Ryan Daniels, William Blair’s group head of healthcare technology and services, returns to discuss the accelerating transformation of specialty care in the face of rising acuity, delayed diagnoses, and regulatory shifts. From bundled payments to AI-driven coordination, this episode explores how providers and investors are reshaping oncology, cardiology, and other high-impact disease states.

Podcast Transcript

00:22
Chris T
Hi everybody. Welcome back to William Blair Thinking Presents. Today is Wednesday, August 20th, and we're joined once again by William Blair's Group Head of the Healthcare Technology and Services research sector, Ryan Daniels. Ryan, thanks for being here.

00:35
Ryan D
Yeah, thanks for having me, Chris. I always enjoy doing these, so I really appreciate the opportunity to be back again for another session.

00:41
Chris T
Yeah, great. Yeah, me too. All right, so Ryan and his team recently released their latest Healthcare Mosaic report, which, as a reminder, is a quarterly deep dive into a major theme shaping the healthcare landscape. And this quarter's report is titled “Advanced Specialty Care Update: As Acuity and Cost of Care Elevate, So Does Demand for Innovation.”

So, this is a comprehensive look at how specialty care is evolving in response to rising costs, more complex patient needs and the push towards value-based care. So, Ryan, as, as I mentioned, welcome back. It's always good to have you on the show. To kick things off, what's the core message of this report and why did you choose revisit specialty care this quarter?

01:25
Ryan D
Sure. I'm happy to discuss that. And thanks again for having me on the podcast today. So, before I directly answer your question - just a quick reminder for the audience - we do one of these deep dive reports each quarter, as you mentioned. This is now our 38th consecutive quarterly Healthcare Mosaic report. And as is the case for each report in this series, our intention is really to ID a key megatrend that appears to be gaining momentum in our coverage universe, and then to provide a comprehensive overview into why that's the case, the near long term drivers of the trend, what industries and companies can benefit from this trend and how investors can really play to the space. So, to directly answer your questions, we first looked at the specialty value-based care market a few years ago, and as you mentioned, this is an update to that initial piece. And the reason we decided to revisit this topic was that it has advanced so much since that initial publication, we simply felt it made sense to provide our clients with some updated analysis.

So, in this report, we outlined some of the new macro trends driving the need for specialty value-based care, or VBC, some new disease categories that appear to be gaining traction and a variety of novel government initiatives, including some that are just about to launch in 2026, that we think are really going to drive growth in the space.

Second, we believe the need for these solutions are really at an all-time high today in a post-COVID-19 environment, one where providers are seeing more advanced care needs and higher cost to provide specialty care. So, just as a quick example for our listeners, the number of cancer cases in the U.S. is about to surpass two million new patients for the first time ever.

And a lot of these cases are being discovered later on, meeting later stage diagnosis, likely due to some of the lack of preventive screenings a few years back with COVID-19. And this means you're not only having more cases, but these patients are sicker and the cost to treat are remarkably higher. And just to make that a little bit more concrete, we have some examples in the report and data shows that a cost for finding a patient with stage one breast cancer, again, just as an example, is about $83,000 in the first year. But if you don't find that patient until stage four the first-year cost is $250,000. So again, these later diagnoses are really pushing a lot more cost to the overall system. So that's driving demand.

And then the last thing I would say to this point is there's been a massive uptick in high-cost drugs, especially pharmaceuticals in the market today. And a great example there is Keytruda. Keytruda is the leading oncology drug in the market today. It's actually the largest single drug in the world. It's probably the largest single product being sold in the world.

Last year alone, it generated more sales than all of McDonald's, so you can see how huge the need is. So that's really point number one. And then a little more brevity here, but to your question on the core message, in my view, there's just a huge need for disruption in how care is delivered in several massive categories of healthcare spend,

so, oncology, cardiology, kidney care, GI, which is gastro, and MSK or musculoskeletal. We think there's not enough scale with these specialty care providers and ample evidence of their ability to improve outcomes and drive savings that the market's really ready for explosive growth. So, to offer a final example here, and then I'll turn it back to you, I did a fireside chat just yesterday with the private provider in the oncology specialty care market.

