2022 Trends Shaping the Health Economy

Trilliant Health just released its 2022 Trends Shaping the Health Economy Annual Report, providing a unique perspective on the healthcare market through the lens of supply and demand.

Even though these dynamics don’t play out in healthcare exactly how they would in an “ideal market,” the 147-page report does a good job turning the core principles into a framework for examining 13 different secular trends.   

Perhaps the biggest trend, at least on the demand side, is what looks to be a shrinking total addressable market. The share of Americans with commercial health coverage dropped 0.6 percentage points from 2020 to 2021.

  • On top of this, care forgone during the pandemic appears to be permanently lost rather than delayed. Pandemic-related care is driving the appearance of a rebound, but with COVID treatment and vaccination omitted, healthcare encounters are down 6.2%.
  • The widespread availability of virtual care options hasn’t saved the day either, with Trilliant’s data showing that half of telehealth users in 2021 only used the modality once.

At the same time as demand is contracting, a growing supply of new entrants like CVS, Walmart, and Amazon is making consumer loyalty harder to capture. 

  • Trilliant makes the case that these retailers are commoditizing low-acuity services, leveraging their scale and large customer bases to pressure established players. 
  • This is taking place against a backdrop of burnout among traditional providers, with 9.8% of physicians leaving the field between 2019 and 2022. When accounting for new physicians entering the industry, the U.S. saw a -2% reduction in the physician workforce during the same period.

The Takeaway

If the full report makes one thing clear, it’s that the health economy is quickly turning into a negative-sum game as the number of patients with commercial health coverage decreases and new entrants swarm the field. Even though Trilliant doesn’t set out to give a solution to this problem, its research is a solid tool to help each stakeholder make sure they’re at least asking the right questions.

DHW Q&A: The New Staffing Landscape With connectRN

With Ted Jeanloz
connectRN, CEO

Nurse staffing and burnout issues existed long before the pandemic, but they’ve taken center stage as nursing becomes more challenging as a profession. 

In this Digital Health Wire Q&A, we sat down with connectRN CEO Ted Jeanloz to discuss technology’s role in solving these problems and the new ways that human-centered design can help support healthcare staff.

Let’s kick things off with some background. Can you tell us a little bit about yourself and connectRN’s overall strategy?

Since our early days in 2018, our hypothesis has been that nurses were being squeezed out of the profession because of the rigidity of their schedules. They might be going back to school and need to make time for exams, or they might have a child and need more time for them. What they all have in common is that they need schedules built around their lives, not around work.

We initially thought maybe 10% of nurses would fall in that category of really wanting more flexibility. And with 6.5 million nurses and CNAs in the country, 10% of those would be a solid total addressable market. 

We quickly learned that our assumption that only 10% of nurses want flexibility was way off base. It turns out that 100% of nurses want flexibility. Back in 2019 we just weren’t programmed to realize it was possible, but the pandemic helped show us that flexibility and productivity aren’t mutually exclusive.

That’s at the core of what drives connectRN.

Can you share more about the platform? What are some of the ways that you create this flexibility?

As far as creating flexibility, there’s a bedside component and a virtual component. As far as in-person care we bring flexibility to that part of the equation by first and foremost giving nurses the ability to choose their shifts – timing, care setting, and anything in between.

They can also use the social component of our platform to elect to work with friends. They can say “these are the people I like working with,” coordinate with them on the details, then make the shift happen. That’s been working really well for a lot of our nurses.

We’re also moving towards a world where more care is delivered outside of facilities through things like RPM or telephone triage. If a nurse doesn’t have time for a full shift on Saturday, now they can do a home health visit for someone in their community. We have nurses licensed in all 50 states, so we’ll effectively be able to create an environment where nurses can contribute wherever the system needs them.

It seems like the platform is designed around the nurses in many ways outside of shift matching. Can you talk us through some of that?

One of the key ways that we’re focused on building around the nurses themselves is by facilitating their education. We have a ton of data coming in from both the supply side with the nurses and the demand side with the facilities. This gives us a lot of visibility into what the market is calling for and where there’s a gap.

That allows us to cross-check the skills that are needed with what’s in short supply, then give our nurses a list of next-step credentials that might immediately help their career. If a nurse has a certain set of shifts available to them based on their current qualifications, we can show them exactly how much their opportunity set would expand if they added what’s often a single certification.

