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Show me the Money! Expected Health IT Investment Activity for 2022

by John Moore III | March 09, 2022

Virtual care and consumer-centric hype has dwindled. What’s next?

The last two years have seen an explosion of interest in new models of virtual care in response to the COVID19 public health emergency. The need to continue providing care while reducing the volume of patients actively visiting brick and mortar facilities drove adoption and utilization to new highs, resulting in millions of virtual visits. What once made up a mere fraction of total care visits now represents 13% – 17% of care across all specialties. This led to a bit of an obscenely active investment market for these solutions, a number of which went IPO via SPAC – which is now under intense scrutiny due to the losses sustained in public markets since (particularly Clover Health).

McKinsey Telehealth utilization July 2021
Source: McKinsey

According to one analysis, the public markets for health IT started 2022 roughly 73% down from 2021 highs – with many companies never recovering to their IPO price almost a year later. The greatest portion of this loss was contributed by digital and telehealth companies, which collectively were down $92B as of late January. Some of this was due to the drop off in utilization and the hype train calming down, while some was due to the general market downturn. It’s yet to be seen which, if any, of these companies recover with the broader market before they are acquired at their now ‘discounted’ price (though ‘corrected’ might be a better turn of phrase here).

Source: A2 Strategy Group

That said, telehealth wasn’t the only area that saw inflated valuations get corrected with the recent volatility in the markets. New virtual-first health plans like bright health, Clover, and Oscar have all been slammed since going public, down roughly 85% collectively. Much of this is due to poor management decisions and a number of scandals that have brought in the regulators to assess whether fraud has occurred.

What concerns me the most is the impact that this could have on cooling investor interest in the health IT sector. There has been an almost myopic focus on the consumer-driven healthcare model and opportunities there, as many institutional investors understand consumer businesses far better than the healthcare industry. Anyone following the space long enough knows how many graves there are for well-funded, good ideas that failed in execution, due to a lack in understanding nuances of the healthcare market. Hell, I started one of those back in 2010.

There are still plenty of opportunities to move this industry forward with new solutions and technologies, and these don’t need to be ‘sexy’ to be sound investments for VCs and other institutional investors. My hope is that this recent market correction leads to more savvy, diligent investments in the areas that will make a real difference for consumers and practitioners of healthcare services. To learn about where I personally believe these opportunities lie in 2022 and beyond, take a few moments to watch our latest video.

We’d love to hear your thoughts on this in the comments! If you’d like to connect to chat about anything in this video at HIMSS next week, feel free to reach out and we can set up a time to connect.

Scroll to the bottom to view all the sources cited for graphics and reference.

AI-Generated Transcript:

[00:00:18] 2021 was quite the year for both health care and health care I.T.. We saw a number of new IPOs and companies going public, as well as a massive increase in the amount of startup capital that was funneled into the system. Various estimates put that between twenty nine billion to fifty seven billion, depending on what metrics you’re looking at. But regardless, it just shows that there has been a tremendous amount of interest in helping to catalyze new models of care and utilize technology to improve how we are actually delivering care in America. A lot of this was precipitated by the pandemic and all of the problems and inefficiencies that the COVID pandemic has revealed to the general populace that many of us that were working in the industry beforehand were already, well familiar with at the time of recording the entire health tech industry. If you’re looking at the public markets has recently lost around one hundred and ninety billion dollars in value based on certain analyst’s numbers. This has been driven largely by the seven percent inflation that we saw in twenty twenty one, as well as the corresponding federal interest rate hikes that the Federal Reserve has been discussing for the past week. Last week, actually, they had their big meeting where they have determined that they will be raising interest rates at least three to four times over the next year. What effect will this have on an already slowing market and what effect will it have on the startup community? And what new ventures are actually receiving funding to pursue fixing certain problems in health care? That’s what we’ll be looking at today.

