to your insights. Okay. Let's jump right in. The first area of concern is the unprecedented staff shortages. Andrew, can you tell us more about this?
Andrew Kadar:
Yes, that's right Andrew. Clinical staffing shortages existed pre COVID, but have significantly exacerbated during COVID and are projected to get a lot worse. Nearly one in five healthcare workers in the US quit their jobs between February 2020 and August 2021. And that's resulting in a lot of burden on the clinical care provider network. For instance, hospitals are estimated to be paying 8% more per patient day or $17 million in additional labor expenses annually for an average 500 bed facility now compared before COVID 19. According to the AAMC, the supply shortage of physicians is expected to get worse, not better through 2034, including shortages of up to 50,000 providers in primary care, as well as meaningful shortages in almost every other surgical medical specialty.
The shortage of registered nurses expected to get worse as well, nurses aged 65 or older account for 19% of the workforce today, and the BLS expects half a million nurses to retire by the end of this year, leaving more than one million nurses missing from the healthcare system. Som as you can imagine, this presents an enormous challenge for the healthcare landscape, but also opportunity for specific companies to innovate and differentiate through initiatives that better track, train, and retain clinical workers. Organizations must optimize their care models to deploy the right person and or digital intervention at the right time for each patient.
Andrew Garibaldi:
Thank you, Andrew. Onto the second topic. Over the past one to two years, we've seen a wave of unconventional deal making as traditional healthcare players seek to expand their offerings and non-traditional companies enter the space. Wiley, tell us more on what we're seeing in the industry.
Wiley Bell:
Andrew, that is correct. There has been a wave of unconventional deal making in the healthcare industry, it's been going on for a long time, but it's accelerated in the last few years. We've cut these into two different broad categories. The first one is healthcare companies expanding into other services that includes behemoths like Optum, Cigna, Humana, CVS, Aetna, Walgreens, as well as the non-health care focused companies that are entering healthcare through partnerships and various deals like Walmart, Best Buy, Kroger, and Oracle, so wide landscape. We'll start with the first one, which are the traditional healthcare players who have sought to expand their offering to vertically integrate and to get diversification of revenue and profit streams.
Optum, for example, which is the large division of United Health Group and made an acquisition of landmark, a partnership with SSM Health, which is a nonprofit hospital operator, change a data analytics firm. Cigna has jumped into the party as well, having an acquisition of MDLIVE, which is a virtual care provider. Bright Health, where they made a large investment to get more directly into a boutique kind of payer. And Humana, who had a partnership with League, Aetna, with Teladoc, Walgreens Boots Alliance, putting an investment into CareCentrix, a large investment to Shields Health Solutions and VillageMD. So across the board, the large payers are attempting to both vertically integrate and also expand their offerings and diversify their revenue and profit streams.
Similarly, we have the non-traditional players who are leveraging their established customer relationships to drive share and also diversify their business into the sector, which accounts for 20% of the GDP give or take. We have some large companies like Walmart, who has a partnership with Oak Street Health to care provider to Medicare patients. They purchased MeMD, a telehealth provider and Transparent, which is a partnership in the consumer directed healthcare platform. Best Buy, not to be outdone made an acquisition of critical signal technologies, which does senior remote monitoring and an acquisition of current health. Kroger, the national retail corporation has a partnership with Anthem Blue Cross Blue Shield, and Oracle made an acquisition of Cerner. So across the board, we are seeing companies on both sides directly involved in healthcare, as those as well as those who have traditionally not been in healthcare, getting very active in this massive space.
Andrew Garibaldi:
Great. Thank you, Wiley. Let's stay with you onto the next topic. The march toward valley based care has been a prominent theme over many years. Most of the action in prior years has been centered around primary care. Tell us, what have we been seeing more recently related to value-based care in other specialties?
Wiley Bell:
That is correct Andrew, value-based care models have been growing across healthcare. They've been talked about for a long time and for decades, folks have talked about value-based care being the frosting on the fee for service cake, but that is changing now. And the frosting is suddenly seeping into the larger cake of fee for service. We have three primary drivers about why this is accelerating. One is regulatory changes, which have been around for some time, but have become more important to everybody involved. We have the regulatory catalysts like the 2012 Medicare Shared Savings Program, MSSP, and more recently direct contracting are encouraging a shift towards value-based care. We also have payers who are increasingly worried about decreasing their underlying medical cost, that ultimately gets pushed onto the consumer and the member. So, payers are finally getting serious about driving down costs to stop the increasing subsidies that their employer line of business contributes to providers.
It's one of the major subsidies that's going on again for decades, but has increasingly gotten worse, where the employer book of business has been subsidizing the government book of business, Medicare, Medicaid, and they're getting serious about that. And the third primary market driver is that providers themselves are shifting towards capitated payments. Providers are seeking more consistent revenue streams through capitation, and they're aggressively investing in capabilities to take on capitated payments, which involves risk, particularly after the pandemic left those using fee for service only models with more financial distress when the elected procedure's declined. I think it's fair to point out that in addition to primary care, which has historically been the area where true capitation risk taking was taking place, many establish and upcoming companies are paving the way regarding capitation and value based care, especially focused on their very high cost member groups.