By helping nurses get a little bit of training, we can hopefully increase their value in the market, increase the talent pool for providers, and if we can get all that aligned then it’ll move us to a place where nurses are truly better off.

Burnout is one of the bigger themes we cover, and adding more flexibility to the system probably helps with that. What are your views on if there’s a long term solution?

One of the problems with burnout is that there was this big pandemic shock, and it shocked us into a spiral that’s going to be really hard to get out of. It led to short staffing and a lot of nurses getting burnt out, so they ended up leaving, so there’s even fewer people, which creates more burnout and a pretty brutal cycle.

Our perspective is that giving nurses more options for how they work is a way that we can really help. Almost every nurse we talk to, when you ask them why they chose nursing, they all love their job. They all love patient care. It’s universal, but many of them say, “I love it, but I just can’t do it anymore.”

If there’s a long term solution, part of it is creating a way to keep them contributing but at a different scale. If we can let them pick their hours, pick their facilities, and pick how much they work, then they’re going to be happier when they’re there and be able to deliver better care.

That seems like a better mental health place for everybody and I think we can get there.

If you look back on connectRN’s growth, was there a secret sauce that you could share with other founders?

I really think it’s the team that we put together. Phenomenal companies are built by teams of phenomenally hardworking, phenomenally smart people. 

To have a successful startup, I think the first thing you need is a great problem to solve. Once you have that, you need to put together a great team to go after it. The third thing that helps is great investors, and we’ve had the support of really world class investors that have been there for us all along the way.

If you have those three things I think you can consistently succeed as a startup, but if we’re being 100% honest there’s also an element of luck. You absolutely make your own luck in some cases, but having the right solution at the right time is important.

For connectRN, the key has been to keep the flexibility and the nurses at the center of everything we do. We’re not optimizing for a full time schedule, we’re optimizing to help nurses build their careers.

For more on connectRN’s platform, head over to their website.

The Current State of Hospital Finances

Although we touch on Kaufman Hall’s National Hospital Flash Reports pretty regularly, the consulting firm recently published a more in-depth update on the current state of hospital finances and it looks like we could be in for a rocky 2023.

The main themes are all laid out below, but the full 13-slide deck is a quick skim if you want to take a closer look at any of the highlights.

One of the most noteworthy findings was that employed labor expenses are projected to increase more than all non-labor costs combined by the end of this year.

  • Hospital labor expenses are expected to climb $86B from last year’s combined total, while non-labor expenses are looking at a $49B jump due primarily to inflation causing drug and supply costs to remain 20-25% above pre-pandemic levels.
  • Contract labor expenses remain nearly 500% higher than in 2019 as the battle for nursing talent continues to pressure margins despite this year’s slowdown.

Kaufman Haul’s optimistic projections for the rest of the year now indicate that hospital margins will be down 37% from pre-pandemic levels, but their pessimistic models point toward a significantly sharper 133% decline.

  • The most pessimistic scenarios include COVID-19 variant surges, sustained inflation and expense growth, sicker patients who have delayed care, aggressive payer negotiations, and increased mix of non-commercial payers.
  • Half of hospitals reported a negative operating margin in H1 2022, and 53% are expected to be in the red by the end of the year – a pretty bleak picture considering only a third of hospitals saw negative margins prior to the pandemic.

The Takeaway

Hospitals have been feeling the pain of sluggish volumes and climbing expenses since the early days of the pandemic, but they’re now faced with a total lack of foreseeable federal support to help stabilize their deteriorating financials. Unless the situation starts showing signs of improvement, it’s likely that the service cuts and restructuring moves are just getting started.

Rock Health Q3 2022 Funding Recap

The end of Q3 means it’s time for another digital health funding wrap-up from our friends over at Rock Health, and many of you can probably guess how the numbers looked:

  • Total Q3 funding plunged 48% to $2.2B, the lowest quarterly amount since Q4 2019.

The low total puts us on pace for less than half of last year’s $29.2B haul, but the full story isn’t as grim as it sounds. Smaller round sizes, rather than fewer rounds, dragged down the overall number.

