Think the Healthcare Market is Changing? You’re Right. Here’s How.

by Hilsman Knight, CM&AA, Managing Director.

As we get closer to the end of the year, it’s a good time to take a step back and assess the healthcare market — more specifically, what’s been happening and what’s likely to come. There’s no denying that the healthcare landscape is changing rapidly. 2019 has been a year where every sector has experienced disruption. If you want to succeed in 2020 and beyond, you must understand and be prepared to meet the challenges of today and tomorrow.

To better help you accomplish these objectives, here are brief summaries of some of the most significant areas that rattled the healthcare industry this year and are likely to pick up steam as we enter the new year.

1. Cybersecurity
This is an issue not typically on everyone’s radar, but it must be. The average healthcare organization spends about $1.4 million to recover from a cyberattack, according to a recent report. Healthcare companies should plan to allot significant resources for improvements in this space. Ransomware and other external security threats are increasing and represent significant threats to organizations. As a Black Book Market Research survey of healthcare security professionals indicates, 96% of responses said data attackers are outpacing their organizations’ ability to defend themselves.
If cybersecurity is not well-managed, a cyberattack can wreak havoc and lead to a dramatic financial impact. Full medical records are worth up to a thousand dollars on the black market and internet’s “dark web,” a CBS News report notes, compared to social security numbers that sell for $1. Cybersecurity is not to be taken lightly; expenditures should reflect this accordingly.

2. Technology and software systems
This is an area that continues to expand heavily, in part because it has become so intertwined with our professional and personal lives. Generally speaking, healthcare, as an industry, is notoriously slow at implementing systems that can drive and support efficiencies in managing, collecting, and analyzing data. Consider telemedicine software, which continues to reduce cost and has demonstrated an ability to make the delivery of healthcare more efficient and cheaper in many sectors. Yet, one can’t ignore headlines like that of a March article from Modern Healthcare: “Low adoption of telemedicine may spur patient migration away from traditional providers.” Less technological providers will likely suffer the same fate.
Healthcare organizations are under great pressure to make technology and software investments to strengthen their appeal to prospective patients, providers, staff, and payors as well as to meet growing reporting requirements. Organizations should prepare for an all-out blitz of even more technology solutions entering the industry in the coming year as healthcare becomes more digitized. Early-stage companies and investors are preparing to make the most of this change. Examples of technology trends to watch for in 2020, according to Forbes: artificial intelligence and machine learning, robotics, wearable tech, 3D printing, and virtual reality.

3. Investors
More than ever, investors are finding ways to deploy inactive capital into healthcare. Private equity deals in healthcare in the United States more than doubled over the past 10 years, according to Pitchbook. In 2008, there were 325 deals (including buyers and sellers). In 2018, that number reached nearly 800 — a record number of deals representing more than $100 billion in total value. Investors understand that, in many ways, consumer healthcare spending is a nonoptional expenditure. Healthcare, as a whole, continues to be less volatile than other industries. This leaves most of the segmented healthcare industries ripe for expansion through roll-up opportunities. The trend will likely remain the case in 2020, which should lead to increased activity and valuations.

4. Legal
Since investors are hungry for sourcing healthcare deals, the market has responded by putting out more opportunities for acquisition. The surge of deal activity and competitiveness for deals has pushed investors toward lower quality opportunities. As a result, the likelihood of these deals souring post-close is an ever-increasing concern. Additionally, the increase in deal activity has contributed to an increase in the breaching of representations and warranties. In short, putting the cart before the horse has led to more deals reaching a costly legal conclusion post transaction.
It is important that sellers disclose all legal issues prior to the sale of their companies. These disclosures may seem costly, but this transparency is the better option compared to owning up on the back end and potentially forfeiting the deal.

5. Reimbursement
In the world of value-based healthcare, reimbursement is under the microscope. Working with government payors (e.g., Medicare, Medicaid) is a double-edged sword. On one hand, they are continuing to increase coverage for procedures that were previously uncovered. Other the other side, they continue to rachet down on fee schedules for existing, covered procedures. Expect both these edges to sharpen. Learn how these trends will affect your respected sector.
Pay close attention to how industry associations are responding to federal activity concerning reimbursement. For example, as Healthcare Dive reported, the American Medical Association and American Hospital Association (AHA) recently criticized the Centers for Medicare & Medicaid Services’ proposal to better streamline programs that tie Medicare reimbursement to quality or value, with AHA stating that “… considerable revisions are needed to ensure that providers are assessed fairly and accurately in order to receive the appropriate payment.”

6. Clinicians
Clinicians are increasingly leaving the healthcare industry — more specifically, the provider side — due to burnout. One survey found that 92% of clinicians said burnout is “… a public health crisis that demands urgent action.” Physicians to mid-levels are exploring ways to leverage their skills and experience in other aspects of healthcare. Expect more physician owners to pursue ways to exit their companies or partner with other entities in the industry to relieve some of their responsibilities contributing to burnout (e.g., excessive workloads, inefficient work processes, clerical burdens, lack of input or control with respect to issues affecting their work lives, organizational support structures, leadership culture).

7. Government
The healthcare industry is under constant scrutiny by regulators (e.g., federal, state, local governments and agencies; accreditation bodies), with change an ongoing concern. Recent political tides have been pushing some to more strongly consider a form of a socialized mandate for healthcare.
While reports of eminent and drastic change swirls in the media and government, the future is very unclear. Ultimately, as has always been the case, whatever path is paved forward, the healthcare industry will find a way to work within it. Providers, payors, and patients may need to adjust, but should not be completely unhinged. Even some preliminary planning concerning how to respond to potential, significant disruptions can help organizations avoid panic and rash decision-making if and when such disruptions come to fruition.

8. Commercial insurance
Insurance plans are pursuing more value-based approaches to encourage (i.e., force) providers to better contain costs without reducing quality. Bundled payments, for example, are becoming more commonplace (e.g., Cleveland Clinic, Kroger and Anthem for heart surgery; Rothman Orthopaedic Institute and Independence Blue Cross for joint replacement and spine procedures; Henry Ford Health System and Blue Cross Blue Shield of Michigan for hip and knee replacement).
The healthcare industry will continue to inch toward value-based care and away from fee-for-service. Consider that the number of U.S. states and territories that have implemented value-based programs increased from three states in 2011 to 48 as of 2018.

9. Patients
Healthcare consumers are shopping around more for their healthcare services and increasingly finding information they are looking for. Pricing is becoming more transparent as businesses are taking initiative to post their pricing online and the government is mandating that pricing become more transparent.
Expect a growing number of consumers to demand quotes for the personal cost of their care before committing to treatment. As patients and employers bear more responsibility for the costs of health¬care, anticipate patients to more actively search out high-value services instead of simply seeking care where their physician or health plan directs them. As an HFMA article states, “For providers, adjusting to this emerging consumer mindset requires a new approach to their core operations. In all processes, from marketing to revenue cycle to clinical care, they must consider best practices for attract¬ing patients and earning their loyalty.”