In January 2005, healthcare analyst published the first of a continuing series of reports on the evolving role of the consumer in the U.S. healthcare market. The report, titled The Power of Choice: On the Brink of a Consumer Revolution in Health Care, provided his expectations for the most significant developments in the healthcare marketplace over the coming years. More than a decade later, Daniels’ thesis remains intact and continues to unfold rapidly. More specific, he continues to believe that consumers are the key to solving many of healthcare’s woes, particularly the unsustainably high cost of care in the United States.
Daniels reflects that, “This year’s report comes at an interesting time, as recent administration changes should serve as a further catalyst for healthcare consumerism in the United States.” He continued, “More specific, after years of ‘repeal and replace’ rhetoric among Republicans, the party now has the political standing to enact significant change, and we believe recent appointments to key healthcare leadership positions point to a clear focus on pre-budgeted healthcare spending (e.g., block grants, tax credits, and premium support models) along with more emphasis on consumer-driven healthcare (e.g., high-deductible plan designs, defined contribution, and expanded use of health savings accounts).”
Accordingly, he believes investors may look back at 2017 as a tipping point for the U.S. healthcare market, especially as it relates to consumer-centricity and individual responsibility for healthcare. Equally important, while certain government-sponsored risk-bearing models may erode under the new administration (e.g., mandatory bundled payments), the broader need to offset negative patient mix shifts, pending reimbursement cuts, and more price-conscious consumers will continue unabated. Thus, Daniels expects providers to increasingly bear more pure financial risk and quality risk—in the form of launching provider-owned health plans—in the near future; he believes that this is the ultimate form of value-based care (100% risk for healthcare cost and outcomes versus sharing only a portion of risk under models such as accountable care organizations or payment bundles).
Given these dynamics, he believes that consumer-centric healthcare providers (and those companies that provide the technology and services to enable more consumer empowerment) will experience strong growth over the coming years. Moreover, we believe that investors in both the public and private-equity markets will achieve superior long-term returns by identifying and investing in these companies.
For a copy of the most recent Consumer-Driven Healthcare Report or for more information on the healthcare companies covered by Ryan Daniels, please contact your William Blair representative.