Last week we discussed the pandemic applying further pressure on existing issues within the Healthcare sector, ultimately driving change at a faster pace. This week we are taking a closer look into the ever present healthcare problem of how we do more, with less – efficiency; and the investment opportunities we as responsible and sustainable investors have identified that help facilitate that.
All of the solutions discussed below have one unsurprising thing in common; they are technology driven. However, let’s not forget that healthcare is a people business and this is not a narrative of technology supplanting people; this is an evolution, not a revolution. It is about equipping healthcare professionals so they can do what they do best, better – giving people a healthy future.
Costs growing faster than the economy
Healthcare expenditure is predicted to outstrip economic growth over the next 15 years in nearly all developed countries.1 Ageing populations in addition to unhealthy lifestyles are fuelling a rise in chronic conditions and with the addition of COVID-19; health costs are climbing and resources stretched.
This effect is even more pronounced in the world’s largest healthcare system, the US, where health expenditure is projected to grow annually by 5.4% to 2028. In other words, in just 8 years’ time $1 out every $5 of gross domestic product (GDP) will be spent on healthcare in the US.2 These figures could be even higher if access to healthcare were to increase; a real possibility given broad support by the Democrats and President-Elect Joe Biden. Health reform is widely expected to be high on his legislative agenda once he comes into office in January 2021.
Tackling the biggest source of healthcare bills
Hospital care accounts for a third of all healthcare costs, therefore a key efficiency objective is shortening hospital stays or keeping people healthy enough to stay out altogether.
The medical technology industry has an important role to play here, developing new equipment and devices that can lead to less complications, less pain, a quicker recovery and better post-care for patients. Not only does the patient benefit, but ultimately the bill payer too.
Minimally invasive surgery is an example of efficiency in practice, thanks to the smaller surgical site. Medtronic, a US ‘medtech’ company and Amity International Fund holding, have developed the world’s smallest pacemaker about the size of a large vitamin capsule and weighing the equivalent of playing card. Thanks to it being 93% smaller than conventional pacemakers, it can actually be delivered via a catheter into a vein in the leg. This technique has many benefits over conventional pacemakers requiring open heart surgery, with 63% fewer major complications.
Health from a distance
Globally, 1 in 3 adults suffer from more than one chronic health condition, and this rises to 3 out of 4 for older adults in developed countries.3 90% of US healthcare costs arise from people with chronic and mental health conditions such as heart disease, cancer, diabetes and Alzheimer’s.4 The effective management of these conditions is therefore vital in driving any progress in healthcare.
Remote monitoring is a tool increasingly used to manage a wide range of chronic conditions, empowering people to better understand and manage their own health. Studies have shown that remote monitoring typically results in earlier treatment, as patients recognise changes and act on them quicker. For people with Type 1 diabetes, where they don’t produce enough insulin to process blood sugar, continuous glucose monitoring (CGM) has proved transformational in managing their condition. Diabetics can suffer from hypoglycaemic events, where their blood sugar drops too low and in some cases need hospital treatment. The cost of a single hypoglycaemic hospitalisation in the US is $10,000+, the total cost of these events every year are in excess of $1.5 billion. The use of these CGM devices have been shown to reduce hypoglycaemic events by 72%.5
Another example of remote healthcare provision driving efficiencies is Oxehealth, a part of the IP Group Plc portfolio, held in the Amity International Fund. Through their software, cameras can measure pulse and breathing remotely and without the need to disturb the patient during the night. The software also monitors for patient falls, and a study showed that in practice it reduces these by 48%. This technology is used in 1 in 3 dementia and mental health trusts in the UK, but during the pandemic it has also proved useful in hospitals for monitoring COVID-19 positive patients, minimising in-person contact and reducing the risk of transmission.
How a smarter system can help
A cost that traverses all parts of the healthcare sector is administration. In the US an estimated 34% of healthcare costs are administrative.6 Whilst this is particularly high in the US due to the multiple payer structure, it raises a broad notion that healthcare systems are not renowned for efficiency; Microsoft estimate that around 80% of healthcare interactions still involve a fax at some stage.
This is where we see healthcare IT companies playing an essential role in reducing administrative burden and freeing up medical professionals valuable time. Cerner, another Amity International holding, is the largest global provider of electronic health record (EHR) management. Through their system installed at Nicklaus Children’s Hospital, doctors can see an extra 4 patients each day because of time freed up from having to perform administrative duties.
Healthcare systems are not renowned for efficiency; Microsoft estimate that around 80% of healthcare interactions still involve a fax at some stage.
Smarter systems can offer much more exciting progress than just reduced admin. The digitalisation of patient data enables the use of sophisticated analytics to identify opportunities for proactive engagement to prevent health escalations or hospitalisation. This ranges from simple predictive warning alerts sent to asthmatics on high pollen forecast days, to the use of artificial intelligence to identify vulnerable patients at high risk of COVID-19 complications.
Facilitating the healthcare evolution
If we are to create a healthcare industry not overcome by demand and costs, we need to be more proactive and preventative. We need to better treat those most dependent on the healthcare system and give them the tools for more independence.
We will need to leverage technology, not to replace people but to make the most of healthcare’s most valuable asset – healthcare professionals, allowing them to provide a better standard of healthcare, to more people, at a lower cost.
Companies offering efficiency solutions will be the long term beneficiaries in the midst of these challenges, therefore it is an area of opportunity for us as responsible and sustainable investors. We can help drive the efficiency evolution; never losing sight of the fact that this isn’t just about costs - it’s also about delivering long term benefits to the people it serves, ultimately supporting Healthy Futures.
Sources
1. https://www.oecd.org/health/health-spending-set-to-outpace-gdp-growth-to-2030.htm
2. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2020.00094
3. https://www.sciencedirect.com/science/article/pii/S1568163711000249?via%3Dihub
4. https://www.cdc.gov/chronicdisease/about/costs/index.htm
5. https://provider.dexcom.com/education-research/clinical-evidence/clinical-studies/hypode-study-dexcom-cgm-use-resulted-72
6. https://www.acpjournals.org/doi/10.7326/M19-2818