We profiled them in this report, and a year ago, they had less than one billion dollars in oncology spend under management. That's already surpassed four billion dollars today. So, it just shows you how rapidly this market is growing, how big the need is. So again, “punch line” is we believe there's a better way to care for these patients, and we believe the industry is really pushing these models forward at scale and accelerated rate today.

05:15
Chris T
So, one of the things that stood out to me is the scale of the opportunity. So the report, it notes that specialty care now accounts for 60% to 65% of clinic and physician spending. And then, you know, CMS which stands for Center for Medicare and Medicaid Services is rolling out mandatory bundled payments called “Transforming Episode Accountability Model” or TEAM in 188 regions. And that's a big shift. So, can you walk us through what TEAM is and why it matters?

05:45
Ryan D
Sure, yeah, that's a good insight, and a good call out from the report. And I agree, it's a very significant shift at CMS. And the reason for that is that TEAMs is the first ever mandatory bundled payment program at the government. So any other type program were optional. But TEAMs will require about 750 hospitals and about a quarter of all large MSAs or Metropolitan Statistical Areas in the U.S. to participate in these payment bundles.

And this includes many of the largest health systems in the United States, based on our analysis. And what it requires, in a nutshell, is a single payment related to a qualified procedure under the TEAMs model for the procedure itself and then any follow-up care delivered 30 days thereafter. So, CMS is paying a single bundle price for the surgery.

For example, a coronary artery bypass graft and then any related services for 30 days, like post-acute care, follow-up doctor visits, durable medical equipment and supplies, any other hospital or ambulatory needs, future ED visits, readmissions, etc. So, what that means is there's not a huge incentive for all the providers in the value chain to work together to maximize the value of care and lower cost.

So to continue with an example here, you don't want a patient to have an ED visit after a surgery, because then they're probably going to have to be in the hospital for several days thereafter. And that would be a negative event that drives much higher cost and you won't get paid for that. You're getting paid a fixed bundle so all these are incremental cost just eat into the margin. So, there's clearly an incentive to better coordinate care post the initial discharge and to make sure patients are being cared for better at home, they're getting transportation to follow-up visits, they're managing their diets. And it's going to require this type of coordination, if you will, between the specialist and the primary care doctors.

And again, the key here is this is a requirement now. It's not an option for myriad U.S. health systems across the country, and it's a huge development that's set to launch January 1st of 2026. It’s a great example of one of the regulatory changes that I mentioned that's going to continue to push this market forward.

07:51
Chris T
So, the report also highlights how delayed care during the pandemic has led to more advanced disease states, especially in oncology and cardiology. What are the implications of that for payers and providers?

08:02
Ryan D
Yeah, I highlighted that a bit earlier, but it boils down to patients using more care, having more advanced conditions and incurring higher costs is the “punch line.” And for payers, they are generally capturing a fixed fee at the start of the year via the insurance premiums that they set the prior year. So, they're on the hook for all the costs for a patient during the next year, and they're getting fixed premiums.

So, as these cases have been identified at accelerating rates and this treatment is offered, it's really pressuring the payer margins. And frankly, you could see that in the stock prices of all the large public payers. Many of them have seen their stock cut in half, or more, erasing years of shareholder value creation. In fact, the largest publicly traded managed care company has a share price today actually lower than it was five years ago, despite the market being a fairly bull market stage.

This shows you the kind of pressures these guys are facing. And it's not idiosyncratic to one company or a single line of business, meaning Medicare Advantage or Managed Medicaid or ACA exchanges. It's really hitting all the payers and all their business lines.

So, the implication here, it's clearly huge. And it's another reason the payers were pushing these specialty VBC models. They really need help managing cost trends with these very high-cost cases, because their margins are under such material pressure today.

