Since starting Hospitalogy, Parth Desai (congrats on the promotion by the way my guy) have an annual tradition of putting our healthcare predictions out into the void based on conversations and trends we see heading into the year.
The predictions piece for 2024 was published in December 2023, and since I'm in SF at the Rock Health Summit this week, I thought it'd be a fun exercise to see how they shook out. TL;DR it looks like we (mainly Parth) did pretty well!
Read the 2024 predictions here
1) Hospitals Mine for Gold Outside of Their Core Business
Prediction: The pandemic exacerbated the financial pressures that hospitals were already facing. While the drivers of these pressures are abating, the macro and existential threats providers face to their core business are not. To remain financially viable, hospitals need to quickly diversify their margin creation streams.
The obvious and traditional diversification playbook has included expansion into specialty pharmacy / 340B, ambulatory and outpatient services, clinical R&D commercialization, spin-outs / joint ventures of clinical or digital assets and even venture investing. However, in 2024, we expect providers to get even more creative, announcing bolder bets into non-traditional services that redefine what the system of the future looks like and maybe even helps them recover lost ground.
Verdict: Correct! Probably the marquee example here is Northwell's endeavor to launch Northwell Studios, an initiative to create storytelling documentaries. Obviously this move is more of a branding and marketing play than a revenue or profit driver, but health systems in advantageous positions will continue to look for creative ways to get ahead. Health systems are also hard at work looking at how they can commercialize their data in the current LLM craze. Meanwhile value-based care and population health initiatives have entered the fold.
2) The Infusion Services Market Reaps the Bounty of a Specialty Therapy Boom
Prediction: The FDA is expected to approve 51 specialty drugs by the end of this year, which would break the previous record of 40 approvals in 2021…With all that [added infrastructure and access] complexity, a very logical place for this infrastructure to coalesce around is the infusion site where treatment is delivered, patients are monitored, and a specialist can quarterback care. In 2024, therefore, we expect to see more creative energy focused on innovating the infusion therapy services experience.
Verdict: No doubt infusion is receiving special attention from all stakeholders, even coalescing into Elevance's purchase of Paragon earlier this year.
3) Dollars Dry Up for the AI Application Layer… But Stream into the AI Data Layer
Prediction: Addressing healthcare's data quality challenge is multifaceted and complicated, but a foundational step in solving it is to modernize the data and infrastructure stack (particularly Infrastructure, Analytics, Data Science / MLOps). And for many reasons, we expect the healthcare industry to shift its focus to tackling this challenge in 2024.
…As all of these tailwinds converge, in 2024 we expect more of the dollars that were focused on the application layer to flow into innovation that modernizes the data technology stack.
Verdict: I've heard more people refer to LLMs in 2024 than I care to hear again for the rest of my life. The word of the year in healthcare and AI is 'infrastructure.'
4) The VBC Toolkit Finally Arrives on Specialty Care's Doorsteps
Prediction: While the industry has been focused on empowering primary care providers to take on risk, high-cost specialty care is the next frontier as it makes up more than 60% of total medical spend (and growing), despite wide variation in cost and quality relative to primary care.
…One clear need that we expect will attract more investment next year is in the infrastructure and tooling to help risk-bearing primary care groups and specialists better collaborate in structuring high-performing specialty networks and, in particular, start off with bundles and case agreements.
Verdict: As a continuation of the infrastructure and data theme in healthcare this year, VBC specialty care has gained notable traction, with firms like Monogram Health reporting impressive commercial growth. Still, value-based care in general has taken a backseat in 2024 given headwinds in Medicare Advantage and elevated utilization environments. Meanwhile, several enablement players focused on areas like oncology and cardiology have received funding and look to enable specialists in these areas to take on risk.
5) Labor Turmoil Creates Permanent Side Effects
Prediction: Care delivery organizations will continue to face labor challenges. Younger nurses are leaving the healthcare profession at a much higher rate compared to more experienced nurses, leading to a strained and understaffed workforce. This situation also puts pressure on hospitals, impacting their capacity and financial margins.
Expect winning healthcare organizations in the new labor normal to invest in supply pipelines of clinical talent through new partnerships with community-based organizations, colleges, and universities. They'll also focus on internal retention programs, career advancement opportunities, mental health support, wellness, and improved internal communication in an attempt to ensure that physician and nurse voices are heard.