[00:02:08] Welcome back to the research channel. My name is John Moore and I’m a vice president here at Kilmarnock. Before we jump into things today, please be sure to subscribe to the channel so that you receive updates when we post new content. And if you like what you see. Please give us a like and leave a comment. As many of you are aware, the startup and health tech ecosystem has been booming for quite a few years now, and each year more money is getting funneled in. What we saw with the COVID pandemic was even more interest because, as noted, many problems in health care were much more present and much more exposed through the sudden surges and the increased utilization of the care system. What this led to is a massive investment in new insurance providers, as well as new telemedicine, as well as care management organizations. Pretty much anything that would allow hospitals to provide more remote care and less in office visits was a big darling for the investment community. A major contributor to all of the hype and all the investment that we have been seeing in the health tech space recently has been largely due to the impact that the COVID pandemic has had on exposing various disparities and inequities in care delivery, as well as problems with accessing care.

[00:03:27] This led to a massive influx in capital for virtual care providers, as well as new insurance plays where they were providing a decent amount of the remote or concierge primary care. A lot of this investment was driven around the need to reduce the amount of burden on overtaxed large health care organizations that were basically at capacity for their beds during a lot of these pandemic surges that we’ve been experiencing. So what this led to was a shift to more remote care and therefore venture capital P. All of the people with money were getting excited about the opportunities for these new platforms that were suddenly seeing increased interest from actual buyers on the provider side. However, in the middle of 2020, when we started to see society return to normal and suddenly all of these telemedicine companies and virtual care companies started losing their value very rapidly because their actual utilization by patients dropped precipitously as health care organizations reopen their doors and started to attempt to return to business as usual. The actual utility of these telemedicine solutions were no longer as viable as patients actually wanted to start seeing their providers in person again. So what we will be seeing in the year ahead is most likely a significant decrease in interest in a lot of these telemedicine players other than the ones that are showing really strong results and really strong buy in from the end users and the hospitals. What we do expect to see in the year ahead is a much bigger focus on true ROI for these solutions.

[00:05:02] So basically, anything that is affecting the finances, as well as the operational side of health care will probably be of significant interest because those are still some of the areas that are weakest in light of surgeons. One of the big areas in twenty twenty one was also a focus on addressing health equity and disparities in care by looking at social determinants of health and what the actual health care providers could potentially do to address ongoing SDH problems that were impacting patients ability to stay healthy or adherent. However, a lot of these platforms, while well-intentioned, are very difficult to truly measure the ROI and the impact on the bottom line for care organizations. Complicating this is a renewed resistance to the shift to value based care, as evidenced by the very tepid growth in ACO organizations in twenty twenty one. I think it was only something like six new ACOs were added to the CMS list in twenty twenty one, which was a substantial drop off from the previous years. Another area that is largely been driven by the shift to value based care has been the investment in new virtual care management models to help patients living with chronic disease better manage those illnesses to reduce unnecessary care. But again, without those VPC initiatives, what’s the point? We all know that it’s important to address these longstanding chronic conditions. But if a hospital or a care organization is still billing fee for service, they get more money if they’re treating more often.

[00:06:46] So again, we’ve been seeing massive valuations and hundreds of millions of dollars worth of investment going into individual care management platforms, and I think we can expect that to drop off as well. This doesn’t mean that there will be a. And to the IPO market for these types of solutions, but the seventy five plus percent drop in value that we’ve seen in companies like Teladoc and Livongo will probably carry over to other investments and make investors more wary of putting their money into these spaces. Companies that do have traction and have shown success and their ability to retain customers over time will probably be able to go into IPO this year, but it is definitely less of a guarantee. So I’ve reviewed where the opportunities were last year that are looking to dry up or potentially be stalling out a little bit. So what are the opportunities for the year ahead? Because obviously health care is going to continue moving forward and there is still a lot that we need to fix and a lot that it can do to help with that. After numerous internal discussions with the analysts, it’s our belief that there are a few specific areas where we can see growing hype and growing interest. One of the areas in twenty twenty one that we saw huge problems with was staffing shortages. The visiting nurse model, while effective in emergency or crisis situation, is not tenable for long term ongoing surges that you can’t really predict because it’s just too expensive.

