According to the Office of the Actuary at CMS, national healthcare expenditures will hit 19.4% of GDP by 2027 and will grow an average of 5.5% annually, hitting nearly $6 trillion. At a truly unsustainable rate, what will we be doing to bend the curve in 2023? Here is what the experts have to say. And check out all our 2023 prediction posts.
Mergers, acquisitions, and partnerships will continue to flourish in the healthcare space in 2023, as both are means of competitive differentiation and diversification. Traditional acute care health systems may start investing in smaller ambulatory surgical centers to reduce delays in providing elective surgeries closer to home. Alternatively, they may build out hospital-at-home programs to expand their patient pool without needing to make additional real estate investments in the current high-rate environment. However, as healthcare organizations expand their services, some back-office activities such as scheduling, may benefit from consolidation. Creating a shared services center for scheduling across all the different segments may offer a way to create efficiencies and better continuity of care for patients.
Additionally, traditional healthcare organizations need to defend their patient populations from disruptors like retailers like CVS, Walmart, or Walgreens who have been building their own vertically integrated networks to capture patient populations interested in convenience. Retailers deeply understand the importance of clear pricing, brand recognition, and customer loyalty, and these concepts will likely challenge the traditional models of care.
Over the last few years, significant private capital has flowed to innovative primary care-led ventures. As a result, the primary care market is estimated to be worth $260 billion in 2022. In 2023, these primary care companies will be under increased pressure to deliver financially — but their models might not be ready. These innovators need time to overcome a system not built for primary care, in the context of decades of underinvestment. This is the time for private investors to double down on these models. The demonstrated return on investment for primary care is remarkable: for every $1 invested in primary care, $13 of costs can be saved downstream. We know that high-value primary care improves health outcomes and drives down total cost of care, with potential to influence 90% of the $4 trillion total in annual U.S. healthcare spending.
In financial models where revenue is generated by the money saved in avoidable spending, it simply makes sense to invest in primary care. It takes time for delivery systems, technology, and payment model intricacies to catch up to the kind of equitable, accessible, high-value primary care these innovators are designing. Now is not the time to abandon efforts to reform just because the economy is taking a dip. Now is the time to bolster support and give these innovators the latitude to experiment outside the status quo and reinvent primary care models that improve care for America’s most vulnerable citizens while also improving the health of our economy.
Consumers will opt out of insurance and opt into healthcare memberships. For decades, insurance has dictated a patient’s care options and the financial feasibility of that care – especially concerning preventative measures. In 2023, cash-pay healthcare memberships will become much more prevalent, enabling individuals to pay a flat monthly fee for access to the care team of their choice for preventative care.
The past few years have seen an explosion in efforts to finance healthcare outside of the traditional health insurance system. Physicians, employers, and patients alike are fed up and starting to turn away from third party insurance in search of a better way to pay for care that would improve the experience for everyone. The direct care model is based on a monthly subscription fee and started in primary care, but has expanded to various other specialties, also following the subscription model. Cost-sharing models allow a community of participants to pay into a co-op which then covers the costs of seeking care and often offers discounted ancillary and prescription medication services without the restriction of a “network” – members choose where they want to go based on cost and quality. Self-funded employers are contracting directly for specific episodes of high-cost services, like joint replacement or spine surgery, using bundled pricing at agreed-upon rates, circumventing a third-party payer or administrator.
The healthcare industry is ripe for a break from the status quo. In 2023, we will see the rise of community-based, physician-owned health plans. These carefully curated networks involve physicians and ancillary services who form a collective and serve as an integrated delivery system. These collectives have their own discounted pricing structure, are built on a foundation of high-value primary care, and can be made available for individual membership or as a benefit plan offered by self-funded employers. Mainstream commercial insurance programs may struggle to maintain their market share as the marketplace of alternatives begins to blossom.
Funding worries are overblown – Investors are not pulling away from funding but are looking to support technology that has greater capabilities to do more, engage further with patients, and connect more parts of the healthcare system. In 2023, I think we will see more investments into digital health solutions that support a more connected ecosystem among patients across the spectrum.
Health IT consolidation & more robust solutions – during COVID there were very large investments in digital health. But the industry was largely reacting. It was building the digital car while driving it down an uncharted highway. Consequently, most of these investments were as-needed, single-solutions that provided localized value but were not tightly integrated with larger systems or even aware of the overall context. The market in 2023 will respond in two ways. On one hand it will bring much digital health consolidation. Alongside this activity there will continue to be the emergence of new, more sophisticated solutions that don’t have the problems of the first generation.
In 2023, I think we’ll see a pattern of pull-back in digital health funding. I also believe we’ll likely see more digital health companies looking to be bought in the year ahead. We’re already starting to see this trend come to life with recent closed acquisitions such as ResMed’s purchase of Medifox Dan. This type of market consolidation will keep our industry on its toes next year and, overtime, ideally benefit patients as bigger digital health players begin to scale more end-to-end platforms that focus on holistic preventive care, instead of point solutions and sick care.
Big companies that made splashy entries into the clinical trial enablement market will struggle – but it will power a flurry of potential M&A activity. In 2023, as CVS, Walmart, Walgreens and others try to find their footing, competing against entrenched players while also comparing themselves against each other, 2023 may see a flurry of M&A activity. Like we’ve seen in other parts of healthcare (e.g. home health, primary care), big tech and big retail will engage in bidding wars to acquire the companies that give them the footprint and/or experience to win the healthcare game of thrones. In 2023, the next great healthcare arms race may take place in the clinical trial ecosystem – especially if other major names like Amazon deepen their clinical trial capabilities.