Verdict: While many health systems and provider organizations are struggling with labor dynamics in certain local markets, the labor environment as a whole has normalized - almost to the opposite extreme. Contract labors as a % of salaries and wages are at an all-time low post-pandemic as hospitals have focused extreme efforts on retention, career advancement, base wage increases above normal market conditions, and other workforce initiatives. Meanwhile, professional fees costs - hospitalist staffing (anesthesiology, etc.) continues to be challenging. To be sure, we are still facing long-term issues with the healthcare workforce, but as a result of the above trend in 2024, margins are expanding.
6) The Medicare Advantage Manna Dries Up
Prediction: We've reached the growth apex in Medicare Advantage, and upcoming headwinds will result in an end to the 'Manna from Heaven' phase of the privatized entitlement program.
Now obviously these trends will play out over a decade-plus. But the prediction here is that looking back in hindsight, MA growth for insurers as a whole will have peaked in 2024. And the downstream ramifications of that growth peak (coinciding with a sustained rise in utilization from an aging population) include more intense narrow network formation, hospitals pulling out of many MA plan networks, and continued pursuit by payors of owning care delivery assets (vertical integration).
Verdict: We've hit peak (short-term) bearishness in Medicare Advantage as we've seen players like Humana and CVS perform terribly in the segment. As 2025 bids are priced, the Medicare Advantage market will right-size over the next 2-3 years. In the interim, expect to see insurers cut supplemental benefits and restructure their membership bases. I should also note that provider-sponsored plans in MA are not performing well either.
7) Provider M&A Gets a lot Harder; Digital Health Consolidates
Prediction: Healthcare will receive more scrutiny than ever before in 2024. We've already seen a not-so-subtle attempt at taking down private equity, and proposed guidelines at the federal and state level will require more disclosure and have to clear more hurdles. Not to mention mergers – especially involving large corporations or in-market consolidation – are nigh on impossible.
…The consensus on digital health is an expected wave of consolidation. Point solutions or startups with promising products but inability to raise additional funds will fold into larger organizations, or engage in mergers of equals…
Verdict: Digital health consolidation, like consolidation across healthcare, is happening. Just think about it from this perspective - provider organizations (physician practices, hospitals, insurers) are consolidating, so it's only natural that the ecosystem would do the same. On the provider organization side of things, the FTC has not made it easy on M&A, leading to PE-backed PPMs in particular to seek out other potential exit pathways. I would expect several of these players to pursue IPO plans over the coming 18-24 months.
8) Political Healthcare Rhetoric Spikes after Texas Supreme Court Ruling on mifepristone
Verdict: I personally thought this key healthcare issue would play a larger role in the upcoming election, but the SCOTUS settled this case with little fanfare. Altogether, issues and talking points seem to have taken a backseat to the general hubbub and drama around Biden stepping down and Kamala entering the frame. Nonetheless, abortion will continue to play a contentious role moving forward.
Now it's time for my way-too-specific rapid fire predictions. How'd I do?
- PENDING. Mark Cuban Cost Plus Drugs takes over the entire drug industrial complex and we fix healthcare completely
- WRONG. in fact they divested out of MA altogether: Walmart tries to acquire Humana (again) and/or makes a material acquisition in Medicare Advantage
- WRONG. Amazon actually rebranded Iora Health to One Medical Seniors! - they Amazon divests Iora Health
- ON THE RIGHT TRACK. GLP-1s reach a frenzied state as manic, cash hungry influencers advertise shady direct-to-GLP-1 telehealth firms. Ozempic-as-a-platform leads to rampant fraud, waste, and abuse
- ON THE RIGHT TRACK. Walgreens gets desperate; deepens its ties with Cigna or another large payor – e.g., Walgreens spins off VillageMD into a public entity or sells a larger portion to Evernorth / private equity sometime in late 2024 to raise cash
- NOTHING YET. Facebook enters healthcare & AI-driven solutions in some real material capacity
- ON THE RIGHT TRACK. Blues respond to mounting competition from payors, health systems by attempting to consolidate
- WRONG. 2-3 high profile digital health firms that raised in peak ZIRP 2021 will fail
- SORT OF RIGHT. 2-3 profitable and/or cash flow positive health tech firms go public in summer 2024
- At a glance, OSCR is up 94%. TALK is down 30%. Best-performing healthcare stock in 2024: Oscar Health (cashflow buoyed by interest income while leaned up; ACA exchange growth thesis plays out) honorable mention: Talkspace
- Nothing that I've seen: Google acquires some healthcare software solutions to bolster its enterprise healthcare cloud offering
- Probably less of a prediction for this year and more of a thought on the potential future of this space. Affordability of healthcare issues causes more self insured employers to pursue narrow networks, direct care deals
- RIGHT. Large health systems rebound financially in 2024 amid a rise in utilization
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