09:21
Chris T
So, also, in one of your points, you talk about how data sharing has become a catalyst for integration between primary and specialty care. What's CMS doing here and how could it change referral patterns and care coordination?

09:35
Ryan D
Yeah, that actually relates to some of the work that CMMI or the Center for Medicare and Medicaid Innovation. It's really pushing forward data sharing. So, as an example here, CMMI is actually sharing Medicare claims data for services, for supplies, for care patterns with value-based care providers to promote this transparency and data exchange. And the key here is allowing PCPs and specialty providers to see real time data on things like referral patterns, on care use and outcomes.

10:06
Ryan D
So, with this data, for example, a primary care doctor can be better armed to provide follow-up care knowing that a patient just saw a specialist. They could see what occurred during that visit, they can see tests, etc., and the PCP can also see what specialists are delivering the best care and use that to change their referral patterns meaning I'm going to start sending patients to specialists XYZ because I could see that they're the highest value specialists, they're not doing unnecessary tests, the patients who visit with them get me timely information, etc. It also should help eliminate duplicative care, so if you think of something like diagnostic testing or images, you can actually see what each party has done and get access to those test results real time.

So it ensures that they know what's being done for each patient, and that not only reduces costs, but it clearly helps with the patient experience. There’s nothing more frustrating than getting a test with your PCP and then having it rerun again. It just drives unnecessary cost to the system, unnecessary convenience, inconvenience to the patient, I should say. So, we think this focus on data sharing, which is clearly going to be advanced by AI as well, is going to be a clear area of innovation going forward.

11:13
Chris T
Shifting to disease states, which you talk a bit about in the report, you dive into cardiology, oncology, MSK, kidney care, GI, which of these areas you think is seeing the most innovation right now?

11:30
Ryan D
Well, that's a tough question because I would say it's really all of them. They're all just huge markets. There's huge variation in care delivery across all of them. There are novel drugs coming into all these markets, and there's a variety of private and public providers targeting the space. But, if you force me to focus on just one or two, I'd probably say cardiology and oncology.

And again, that's just due to the total spend of these disease states and really the huge uptick in cases and drug costs. But, you know, again, MSK, kidney care, GI, as you mentioned, also seeing a ton of innovation. So, it's really across the board. And that's, again, part of the reason that we see the trend, especially VBC, as so interesting today.

It's going to be so broad and reach so many different patients at disease states.

12:15
Chris T
So, the report touches on the role of centers of excellence and how they're being used to drive better outcomes and lower cost. I was hoping you could maybe talk about how those are evolving. You know, what makes them effective in a value-based care environment?

12:30
Ryan D
Yeah, maybe I'll start with a bit of background here, as this might not be as familiar to our audience because we have discussed or written on this before. But these are facilities that have actually been identified as being best in class for the care they provide, and they, thus, become part of a specific network to treat a specific condition, like a hernia or hip replacement or an overall disease state like oncology care.

And it really means that that facility or network is identified by an independent aggregator or convener as having the best outcomes, the best doctors, the lowest cost, sort of a stamp of approval. And then these metrics, they're pretty tangible, too. They look at things like readmission rates, complication rates, infection rates, outcomes post the procedure, patient satisfaction and a variety of other areas to ID the best providers that offer the most value.

So, they really can create this tangible network of the best of the best. And then what these centers of excellence, or CEOs do, they aggregate them into a network across the entire United States. And then, these networks agree to accept fixed payments for services rendered, so kind of all-inclusive bundle payments that are at risk for the care they deliver.

And then the CEOs go to managed care payers or even directly to larger employers in contract with them to allow their patients to use these centers of excellence or CEO networks, even if it requires a bit of travel at times to send patients to these facilities. And it's really pretty fascinating. It's an idea that's been around for a very long time, at least from the perspective of a facility focusing on a distinct procedure and doing it better than anyone else.

