With the Supreme Court upholding the Affordable Care Act last month, the law will continue to transform the nation's healthcare landscape.
Arguably the most seismic shift is with physicians and hospitals aligning to improve the overall health of populations rather than focusing on individual patients, with an emphasis on better medical outcomes and reduction in costs across the care continuum. Instead of providing more services to earn more through the traditional fee-for-service reimbursement model, providers are now rewarded for quality and cost efficiency.
Furthermore, the rise of accountable care organizations (ACOs) – groups of hospitals and health systems with risk-sharing and/or shared-savings arrangements – creates a critical need for data accessibility and analytics that allow healthcare organizations to work together. As of late 2013, there were approximately 600 ACOs covering about 18 million patients. By our estimates, the number of ACO-covered patients will grow to more than 95 million within the next five years.
Improving the health of a group rather than individuals is driving the demand for population health management (PHM) solutions. PHM is a new care model that aims to keep communities of patients healthier through collaboration among providers, reduction in expensive interventions, tests, and hospitalizations, and more active involvement of patients in their own wellness.
The growing need for PHM solutions will create significant new investment opportunities. An entirely new ecosystem of PHM solution providers is rapidly developing, with emerging companies in areas such as population analytics, provider risk contract management, quality measurement, and patient engagement.
The current market for PHM solutions is highly fragmented. While there are a number of players in the space, many offer solutions tailored to health plans – as payers have traditionally been the bearers of risk – or niche point solutions for providers. However, as coordination between providers, patients, payers, and employers continues to become more commonplace, there will be a substantial increase in demand for PHM solutions among providers and employers, in addition to payers.
There are a number of PHM vendors – offering technology, analytics and consulting services – that are well-positioned to grow in this space over the next few years. Investors need to understand the top concerns and challenges providers face when implementing (or thinking about implementing) PHM, and then seek out investment opportunities that address one or more of them:
1. General lack of understanding of where and how to begin.
2. Lack of internal resources to execute such a major transition, including human capital, care management staff, and technology infrastructure.
3. Difficulty aggregating, extracting, reporting, and analyzing data – again, due to inadequate infrastructure and human capital.
4. Inadequacy of electronic health records, most of which are not designed for PHM or for interoperability with other systems.
5. Issues administering comprehensive, integrated care plans: coordinating care, ensuring all doctors and caregivers agree on the patient's care plan, and communicating and sharing patient medical records efficiently and securely.
6. Lack of tools to engage patients; current self-management tools are not advanced or aggressive enough to stage proactive interventions.
7. Inability to predict the ROI before investing in PHM.
8. Confusion and apprehension when selecting PHM vendors when there are no "known commodities" or dominant players yet.
PHM may still be in its infancy for the vast majority of providers, but it is not a passing fad. The complexities of transitioning to PHM call for third-party experts and support solutions to facilitate change from both a strategic and operational perspective.
The healthcare landscape is rapidly changing, with providers seeing the need to engage in PHM. However, while providers see this need and the opportunity that PHM provides, most lack the necessary capabilities and will need to build, outsource, or acquire these capabilities. This reality is spawning creation of an ecosystem of PHM solution providers that is poised for robust growth over the next five years.
Natalie De Fazio is a Director at Stax, Inc., where she leads engagements for private equity and corporate clients. Her experience in diligence-related work is concentrated in healthcare, business services, and industrial distribution. Natalie holds a BS in Finance from the University of Illinois, Urbana-Champaign and studied international economics and Italian language at Universitá Bocconi in Milan.
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