2019 Predictions: M&A, Big Tech, and the Fate of ACOs

The Meaningful Use gravy train finally came to an end in 2018. As the strongest EHR vendors struggle to define new revenue streams, weaker ones faded from view through acquisitions or leveraged buy-out. Meanwhile, funding for ‘digital health’ start-ups continued to increase, though it likely hit the high water mark in 2018. And lest we forget, Amazon, Apple and Google continue their forays into the healthcare sector as the market is simply too big to ignore.

So what’s in store for 2019?

We brought together our analysts’ brain trust and came up with the following baker’s dozen of 2019 predictions. Over the near decade of making these annual predictions, our batting average has consistently been well above .500, so don’t ever say we didn’t give you an advanced warning on the following:  

 

Revenue cycle management M&A picks up; Optum acquires Conifer

Revenue cycle management M&A activity will continue to pick up with the most notable acquisition by Optum as it doubles down on its Optum 360 managed revenue cycle business and acquires Conifer Health Solutions from Tenet.

Alternative primary care clinics remain a side-show

Despite the hype and media attention around alternative primary care clinics (e.g. Oak Street Health, Chen Med, One Medical), the actual number of physical locations serving patients will remain paltry at less than ten percent of the number of retail health clinic locations. 

Humana finds a life partner with Walmart 

Walgreens will likely make the first move to acquire Humana in 2019, but Walmart will outbid Walgreens to win Humana over.

Regulatory approvals for artificial intelligence-based (AI) algorithms accelerate, tripling the number approved in 2019

The number of FDA approvals for algorithms in 2018 was impressive and shows no signs of abating. Additionally, 2020 will see a further tripling of regulatory approvals for AI.

Choose wisely: 2019 sees the first major shake-out of DTC telehealth vendors

Consumers’ use of telehealth will continue to see rapid growth and rising competition leading to significant consolidation among the plethora of vendors. By year-end, a major non-healthcare-specific consumer brand will join the mix, and the market will be down to five direct-to-consumer (DTC) nationwide brands.

Data science services see extraordinary growth, nearly doubling in 2019

By the end of 2019, every major healthcare analytics vendor will provide a cloud-hosted offering with optional data science and report development services.

In 2019, healthcare organizations (HCOs) adopt a cloud-first strategy

Cloud offerings have become far more robust, concurrent with HCOs’ struggles to recruit IT talent and control costs. Amazon’s AWS and Microsoft’s Azure will be clear winners while Google’s own cloud infrastructure services will remain a distant third in 2019.

New rules from ONC about data blocking have little effect because the business case does not change

Laws and regulations to-date have not compelled providers to freely share data with patients. ONC’s information blocking rule, which will be released before the end of 2018, will make it easier to transfer data to other organizations but will do little to open the data floodgates for patients, clinicians, and developers.

Big tech companies’ intentions in healthcare do little to disrupt the delivery of care

  1. Despite high-profile hires, the Amazon/Berkshire/JPM initiative will make no substantive progress.
  2. Amazon will focus only on the DTC supply chain, payer, and employer—staying away from anything substantive in the provider space.
  3. Apple’s Healthkit and sensor-laden smartwatch will remain sideshows in 2019 awaiting a more actively engaged healthcare consumer.
  4. Google [Deepmind] will never break out of clinical research and drug discovery.

Majority of MSSP ACOs stay and take on risk; hospital-led ACOs lead exits

Despite loud protests, the vast majority of provider-led MSSP ACOs will take on downside-risk as CMS shows flexibility in waivers. However, hospital-led ACOs, who continue to struggle with standing up a profitable MSSP ACO, will exit the program in 2019.

Closure of post-acute facilities shows no signs of slowing

Continued changes in post-acute care reimbursement, especially from CMS, combined with the migration to home-based services, puts further economic strain on these facilities. Nearly twenty percent of post-acute care facilities will shutter or merge in 2019.

2019 Health IT IPO market fails to materialize

The warning signs are there over the last couple of months that the stock market has become skittish. This will extend well into 2019 (if not lead to a mild recession). It will hardly be an ideal time to do an IPO, and those planned by Change Healthcare, Health Catalyst and others will wait another year.

Elon Musk reinvents healthcare

Elon Musk will have a nervous breakdown leading him to reinvent the healthcare system from his bed during his two-week recovery at Cedars-Sinai.

Stay up to the minute.

Did You Know?

Keeping Score: Reviewing Our 2017 Predictions

In keeping with a Chilmark Research tradition, once again we step into our “way-back machine” to review our 2017 predictions for the healthcare sector – of course with a health IT flavor.

Our score is far from perfect, but we did quite well with our 2017 predictions: 7 Hits, 2 Misses and 4 Mixed. If this were a batting average, we would be instantly recruited into the majors:

Later this week we’ll publish our 2018 Predictions. Stay tuned.

 

Risk-based contracting for health IT solutions accelerates. MISS

While the rate of participation by providers in value-based payment models increased modestly, and more states adopted value-based payment models, the rate of risk-based contracting for health IT saw little growth in 2017. This is due to several factors: The Trump administration’s adoption of more voluntary approaches to future participation in value-based payment models, including bundles; challenges defining appropriate risk-sharing/pricing models, and legacy PMPM or PMPY licensing models.