So the novelty here is really the aggregator, these centers of excellence aggregators that put them together across the country and create a bundle for either a disease state or specific procedure and then go offer them directly to payers and employers. And I don't want to go on too long, and we don't actually discuss this in the report, but I think it's a pretty fascinating example for your listeners.

You can look at something like the Shouldice Hospital up in Canada. They've been known for decades as the center of excellence that is the best in the world at something as simple as hernia repair. In fact, I recall reading a Harvard Business School case 25 years ago in grad school on Shouldice and that's literally all they do.

The entire system is built to maximize outcomes for a single procedure. And it's not just the doctors doing more than anyone else and getting better, but it's even things like the way meals are served after you have a procedure. So, if you want to eat, there's no room service. You literally have to get up and walk down to the cafeteria to get food.

And what that does is it promotes rehab. You may be sore, you may be in pain and not want to get up and walk around, but if you want to eat, you have to go get your food. And they even do things like the stairs are shorter than a normal stairwell might be, so it allows the patients to get up and down the stairs if they don't allow them to use elevators.

So again, this entire facility is constructed to maximize care rehab outcomes for hernia patients. The doctors are doing more procedures because that's all they do. It's everything they do. And the outcomes are amazing. They have shorter times in the hospital, they have the lowest infection rate, they have great satisfaction, the lowest cost, the lowest hernia reoccurrence rates in the world.

It's a great case study of how this works in action. So again, you're taking facilities like that and then broadening it to a variety of disease states and procedures and creating these centers of excellence. And it's really kind of a novel, unique model that improves care and lowers costs for those that engage in them.

16:01
Chris T
Yeah, it sounds like it. All right, so last question. You mentioned that many of the companies profiled are seeing strong momentum in the private markets. We can’t obviously go into those companies specifically, but what signals are you seeing from investors, and how do you think that capital is shaping the future of specialty care innovation?

16:18
Ryan D
Yeah, I believe what you're referring to is just all the venture capital, private equity and venture funding, we've seen that's been raised in the space over the last two to three years. And what that does, is it allows all of these companies to invest in their IT platforms and their sales and the ability to contract with payers and providers and able to really grow this market. And based on our work, many of the smartest private equity firms in the world have focused on this space, especially, you know, investments in cardio, kidney, MSK and oncology.

So anytime we see this, that's just another clear sign of industry momentum, you know, smart dollars flowing into the sector. And because those companies that receive funding, they can use it to advance their care models, their tech stacks and grow new contracts and manage more lives. So, we've seen a lot more of these partnerships between payers and VBC providers, as well as some recent M&A activity using capital to acquire new technologies.

It's clearly, I would say, a very active space for investors. And then more recently, I would say, you know, just over the last four to six months, we are hearing a ton about innovation and care driven by artificial intelligence. And it's been a buzzword for years now. But every one of our companies, like at our Growth Stock Conference in June and in Q2 earnings, has really emphasized AI.

And what it's doing is it's helping these providers scale more rapidly. It's improving their gross margins because they can really deliver care much more efficiently than ever before. It's allowing them to identify patients more easily, to risk stratify them, to put care clinical guidelines into the workflow of provider, to allow them to operate at the top of their license, etc..

So, it's a really great time to be watching the sector and investing in the space, because I think it can allow it to scale quicker and achieve better margins and stronger free cash flows at an earlier point in time. So again, we expect to see a ton of innovation here in the next few years. And, again, really appreciate all your interest in the report and, you know, all the insightful questions. I think we highlighted a lot here today.

18:16
Chris T
Oh, yeah. Absolutely. That’s, of course, all the time we have here for today, but those interested in reading the full report, you can request a copy by reaching out to us at William blair.com/contact-us. Ryan, thanks as always for joining us.

18:28
Ryan D
Yeah. Great. Thanks again, Chris, and thanks to all of you who continue to support us by listening to our Thinking podcast and reading our reports. Truly appreciate all of your time and consideration. Thanks everyone.