[00:08:19] So what we can expect to see in the year ahead? Our new models of flexible staffing that aren’t as expensive as the current traveling nurse model and are probably more geographically localized, so it doesn’t require as much travel from the actual employees. Staffing shortages are just one operational issue that we’ll be focusing on in the year ahead because of how much opportunity there currently is to fix health care in this regard. So as we look to artificial intelligence and machine learning, there’s currently a lot of resistance for clinical utility. However, there is significant buy-in and acceptance for operational requirements. What we see in the year ahead are new tools for revenue cycle management to alleviate the back office burden that a lot of organizations currently face. If you look at some recent articles, we’re actually seeing that burnout is being driven simply by administrative needs. And this is turning people off to their health care careers and leading to further resignations as part of this wave of the great resignation. So where do we see AI currently being utilized in the year ahead? Expect to see command centers for hospitals receiving more investment and more robust offerings. Expect to see new triage offerings that can help organizations better screen for alert fatigue and to reduce the number of alerts that are actually seeing their way through to clinicians. This is going to be a huge part of reducing burnout because the actual clinicians can only focus on so much at any given time, so helping them focus on what really matters will be a boom for productivity.

[00:10:00] We can also see companies like Hospital IQ and Lean TOS seeing greater traction around their resource management offerings, specifically getting patients in and out of owners more efficiently so that there can be more elective surgeries again, since those are such profit centers for a lot of these hospitals. And the interest of improving access to care and reducing disparities, we can expect to see more focus on enforcing the No Surprises Act, which last year was very minimally enforced and had quite a few scandals exposed around hospitals and other organizations blatantly hiding their fee structures. So as we look at greater enforcement, you can expect to see greater investment in solutions that are actually enabling care organizations to provide this data to patients ahead of time. This will help solve many of the issues that patients face around accessing care just because they don’t know what to expect to pay, and it puts them off and scares them away. Not only did we see additional strain on the health care system last year, but we’ll be seeing even more strain in twenty twenty two due to the increase in new patients that are signed up for health insurance through the ACA exchanges. This was largely driven by the COVID response bill that included new subsidies for patients that had previously been unable to afford the premiums for basic health insurance.

[00:11:24] However, with twenty twenty two being a midterm election year, we’re going to have to face as an industry a lot of political posturing and a lot of political. So let’s look at both parties and what this means for each of them. The Democrats didn’t get many wins in twenty twenty one. They had a really rough year and infighting and just were unable to accomplish a lot of the goals that they set out to achieve. They really need a win in twenty twenty two, and that boils down specifically to these subsidies. If they are not able to bring these back and new legislation, then they are going to lose the trust and faith of their party and of their constituents, and they will probably lose their dominant seat in the hill. Republicans are also going to need to thread the needle here and tread cautiously because it is obviously to their benefit to undermine any of the democratic efforts here. But they don’t want to actually let it be known that they are trying to degrade their own constituents access to care. So this will be very interesting to see how it plays out in the year ahead and what actually happens in terms of new legislation to fund access to care. Recently, there’s been a decent amount of skepticism about the actual valuation of companies that are serving the Medicare Advantage market. And I think that we can see these valuations further at risk as we deal with the political fallout of the year ahead.

[00:12:48] In closing. Twenty twenty two will be a very different year than twenty twenty one. We see the public market slowing substantially, which will reduce the number of IPOs in the space because of this pending global recession that we all kind of foresee due to never really feeling an impact from the COVID economic slowdown. What we do see as opportunities is around the up space for new solutions that can vastly improve operational functioning for health care organizations, specifically addressing the issues that are leading to burn out for a lot of people. This is looking at supply chain management, revenue cycle management and staffing. So any solutions that are going to be able to supplement the care being provided by helping to reduce the back end burden on providers and their staff are going to be very viable and smart investments in the year ahead. The only issue that we really see plaguing this industry that we can’t predict now is what will be the fallout from the political posturing and the political mess that will be the twenty twenty two midterm elections. If you like what you saw here today, please give us a like and subscribe. And if you want to leave a comment to engage with us, please feel free to do that as well. Thank you for joining us today. We look forward to seeing you next time.


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