  • Q3’s 125 deals only represented a 14% drop, but a newfound preference for early-stage startups caused the $100M+ mega-rounds to dry up completely with the exception of Cleerly ($223M Series C) and Alma ($130M Series D).
  • Only six Series C or higher rounds took place during the third quarter, accounting for less than 5% of total funding volume. By comparison, Q2 saw 19 late-stage rounds and Q1 had 32.

Rock Health floats three explanations for the late-stage slowdown: 1) Many rounds were pulled forward to 2021 to strike while the iron was hot. 2) Other raises are taking place behind the scenes through round extensions or venture debt. 3) We’re in the middle of the biggest bear market in a decade… so some funding just isn’t happening.

The other major shift taking place with investors can be seen with the top funded value propositions and clinical indications.

  • Value Props: Non-clinical workflow companies vaulted into first place ($1.8B YTD), suggesting that staffing shortages and employee burnout remain top priorities. 
  • Clinical Indications: Digital mental health companies held on to the throne ($1.7B YTD), but oncology ($1B) and cardiovascular startups ($0.9B) have been gaining ground.

The Takeaway

It’s no surprise that this year’s public market correction is causing private market investors to hold out for smoother sailing, but if Rock Health’s Q3 report shows us one thing it’s that truly innovative startups will attract capital no matter how turbulent the macroeconomic waters. Rock Health also left us with an important reminder that “rational prices promote long-term market health and, if anything, diminish near-term worries.”

Judge Greenlights UnitedHealth’s Change Acquisition

The big are getting bigger after a federal judge denied the DOJ’s attempt to block UnitedHealth Group’s $13B acquisition of Change Healthcare, delivering a huge victory to the healthcare giant as it continues to vertically integrate its business.

As part of the decision, UHG will be required to divest Change’s ClaimsXten service line (it already has TPG Capital set to pick it up for $2B), although not much else is known about the full opinion since it “may contain competitively sensitive information” and is under seal.

UnitedHealth Group needs little introduction, but in case you’re new to the industry, it runs one of the nation’s largest payors, operates a huge pharmacy benefit manager, and employs thousands of physicians through its care centers.

  • Change’s claim processing business is now getting rolled into UHG’s OptumInsight analytics arm, which it argued will help improve outcomes and reduce waste by providing better insights to physicians.
  • To give you an idea of UHG’s scale, OptumInsight contributed ~$12B to its insane $288B total revenue in 2021. By comparison, Change did about $3.5B in revenue last year, and even that is getting chopped as it sheds ClaimsXten.

UHG’s position as the US’ most profitable healthcare company paints a huge target on its back for antitrust lawyers.

  • The DOJ argued that acquiring Change would give UHG access to a treasure trove of data on its payor competitors and create a virtual monopoly in the claims processing space, leading to lower quality and less innovation.
  • UHG countered that it already has access to this competitor data, and has never misused it since doing so would create a huge blowback on its business (we’ll also assume they said something about it being unethical). Some version of this argument clearly stuck.

The Takeaway

Whether or not it created a monopoly, the Optum-Change combination is now a major powerhouse that doesn’t sound fun to try and compete with. DOJ top brass Jonathan Kanter wasn’t very enthused about the outcome, saying “we respectfully disagree with the court’s decision and are reviewing the opinion closely to evaluate next steps.” That looks to us an awful lot like the DOJ is planning to appeal the judgment, but UHG and Change are moving forward with combining the companies “as quickly as possible.”

AMA Report Shows Strong Digital Health Adoption

Just in time to kickoff Telehealth Awareness Week, the American Medical Association released its latest digital health research report, giving us some fresh insight into the emerging tech landscape while reaffirming many of the trends we frequently cover.

The AMA surveyed 1,300 physicians in 2016, 2019, and 2022, tracking not only their current usage stats, but also their motivations for adopting new solutions.

The top line takeaway from the report is that physician adoption of digital health tools is accelerating even faster than it was prior to the pandemic, with the largest growth by-far coming from telehealth visits.

  • Tele-visit utilization grew from 14% of practices in 2016, to 28% in 2019, then spiked to 80% in 2022. Remote monitoring devices lagged quite a ways behind, but still climbed from 12% to 30% over the same period.
  • The adoption was driven by physicians across all practice sizes, settings, and specialties, with the average number of tools in use growing from 2.2 in 2016 to 3.8 in 2022. Definitely worth taking a look at the full usage breakdowns on slide 9.