A few examples, population groups, such as polychronics, these are vendors that are targeting the eight to 10% of a Medicare Advantage Plans Membership that it cost upwards of 50 to more percent of the total cost structure have been getting involved with people as far removed as DaVita Healthcare Solutions, CareMore, Optum, Landmark. We also have an increasing amount of emphasis on oncology. Oncology care is complex and high cost, and also accounts for a significant portion of Medicare spend. And so, vendors are leveraging proprietary technology and a variety of other analytics and we have examples such as New Century Health, US Oncology Network. Post-acute care, which is an enormous part of the overall spend. It's what people do after they've had a procedure of some significance where the vendors are taking risk and managing care.
And then finally, palliative and hospice care where vendors are targeting patients in their last year of life, rather than the broader cohort of polychronics. This is a significant advancement because the cost is often in the situation where folks are at either last end of their lives or post-acute care or polychronics or oncology. Again, we're migrating from what has historically been a Medicare Advantage, only primary care only into involving the most expensive portions of the healthcare ecosystem.
Andrew Garibaldi:
Thank you, Wiley.
Wiley Bell:
You're welcome.
Andrew Garibaldi:
Joe, let's talk about the adoption of real time data for clinical solutions. What developments have you seen in the market recently and what can we expect going forward?
Joe Johnson:
Great, thanks Andrew. It's no surprise to anyone that para-analysis of data has historically been generated on lagged insights, predominantly or exclusively relied on by claims data. But with how wired and interoperable healthcare has become thanks to EHR adoption, coupled with some of the value based care trends that were just previously mentioned, there's been a significant in increase in demand for companies that offer EHR data extraction or abstraction services for payers. In order to help set some of those future expectations for care management or even for contractual purposes with provider relationships as such, we've seen companies like DataLink and Health Catalyst emerge to help extract or abstract data from EHRs, as well as other companies like Tivity and Q-Centrix, which are helping more with reporting and compliance focused programs. Providers, likewise are also seeing some great value in gaining access to realtime clinical data on top of providing them and arming providers with quality reporting data and servicing medical requests, being able to extract or abstract the data directly from the EHR also helps with their realtime care management and care coordination initiatives.
And so, we've seen the emergence of companies like CarePort Health or Lightbeam Health Solutions that help enable providers better define and measure those population health initiatives aimed at improving outcomes and lowering costs. Having said all of that, there's still room to innovate. Both payers and providers alike are seeking the ability to create more detailed and customized reporting. Essentially the ability to pull more targeted pieces of information or data and controlling who is able to access them. Also a desire for further standardization in order to increase efficiency and increase overall automation. But at the end of the day, I think there's great power in being able to harness this realtime clinical data, which is becoming more widely available because payers and providers alike will be in a more empowered position to leverage that information, to advance the role in care coordination and create a more powerful data driven picture of the patient or member journey.
Andrew Garibaldi:
Thank you, Joe. And for the final topic today, let me return to Andrew. In-home and virtual based models have certainly been major areas of focus for our healthcare system during the pandemic. What should we expect going forward?
Andrew Kadar:
Yes, that's right Andrew. The COVID-19 pandemic forced provider, payer, and patient adoption of many non-traditional care models, including synchronous telehealth, asynchronous telehealth, so texting or offline review, remote patient monitoring, as well as hospital at home, in-home pharmacy, and in-home support models like condition specific home delivered meals. We think that genie's really out of the bottle on a number of these dimensions and won't go back. Although, telehealth claims are significantly down from their peak Q2 2020 levels, they do remain more than 20 times higher than pre-pandemic levels. And we think they'll play a durable role in emerging care models. So, in combination with the unprecedented staff shortages, the new improved incentives, thanks to value based care and the new availability of realtime clinical data, healthcare organizations really need to dramatically rethink what interventions they should provide to which patients, where and when to help drive healthcare's triple aim.
Andrew Garibaldi:
Thank you Wiley, Joe, and Andrew for sharing your perspectives on these key healthcare industry trends. Gentlemen, any final thoughts?
Wiley Bell:
I have a few, Andrew. These trends are real. They're important. You need to follow them carefully because there are many twists and turns along the way, which is why we make it a point of looking at them with some frequency.
Andrew Garibaldi:
Our healthcare system is constantly evolving and adapting to new pressures and challenges. This year in particular, we expect that health systems will continue to confront staffing shortages, unconventional partnerships will become the norm, VBC will see rapid growth beyond primary care, in home and virtual visits will become a permanent fixture of the landscape, and real time clinical data solutions will be adopted at an increased pace. At L.E.K. we closely monitor these trends and help companies navigate the evolving healthcare landscape to build winning strategies. Thank you all for participating. Have a great day.
Host:
Thank you our listeners for joining us today at the Insight Exchange, presented by L.E.K. Consulting. Links to resources mentioned in this podcast can be found in the show notes. Please subscribe or follow for future episodes wherever you listen to your podcasts. Also, we encourage you to submit your suggestions for future insights online at lek.com.