HCOs demand clear ROI on their health IT spend. MIXED

Healthcare organizations (HCOs), while becoming more cognizant of the need for health IT to generate a true return on investment (ROI), have not significantly changed their purchasing decisions to reflect this change. This may simply be a function of an EHR hangover, where purchasing decisions are driven by breadth and depth of existing relationships with current vendor(s).  

Progressive HCOs admit – their patient portals suck. MISS

As it turns out, progressive HCOs have been impressed with the portals they’ve built with solutions from their EHR vendors such as Allscripts, Cerner and Epic. But challenges remain: Increasing portal adoption among patients with slow Internet connections and/or a technology learning curve, along with a rising tide of consumer-centric engagement solutions, centered on holistic lifestyle and condition management, which have garnered interest from payers and employers interested in cutting costs while also improving outcomes.

Despite the hype, healthcare Internet of Things (IoT) stays on periphery. HIT

Connected devices remain visible and useful within healthcare facilities, especially to monitor ICU and post-surgical patients, but IoT security concerns have tempered enthusiasm for more widespread deployment. Outside the hospital, device use remains limited to remote patient monitoring (RPM) pilots. For example, the National Institutes of Health will use Fitbit devices in the All of Us precision medicine study, while Stanford Medicine is partnering with Apple for an atrial fibrillation trial.

Artificial intelligence (AI) and machine learning will remain outside the clinic. HIT

This year’s hype with AI and machine learning stretched definitions to the breaking point — even a basic statistical technique is now marketed as machine learning. AI-based diagnostic approaches are still struggling to be useful, even as an aid to clinicians. That being said, academic medical centers increasingly use NLP to mine unstructured text, crowds lined up around the block at RSNA to learn more about image recognition, and progressive HCOs regularly use these advanced analytics techniques to examine areas such as sepsis, length of stay, and readmissions risk.

Consumers find AI avatars as valuable as they are personal. MIXED

Virtual assistants have made some inroads for managing chronic conditions such as cancer and type 2 diabetes, though tools like Cortana, Google Now, and Siri still struggle with mental health and remain better positioned to deliver educational content and other prepackaged information. We see interest in virtual assistants that analyze patient input and recommend interventions. This brings value to the engagement experience, with much faster responses than emails or phone calls to physician offices. As solutions’ data sets grow, so will more personalized interventions and user experiences.

21st Century Cures Act interoperability provisions a dead letter. HIT

This prediction stands. Senate HELP Committee chair Lamar Alexander recently chided Jon White of the ONC for the time it was taking to to finalize rules about what constitutes “information blocking.” Rules may eventually be released but there will be wiggle room for all. In addition the environment for enforcement does not appear to favor patients.

EHR vendors get serious about API programs. HIT

All of the major EHR vendors either initiated or upgraded their API programs. FHIR-based APIs are the centerpieces of these efforts. Integrating the Healthcare Enterprise (IHE) is also busy FHIR-enabling its profiles. Developers today have way more opportunity to access FHIR APIs than they did last year. The one blind spot in these programs is write access to EHR data. Independent software vendors (ISVs) want write APIs, but most large systems and their EHR vendors have demurred.

Precision medicine fails to grow substantially outside of oncology. HIT

Despite an increasing number of vendors and continued investment, the precision medicine space remains challenging. While genetic-specific treatments and drugs are slowly making inroads for certain disease, the broader theme of social determinants of health (SDoH) is gaining more attention and will more dramatically influence population-wide health improvement.

Blockchain moves from hype to traction. MIXED

This has moved from hype to a serious topic of discussion – particularly for security and patient-controlled access to medical records. Traction, in terms of market solutions or installed and scaled applications, remains elusive. The largest healthcare systems experiment with blockchain, but a clear focus on use cases remains illusory.

HCOs continue to expand regionally via M&A. HIT

Through the end of September, 87 hospital and health system transactions occurred, and it is expected that the total for 2017 will slightly exceed last year’s total of 102 completed deals. The biggest moves of 2017 stand to be the Dignity Health-CHI merger, which would create the nation’s 10th largest hospital system – a  monster that may quickly be eclipsed by the rumored Ascension-Providence St. Joseph merger. M&A is clearly moving beyond regional plays. Color-by-numbers barriers to M&A are dropping, with the recently announced CVS-Aetna and UnitedHealth-DaVita deals as prime examples.  

Best-of-Breed PHM and analytics vendors continue to stay one-step ahead. MIXED

From a market share perspective, the EHR vendors and Optum racked up more wins in the last year than the independents. That said, the independents still have products and offerings that can go far deeper than the majors. While they stay ahead on the product front, they fell behind in the market. (The same can be said for care management vendors.)

HIMSS’17 will be far calmer and less frenetic. HIT

We were pleased that HIMSS17 focused less on hype and more on value, with demonstrations of operational use cases for network management, bedside patient engagement, data sharing, and clinical decision support. We also heard many vendors discussing services as an add-on to technology deployments, particularly for at-risk pricing and other value-based care initiatives.

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