The long-term outlook for health and care

Innovation within healthcare serves two key purposes: improving patient outcomes and reducing or controlling the aggregate related costs to society. Over the last decade, a significant number of new technologies and services have emerged and matured that are reshaping how the major healthcare stakeholders – namely patients, providers, payers and broader society – interact.

Some of these technologies are still nascent or not yet deployed at scale within care providers’ networks, even in the US and other developed markets. Clinical applications of genomics, such as digital health and robotics, are a long way from being used at their full potential, creating the possibility for a multi-decade cycle of improvements and innovation.

One of the most promising ways to improve healthcare is by linking phenotypes (a disease’s set of observable symptoms or traits) to biological markers or ‘-omics’ (such as genomics, proteomics or metabolomics) but also to lifestyle factors, including nutrition, stress and environmental factors. Today, medical outcomes are increasingly assessed using vast amounts of precise medical data. The ultimate goal is to tailor treatments to different homogeneous groups of individuals to replace the current costly and ultimately less effective ‘one size fits all’ approach to care. For instance, there is no single ‘lung cancer’, but rather various mutations resulting in tumours that differ across individuals. This underlines the need for personalised treatment.

Genomics is of the utmost importance for the future of disease diagnostics, including screening and developing more targeted drugs that will enable better personalised medicine. Furthermore, digital health, including robotics, will play a significant role in how post-acute care patients and those suffering from chronic conditions are cared for within care networks that are outside hospitals. In that sense, the covid pandemic accelerated the trend of moving patients away from hospitals into post-acute settings, including their homes. Indeed, despite covid pressures on hospital budgets, demand has remained healthy for high-end technologies, such as those used in robotics-assisted surgeries and digital care.

Covid has also accelerated the shift of some non-acute surgeries away from pandemic-strained hospitals into same day discharge units. Patients often prefer the faster operating and recovery times that such units offer, as well as the generally lower rates of post-surgery complications that result compared with hospitals.

In addition, today individuals demand greater involvement in managing their own health and lifestyles, and are eager for better data to facilitate this.

The ultimate goal is to tailor treatments to different homogeneous groups of individuals to replace the current costly and ultimately less effective ‘one size fits all’ standard of care.

There is now a sense of consumerism in healthcare as patients perform their own due diligence as to which hospitals or doctors generate the best outcomes for a given procedure. They seek easy access to second opinions. They demand direct access to mental health professionals from their smartphones. One of the best examples of data usage leading to better clinical outcomes is constant glucose monitoring (CGM) devices for diabetes patients. What started as a tool to ascertain real-time glucose levels instead of relying on sporadic finger pricks has now been linked to insulin pumps, creating de facto artificial pancreases.

They have been demonstrated to help patients stay within a healthy glucose range for longer periods, leading to better long-term outcomes. Due to the success of these devices with both patients and caregivers, it is no surprise that the two CGM manufacturers are laying out plans to propose modified sensors for nutrition, weight management and performance optimisation in sports, all of which are typical consumer applications. The boundary between care and lifestyle is growing increasingly blurred when it comes to tracking and monitoring. Indeed, considering obesity’s burden on quality of life and life expectancy, any significant adoption will generate better outcomes and reduce the overall associated healthcare costs.

There is now a sense of consumerism in healthcare as patients perform their own due diligence.

When considering these high-level trends and examples, investors will appreciate how much technology has changed over the last ten years and put that into the context of the slowmoving nature of change within healthcare. Smartphones, cloud servers and artificial intelligence (AI) were much less common and advanced 10 years ago, as was access to DNA / RNA sequencing technologies and the general understanding of biology. Bringing these technological applications to care networks and developing new drugs, devices and services takes time. As mentioned earlier, we are still very much in the early days in terms of the application of these technologies, which creates a compelling investment opportunity for long-term shareholders.

Contrary to what is generally assumed, drugs spending is not responsible for the rise in aggregate healthcare costs. In the US, it represents 15% (10% innovative drugs, 5% generics) of all costs, which has changed little as a proportion since the two public health coverage programmes, Medicaid and Medicare, were first launched in the 1960s. From a cost perspective, it is the care providers (hospitals, physicians, nursing homes and paramedical services) that represent nearly three-quarters of total healthcare spending. In light of this, it becomes clear that cost efficiencies gained in care providers represent the most significant cost reduction opportunity. This includes increasing preventative care, improving early detection of diseases (notably cancer), offering patients better tools to manage chronic diseases and keeping patients out of hospitals in the post-acute setting.

The boundary between care and lifestyle is growing increasingly blurred when it comes to tracking and monitoring.

According to a 2019 study published in the Journal of the American Medicine Association (JAMA), the estimated cost of waste in the US healthcare system ranged between USD760 bn and USD935 bn annually, accounting for approximately 25% of total US healthcare spending. That means nearly 2% of US GDP is wasted each year in healthcare inefficiencies. Using these estimates, after-tax operating profits of roughly USD200 bn for the 25 main profitable healthcare companies appear quite small compared to potential savings and highlight an important reservoir for growth over the longer term.

Technology and innovation are indeed the most important tools in improving care outcomes and reducing costs. The good news for investors is that there is still significant profit potential for companies that can help achieve these goals.

 

 

 

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