Has the moment finally arrived for value-based healthcare?
RBC Capital Markets’ Healthcare Technology Analyst, Sean Dodge, spotlights a new breed of tech-enabled providers who are rapidly transforming the way clinicians deliver healthcare, and explores the key question: can this accelerating revolution overturn the US healthcare system?
- Tech-enabled healthcare providers are poised to help the US transition to value, not volume, as the basis for reward.
- The move to value-based care has policy momentum, but is risky and complex for clinicians.
- Outsourced tech specialists are emerging to provide the required expertise, while healthcare and tech are also converging through M&A.
- Value-based care remains in its early stages, but the transition is accelerating and represents a huge addressable market.
Listen to our full podcast to find out how a quiet revolution is set to turn US healthcare on its head.
Rewarding value, not volume
Healthcare IT is at the forefront of efforts to improve healthcare outcomes and reduce costs. It covers everything from video consultations to outsourced systems for healthcare billing.
It also includes an emerging class of tech-enabled companies that are working on a fundamental transformation of the way clinicians deliver healthcare.
The ultimate aim is to address the soaring costs and relatively poor outcomes that currently characterize the US system. Under our fee-for-service model, providers are compensated for how much they do, rather than how well they do it, creating perverse incentives and inefficiencies.
A value-based healthcare system would overturn that system, explains Sean Dodge, healthcare technology analyst at RBC Capital Markets: “The goal is to reimburse providers based on how well they take care of their patients, not how much healthcare they deliver.”
“The addressable market here is massive. The US spends nearly $4 trillion annually on healthcare – the vast majority of which is going to be affected by the shift that we’re seeing.”– Sean Dodge, Healthcare Technology Analyst, RBC Capital Markets
The transition to this new model is a slow one – but it’s picking up speed. Previous barriers, notably around poor data and IT systems, are being removed. And alternative payment models are learning from experience and gaining traction, with regulatory support from Centers for Medicare and Medicaid Services (CMS).
Complex challenge for medics
Value-based care has been a CMS policy commitment for over a decade. The key reason for the lag in implementation is the complexity for doctors of making it happen: “It completely upends their practices. It’s a really difficult transition,” Dodge explains.
Under a value-based model, clinicians are paid a fixed fee per patient. If the patient’s annual healthcare costs less than this fee, the provider keeps the difference; if it costs more, the provider must meet that extra sum.
The new model obliges providers to have more complete data on the health status of their patients, and to prioritize those patients most at risk. “It requires them to have much more sophisticated and capable systems to be able to track everything they need to be able to deliver more proactive care,” Dodge says.
“The goal is to reimburse providers based on how well they take care of their patients, not how much healthcare they deliver.”– Sean Dodge, Healthcare Technology Analyst, RBC Capital Markets
Healthcare and tech converge
A new class of specialist tech companies has emerged to help doctors achieve this. Most offer turnkey programs so that “all the difficult stuff is managed behind the scenes” for doctors.
At the same time, convergence and consolidation are changing the healthcare landscape. Dodge points to health insurers creating their own clinic networks and employing physicians; major drug retailers acquiring wider healthcare assets; and non-traditional players such as Amazon entering the field too.
“There’s a really interesting convergence of the healthcare providers, healthcare payers, and the tech companies that are all coming together and creating these more vertically integrated models,” he observes. It’s a trend he expects to see accelerating in the years ahead.
“The rush of new and innovative players in the market is creating a competitive landscape and spawning a variety of approaches,” explains Dodge. “Some players are involved in care delivery, while others offer supporting services; some build brick-and-mortar facilities or directly employ physicians, while others work in partnership; and there is a range of approaches to improving outcomes and lowering costs.”
A massive potential market
The move to value-based care has had recent policy momentum. CMS recently reaffirmed its commitment to the shift and published an analysis of the success of the 50-plus pilots trialed so far. The commitment of the Biden administration to the concept – and the necessity of change to the national economy – make value-based care an inevitability.
However, the transition to new models is still in its early stages. Payments based on a fee-for-service model still represent the vast bulk of reimbursements being made in the US – for now, fewer than 10% of payments are meaningfully tied to value.
According to Dodge, the model is still in its early stages – but that means lots of growth potential for value-based care companies. And with valuations reset significantly over the past year, investors may see the opportunity for more attractive entry points in this class.
“The addressable market here is massive. The US spends nearly $4 trillion annually on healthcare – the vast majority of which is going to be affected by the shift that we’re seeing. With adoption still in a nascent stage, this is a space we will monitor closely.”
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