In 2023, I think digital health funding will remain status quo and that we’ll continue to see more acquisitions and consolidation. I am donning 2023 the “Year of Consolidation.” Investors of all sorts will be looking for smart ways to join together point solutions in digital health – almost like a string of pearls. These investors are eager to integrate proven digital health point solutions that, when integrated under one roof, can prove scalable and impactful in addressing serious healthcare challenges – such as chronic diseases, like cancer.
This year’s funding environment quickly separated the ‘good’ from the ‘bad,’ meaning businesses built with poor unit economics on day one will not survive. It also forced companies to explore other funding alternatives like Venture Debt or taking down rounds. Founders and executive teams leaned into being more diligent with capital and planned for the worst. Digital health funding in 2023 will remain relatively the same, and very difficult. That said, great companies will still emerge and secure funding – “great” being ones that have sustainable business models.
As national healthcare costs have continued to climb drastically, jumping 9.7% from 2019 to 2020 alone, payers must continue focusing on improving payment integrity while also supporting member health in the coming year. With a dramatic rise in telehealth claims due to COVID-19 has come an increase in opportunity for fraud, waste, and abuse (FWA), particularly in the area of behavioral telehealth. Payers should rely on sophisticated tools and analytics, aided by deep expertise in analyzing suspicious billing patterns, to mitigate this growing concern.
Coordination of benefits (COB) is another area where payers can achieve better results in 2023. By incorporating social determinants of health (SDOH) and life event information on each member into the claims adjudication and payment process, plans can reduce member abrasion while unlocking avenues for early intervention to prevent inappropriate payments.
Finally, high price tags and complex claims processing for specialty drugs are likely to lead more plans to improve these programs in 2023 and beyond. Dedicating a specialty drugs team and implementing closed-loop systems that combine prepay, postpay, and FWA functions are two strategies more payers should leverage to improve payment efficiency and accuracy for these costly but vital therapies.
2022 is on track to be one of the worst financial years for hospitals on record. Decreasing revenues, high expenses and sicker patients are forcing many healthcare organizations to consider tough decisions as they plan for 2023. Additionally, labor shortages and consumer demand for digital experiences are two factors influencing the strategic visions of hospitals, health systems, and practices large and small. In the year ahead, healthcare financial leaders can look to technology and process improvements that drive operational efficiencies to cut costs and increase patient satisfaction and retention. They must stay on top of the forces that will shape the industry going forward:
- Prioritize paperless billing initiatives
- Offer payment plans to help patients manage large medical bills
- Optimize the revenue cycle to accelerate cash flow
- Prevent payment fraud
- Leverage the hybrid work environment for staff recruitment and retainment
- Protect patient and payment data against growing security threats
These latest trends signal that the healthcare industry is making progress, including a shift to an investment in the future, contactless everything and emerging technologies. By being informed of the latest trends, healthcare leaders can make business decisions that will guide the organization in the right direction, toward achieving the strategic vision for innovation and growth.
On Jan. 1, 2023, commercial insurers and group health plans are required to provide members with access to out-of-pocket costs through the Transparency in Coverage mandate and No Surprises Act legislation. While these mandates are a great foundation for price transparency heading into 2023, they do not address what’s needed to truly improve the member experience and help people navigate healthcare for years to come. Making price transparency valuable requires translating complex cost data into information that is meaningful, accessible, and clear for the average person. Health plans must focus on creating unique and engaging digital experiences that connect people with appropriate and cost-effective care. From our standpoint, this requires a cross-industry effort where patients, providers, payers, the government, and innovators come together to ensure people can easily navigate and access care where and when they need it.
In the coming year, the greater economy’s financial concerns are reflected in the healthcare industry. Budgets will remain stretched as decision-makers navigate rising inflation, diminishing reimbursements, and increased supply chain issues all while addressing staffing and burnout concerns. Increasingly, stakeholders will need to prioritize system interoperability and cost-optimizing solutions that leverage data-driven insights. Organizations should expect financial pressures to drive decision making in the new year.
Continued Consolidation Will Threaten Rural Hospitals:
The ongoing wave of multi-billion-dollar mergers and acquisitions is showing no signs of slowing down in 2023. As the new year unfolds, many small-scale, independent hospitals and providers – especially in rural areas – that are contending with staff shortages will be faced with either going out of business or being acquired by larger, well-established entities. Compared to large health systems, the country’s smaller independent hospitals are constrained by lower reimbursement rates from commercial health plans, weak financial reserves, and thinner margins which equates to less marketing spend. Studies have shown that the rate of hospital consolidation – which has more than doubled since 2009 – is driving healthcare costs up, creating worse health outcomes, and reducing services available to patients. This decrease in services is having a particularly alarming impact on childbirth as labor and delivery center closures continue to rise in the U.S., where maternal mortality rates already far exceed other industrialized nations. The negative health outcomes fueled by traditional health system consolidation will also be accelerated in 2023 and beyond by the continued acquisition strategies of non-traditional retail and big tech players in healthcare that include Amazon, Walmart, CVS, and Walgreens.