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How will COVID-19 change healthcare over the next 18 to 36 months?

Published Wednesday, May 6, 2020

The COVID-19 pandemic has been characterized as a black swan—an event that happens so rarely that it is incredibly hard to predict and even harder to prepare for. With the benefit of hindsight and knowledge of our current reality, this blog series approaches and attempts to answer a series of questions about our present state and our future. The first post dissects the U.S. healthcare system and discusses the structural weaknesses that this pandemic exposed. The series follows with a post on how innovative healthcare stakeholders are responding to these weaknesses with incredible problem solving and resiliency. Building off this foundation, we continue the series with a look forward into the future of healthcare through the lens of this pandemic. We conclude the series with the viewpoint of the investment community and unpack what pre-COVID-19 themes will persist or be accelerated and what new categories will emerge.

For the next 18 to 36 months (now through mid-2023), COVID-19 will be front and center for all stakeholders in the healthcare ecosystem. During this period, it is widely expected that though there are likely to be treatments, herd immunity through infection and vaccine will not have been achieved—meaning health systems and society at large will need to maintain vigilance to keep the curve as flat as possible. Following this period, we hope that effective antivirals will be prevalent, vaccines will have been developed/distributed, and life will adjust to a new normal. This article examines the trends we expect to be impacted in the near-term (18–36 months), focusing more on the second-order impacts of COVID-19.

The once popular critique that U.S. healthcare moves too slowly feels an ancient parable these days. Flying in the face of practical processes like the scientific method, phased adoption and due diligence, COVID-19 has effectively launched a 300-million-person social, clinical, organizational and economic experiment in a matter of weeks.

While long-term changes to our industry won’t be set in stone today, the experiment is giving us signs as to which healthcare trends may be accelerating, slowing or pausing. Here are five predictions we expect to manifest over the next 18 to 36 months:

  1. Consolidation will be accelerated.
  2. Agility will no longer be a “nice to have.”
  3. Telemedicine super usage will tip a long line of dominos.
  4. Shift to value-based payments will hit a speed bump.
  5. Emerging care/coverage models will see significant growth.

Consolidation

M&A activity will continue and accelerate. Entities with strong and diversified balance sheets will see a land grab opportunity as hundreds of health systems around the country struggle to withstand the loss of elective surgery volume.

HCA was an early bellwether of the financial impact on the provider industry, sharing in a quarterly earnings call last week that net income was roughly 60% of Q1 2019 ($581M vs. $1B). That’s certainly no walk in the park, but consider it in the context of the current landscape of many smaller facilities: of the ~2,700 counties currently treating COVID-19 patients, 1,200 have facilities that were already operating in the red in 2017. Of those 1,200 counties, over 500 are served by a single hospital. These communities will be desperate for a lifeline. A balance sheet such as Ascension Health (~$18B unrestricted cash and investments) seems even better positioned for strategic acquisitions in light of this data. In fortuitous confluence for the acquirers, the cost structure to serve these populations is also looking lower in the long term as teleservices experience their adoption hockey stick and normalize among previously resistant-to-change populations who insisted on brick-and-mortar only care. These dynamics set up a compounding win for acquiring systems.

Agility

Agility takes on many forms. Rapid and clear communications to distressed staff, deploying new protocols in old facilities to accommodate COVID-19 patients, or engaging with community partners (manufacturing plantsliquor distilleriesfurniture companies) to quickly spin up “get it done” solutions are just a few examples.

Savvy entities will recognize the importance of agility, and seek to preserve and further nurture the innovative and creative tendencies they’ve proven exist within their DNA. In contrast with the consolidation activity described above, this is a more democratized opportunity for all facilities and leadership teams that should spark hope: embrace, nurture and resource this ingenuity into the future. It’s the critical DNA that allows some organizations to find higher ground in rough times and harvest their surpluses in good times. Supporting this view was a compilation of advice from 73 hospital leaders in hard-hit COVID-19 areas. The thread of concepts like innovation, agility and adaptability was central among the many concrete solutions suggested. We’ve seen a high degree of agility in the solutions shared via the HIMSS COVID-19 Digital Think Tank, with dozens of solutions coming from health systems across the country and around the world.

As the agility required by the pandemic accelerates technology and process adoption at a rate of 10 times or faster than would happen more naturally, getting back to the basics of provider experience will become even more important. During a time of crisis, component parts within a system can bear more stress, but after the dust settles, inefficient processes and workflows will not be tolerated. Organizations that can harness the capacity for change they demonstrated during the beginning of the pandemic and make it normal will be destined for success if those competencies are paired with objective assessments of their digital maturity (e.g., HIMSS Digital Health Indicator).