Physicians jumped on the digital health bandwagon for a variety of reasons outside of COVID-19’s negative shock to in-person encounters.

  • Improved clinical outcomes (88%) and increased work efficiency (88%) topped the list for overall digital health adoption, which is a bit surprising considering that unproven clinical benefits and new workflows are frequently cited as drawbacks of virtual care.
  • Interestingly, the top motivators for adopting “remote care tech” differed completely. 72% said that adopting tools like telehealth and RPM improved resource allocation for staff, 70% said it supported value-based care, and 66% said it supported health equity. 

The Takeaway
The AMA report is a useful roadmap for anyone looking to understand where physicians are in their digital health journeys, as well as the motivations driving them to adopt new technologies. There are also some hidden gems for those diligent enough to make down to the appendix on slide 24 of the report, which includes technology adoption curves and planned timelines for adopting different subsets of tools.

Walmart & UnitedHealth’s VBC Collaboration

Fresh announcements seem to be piling into the retail healthcare snowball on a daily basis, and it looks like Walmart and UnitedHealth Group don’t plan on missing out on the fun.

Walmart and UnitedHealth Group inked a 10-year partnership to deliver care to hundreds of thousands of Medicare Advantage beneficiaries through value-based arrangements, with three pillars supporting most of the collaboration:

  • Beginning in January, Walmart and UHG will launch a co-branded MA plan in Georgia, dubbed UnitedHealthcare Medicare Advantage Walmart Flex.
  • UHG will provide Optum analytics and CDS tools to Walmart Health clinicians, starting with 15 locations throughout Florida and Georgia.
  • Walmart Health’s Virtual Care solution will now be in-network with UnitedHealthcare’s Choice Plus PPO plan, giving ~20M members access to the service.

At first glance, the partnership makes sense for both sides, offering advantages of scale that could only be achieved from a collaboration between the nation’s largest retailer and its largest payor.

  • Walmart gains access to UHG’s deep clinical expertise and Medicare Advantage resources, giving it exposure to the upside of risk-based contracts without having to fully enter the complex insurance market. 
  • In return, Walmart’s expansive footprint provides UHG with healthcare access points all across the country, including in geographies where Optum’s own physician network isn’t active (yet).

The Takeaway

UHG and Walmart have a clear recipe for cooking up a big impact: UnitedHealthcare covers more lives under Medicare Advantage plans than any other payor, and 90% of Americans live within 10 miles of a Walmart store. Only time will tell whether the partnership turns into a nationwide success story, but it’s hard to think of another duo that would have a better shot at pulling it off.

General Catalyst and WellSpan’s Digital Transformation

One of healthcare’s biggest venture capital hot streaks is adding fuel to the fire, with General Catalyst and WellSpan Health entering a new partnership to drive digital transformation.

General Catalyst and Pennsylvania-based WellSpan are aiming to improve care models and patient engagement by embedding tech from the VC firm’s “health assurance network” into the health system’s operations.

GC’s health assurance network is comprised of portfolio companies with broad expertise in everything from employer benefits to population health, and includes marquee names such as Aidoc, Cadence, Olive, Sword Health, and Transcarent.

  • The partnership involves no financial commitment from either party, but provides GC with insights from real-world clinical applications and allows WellSpan to invest in any co-developed solutions.
  • The formula appears to be working. This is GC’s fourth health system partnership of this kind, adding to collaborations with Intermountain Healthcare, Jefferson Health, and HCA Healthcare.

General Catalyst originally found success with grandslam investments in Airbnb, Instacart, and Snapchat, but it’s been pretty hard to miss the huge waves it’s been making with its dive into healthcare.

  • In July, GC raised its second $600M+ healthcare fund, which it followed up by tapping then-Intermountain Healthcare CEO Marc Harrison to helm its investment platform.
  • That also wasn’t exactly GC’s first hospital exec hire, with former Jefferson Health CEO Stephen Klasko joining the firm in February… Looking back up to the names of GC’s health system partners, WellSpan might want to take a hard look at its incentive packages if it wants to hold onto its leadership.

The Takeaway

General Catalyst couldn’t make its stance on healthcare transformation any more clear: incumbents hold the keys to the innovation kingdom. The VC firm is also keen on catalyzing its own thesis, so expect plenty more health system partnerships to be inked before the end of the year.

