Health Industry Trend Spotting: 2023
Health Industry Trend Spotting
2023 Edition
I once organized an event on the eve of the Presidential election between Hillary Clinton and Donald Trump. Our prognosticators for the evening were two politically astute and intuitive individuals: Senator Bill Frist and Governor Mike Leavitt.
As you can imagine, one of the first questions posed by a member of the audience was for each panelist to predict which of the two would come out on top the next evening. Senator Frist’s answer has stuck with me in the years since, quipping, “If you’re going to be in the crystal ball business, be prepared to eat crushed glass.”
This turned out to be quite apt. As you may recall, the favorite in the 2016 election as we approached election day was Senator Clinton, by a reasonable margin. Yet it was Donald Trump who ended up with the electoral votes necessary to claim victory. The world was astonished.
When I began my career in this industry, I was much more liberal at making prognostications. After all, when you’re a consultant, it’s a relatively risk-free enterprise. If you want to bet safe, say what everyone else is saying and if you’re wrong, you’ll find yourself in good company. If you want to take a risk, bet against conventional wisdom and keep an intrinsic quota on your win/loss ratio so you’re not always and consistentlywrong.
Truly, the world is a complicated place. And by extension, our industry is a byzantine patchwork of complex systems mediated by private sector, regulatory, and legislative forces. In fact, anyone making highly prescriptive predictions about the future is either highly seasoned in the subject(s) for which they are prognosticating, or it’s all just bull shit. I suspect that 99 percent of the time it’s the latter, myself included.
However, there is an elegance to a constant posture of surveilling for signals. Weak or strong, signals are events or pieces of information that can be observed openly or discovered covertly. Any one signal in and of itself is not entirely meaningful. But, taken together, such signals portend important trends that could eventually shift the landscape in profound ways.
So instead of making some arbitrary list of my “top 10” predictions for 2023, I am instead going to outline the five most important signals hitting my own radar, comment on why I feel they are important, and make some inferences regarding the collective picture for the industry.
Signal #1: Ongoing Availability of Transparency in Coverage Data
The years 2021 and 2022 saw quiet, but powerful, regulatory actions mandating that hospitals and health insurance companies (payers) share pricing data. I’ll dispense with the less interesting regulations and jump to what I believe is a game-changer: the requirement for payers to monthly post machine readable files (MRF) showing their contracted commercial rates with every provider that functions in-network. The data here are huge; literally the size of the entire Netflix library each month constituting trillions of data fields.
The implications are equally as big. These data are a proverbial keystone to better understanding pricing, charges, and costs in different markets, with varying levels of insight for each. The ability to mine these files will significantly aid in the building of value-based care models and providing real value data to consumers (instead of using the arbitrary price/quality quotient).
In my view it will take a few years for the industry to really unlock the power of the data, which will reach its best when comingled with other forms of generally available data sets. But rest assured, these regulations could change the game by the end of the decade.
Signal #2: Hospitals are in for Choppy Waters
The provider relief funding provided through the height of the Covid-19 pandemic was critical to helping hospitals absorb rapid and unexpected losses. In fact, I’d even posit that some hospitals emerged from 2020 and 2021 with stronger balance sheets.
However, already thin margins are colliding with an environment that has not seen utilization patterns fully restored to their pre-pandemic levels, historic inflation, and a workforce glut the industry has not seen for decades, raising the overall cost of labor.
The jury is still out on how deep the financial damage went in 2022. And to be sure, most of the nation’s ~5,000 hospitals have strong balance sheets and can re-position. But the current climate is particularly dangerous for critical access and safety net hospitals. States and municipalities will have to do gymnastics over the next couple of years to keep critical community services functioning; and they will. However, I anticipate that service lines across the country will narrow, automation will become increasingly important, and competing for market share will be exigent.
Oh, and don’t be the least bit surprised to see a flurry of transactions announced by Q3 of this year with lower than usual protest from the FTC or DOJ.
Signal #3: Tech Entrepreneurs Should Get Used to Cucumber Water. The Punch Bowl is Gone.
A truism in our industry over the last several years was the steady and reliable access to capital at obscene valuations. No more. To be candid, I’m not entirely sure what the root cause is at this point but I suspect its multi-factorial (investors pulling back, too many burns on too many deals with valuations that are too high, path for start-ups to break-even, etc.). But it’s clear that there is a great tempering taking place with the amount of capital that will flow into health care technology.
I don’t view this as a bad thing. The market is riddled with point solutions that take significant time and money to efficiently integrate with the myriad of other point solutions. This has left stakeholders in a state of paralysis as they look to solve thorny challenges with patient acquisition, population health management, and cost-saving efficiencies in a market where each point solution boasts to be all things to all people.
The digital health front needs great moderation, and I anticipate we will see a lot of vertical integration as venture capital and private equity look to exit deals and sell assets to entities that can roll-up focused solutions to platforms that are wider, deeper, and generally more robust.
Signal #4: An Unprepared Behavioral Health Ecosystem is on the Verge of Explosive Growth
American culture around mental health is changing far faster than the industry’s capacity to meet future demand. Long treated as a sort of “commoditized remainder” in the industry, the data are becoming increasingly unequivocal on the impact strong behavioral health management can have on physical spend.
Yet we still operate in a climate where carve-outs abound, reimbursement is insufficient to drive labor supply, and access is scarcer than demand posits it should be. Government funding and the conversion to CCBHCs will represent a one-time boon for the industry. It will be to our collective benefit to focus such funding on hybrid digital and physical access points, reworking the industry’s labor economics, and leaning into emergent science.
I am also anticipating a strengthening campaign to legalize clinical use cases for treatments involving MDMA or psychedelic drugs whose properties seem to have the ability to stem clinical depression, anxiety, addiction, and a raft of other lower acuity mental health disorders.
Signal #5: The Shift to Value-Based Care Will Remain Slow, But Steady
There’s no way to write something like this and not acknowledge the state of value-based care in the United States. While we remain woefully short of where collective predictions lay a few short years ago, progress is being made. CMS has (rightly) tightened its belt and slimmed down the sheer volume of programs. States will continue to up the requirements in their managed care contracts in pursuit of strong upstream services and management.
But make no mistake, 2023 is not the year for value-based care and neither will successive years.
Drop me a comment here or on social and let me know what you believe the most important trends in the American health care sector are!