Telemedicine Super Usage Is the Tip of the Iceberg

Media coverage has thoroughly chronicled the unprecedented spike in the adoption of virtual care through the COVID-19 crisis. As an example, Cleveland Clinic saw about 3,400 telemedicine visits per month leading up to March of this year, when they saw more than 60,000.

It’s good to celebrate this digital milestone. But with our attention focused only on adoption for the last decade, we weren’t forced to consider the next wave of changes associated with telemedicine hitting the mainstream. Now the need to address those changes is suddenly upon us.

To start, bedside manner—a skill long sought after in the proliferation of quadruple aim and HCAHPS scores—may quickly need to be supplemented with “webside manner.” The change may seem trivial to some, but the shift touches everything from charting to HIPAA to IT bandwidth, and a host of other considerations to scale as needed.

As virtual care becomes the norm, health systems will take a look at property, plant and equipment (PP&E). For example, the 2019 HCA balance sheet shows nearly $25B of its $45B in total assets as PP&E. While that sum includes myriad facility types, there’s no question that shedding or repurposing some of the clinical facilities over time is a capital redistribution opportunity.

Finally, reimbursement and benefit plan design are fated to change if the system hopes to realize the gains of telemedicine. On the reimbursement side, states, private payers and CMS will need to steer toward more consistent payment patterns, as the breakdown of service areas and geographic border definitions will unduly stress administrative functions. Expect to see those “free trial” days of telemedicine marketing succumb to copays as the visit volume displacement grows and revenues, of course, can’t be left behind.

Value-Based Care

Medicare Shared Savings Program (MSSP) populations, often administered by ACOs, base their economics on an assumption of administering low-incidence, low-acuity care for most member episodes. In order to prove and be paid upon the successful management of those care episodes, ACOs must also engage in rigorous, time-consuming data collection and reporting.

COVID-19 management is entirely antithetical to this model. Any Medicare patient who presents in the hospital today is, almost by definition, requiring acute care for COVID-19 related reasons. The National Association of ACOs (NAACOS) used 90-day pneumonia costs as a proxy for COVID-19 estimates and calculated a 6% to 18% cost increase. Compare that to the ~1.5% cost reduction wins in 2018, and it’s easy to see how managing to the standard of usual times is untenable.

The laborious data collection process is also being rightly recognized as unnecessary when caregivers are critically needed on the front line. All this being said, it’s understandable that CMS is exploring relief efforts this year. While the pandemic will take us on a slight detour, the destination remains the same. We predict the VBC discussion and MSSP growth will continue to be the “it” economics topic of healthcare in the future.

Emerging Care/Coverage Models and Unemployment Surge

The majority of healthcare services provided in the U.S. are administered via employer-sponsored benefits. As we depart the days of 3.5% unemployment and find something radically higher—whether that’s 10% or 30%—the point remains the same: what most people did for care in the past is about to be rattled.

While no one would wish for a pandemic like this, there are always benefactors in the midst of change. Viewed through that lens, the non-traditional care and payment models (startups, niche markets, etc.) are reluctantly emboldened by the notion of so many new prospective members, users, etc.

If 2020 is the most significant removal of the employer-sponsored benefits construct since its post-war inception, it’s actually fortuitous timing if you’re one of the individuals looking for alternatives to prohibitive COBRA costs.

The past decade has seen a nearly $50B venture push toward digital health solutions alone, and recently, funding toward higher-touch, tech-enabled services has also increased. Furthermore, Fortune 50 companies are identifying strategic opportunities in healthcare. Whether venture-backed or long-established, what new solutions need most is to attract and retain users—and they’ll go to great measures to stake a claim as the trusted, cost-effective, “got me through my COVID-19 furlough” healthcare solution.

An example of a company poised to capitalize on the current situation is Walmart. As of March, it was planning to add 150,000 employees, with many of them having access to Walmart’s education platform, Live Better U. Walmart is building the healthcare workforce of the future by offering healthcare degrees to fulfill jobs in settings like its Walmart Health Centers, which by all accounts are succeeding in early Georgia pilots. Low-cost options like this allow the underinsured and the uninsured, as well as those in rural communities, access to healthcare, untethered by their employment status. As the pandemic persists, these models will be crucial for a large number of Americans.

We’re only beginning to understand how big of a fight we’re in with COVID-19 and some of its more nuanced downstream effects. While this list isn’t exhaustive by any means, it can help us prepare for changes that lie beneath the surface of daily news and updates. As healthcare organizations, we invest in people and communities. Consistent with any investment strategy, a longer time horizon is where wins will be realized. In our next post, we’ll explore these topics and more that are likely to occur on a 36+ month horizon.

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