Amazon Ends Amazon Care, Pursues Signify

What a week for Amazon. Just when you think that entering the bidding war for Signify Health would be enough excitement for one top story, the tech giant had to overshadow the news with another major announcement:

Amazon Care will shut down at the end of the year.

In an internal memo obtained by The Wall Street Journal, Amazon Health Services SVP Neil Lindsay explained that the primary care offering wasn’t “the right long-term solution” for its enterprise customers.

  • The move comes as quite the surprise given that CEO Andy Jassy recently highlighted Amazon Care in his first letter to shareholders, as well as the fact that we just covered a new partnership with Ginger that would’ve brought behavioral healthcare to the service.
  • Although Lindsay didn’t give too many details on the matter, earlier this month The Washington Post reported on a growing tension over Amazon Care’s ability to balance growth with proper medical safeguards, as well as a nursing shortage that’s been hampering expansion. 

Amazon said that its decision to pull the plug on Amazon Care was made prior to last month’s $3.9B acquisition of One Medical, but the company’s second major headline from this week might cast some light on the course correction:

Amazon is on the list of heavy hitters competing for the Signify Health acquisition.

  • Other companies vying for Signify include CVS Health and UnitedHealth Group, with the latter bringing the highest reported offer (so far) to roughly $8B – implying a 20% premium at $34 per share.
  • We covered Signify’s core home care business in our initial writeup, but Amazon’s angle could center more around the treasure troves of data that the company collects on the Medicare Advantage population that just so happens to be the same patients served by the Iora segment of One Medical.

The Takeaway

Regardless of the outcome of the Signify acquisition, Amazon’s interest in the company and the abrupt end to Amazon Care seem to signal that it’s done its diligence and has decided to hone its focus on a combination of senior care (Signify + Iora), primary care clinics (One Medical), and prescription delivery (Pillpack). 

We’ll leave further speculation alone for now since we luckily shouldn’t have to wait too long for an official update. Signify is set to have a board meeting on Monday to discuss the offers, and negotiations are expected to conclude shortly after Labor Day.

Rock Health: Funding Cools Off in H1 2022

The numbers are in. After a record shattering year for digital health funding in 2021, the latest Rock Health venture recap shows that the sector’s frothiness has officially turned to a fade, which might actually be good news for opportunistic startups.

First things first, digital health funding totaled $10.3B across 329 rounds in H1 2022, placing it on a trajectory to end the year significantly lower than 2021’s $29.1B. As the broader market plummeted in response to recession worries and global conflict, digital health companies weren’t immune, resulting in a full year funding projection of $21B.

  • Rock Health is quick to point out that “there are two sides to every (market) story.”  While this year’s funding will likely fall far short of last year, it’s still on track to outpace 2020’s $14.7B, representing an important return to long-term growth and supporting the view that digital health is a sustainable investment sector.

The slowdown impacted nearly every corner of the digital health market. Series B round sizes declined by an average of 25% in the first half of the year, while Series C and D+ rounds fell by 22% and 12%, respectively. The one bright spot was early-stage startups unburdened by an outdated sky-high valuation, with the average Series A size of $18M staying on par with 2021.

  • We’ve covered this often but it’s worth restating here: companies prioritizing growth-at-all-costs over a sustainably profitable business model are struggling in the current funding environment. As investors re-evaluate future revenue with a less favorable outlook, not a single digital health company decided the timing was right to go public in H1 2022, down from 23 in 2021.

The most-funded clinical area defended its title once again, with mental health startups bringing in $1.3B during H1 2022 on the back of a huge round from Lyra Health ($235M). This chart gives a full breakdown of the top clinical indications.

  • The value propositions that attracted the most investment were research and development at $1.6B, followed-by on-demand healthcare and disease monitoring each bringing in $1.4B. Administrative / clinical workflow automation also saw large totals as health systems continue to build back up their worn down workforces.

The Takeaway

Although the first half of the year brought a pullback in digital health funding, the return to a multi-year growth trend is a healthy sign for a sector that was overheating throughout 2021. This particular market moment gives companies a chance to tighten their belts and reorient towards a more fundamentals-driven direction, and we should start to see more differentiation and clinical rigor from the businesses that successfully navigate the transition.

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