Covid-19 is understandably viewed as a crisis in the U.S., with a death toll topping 100,000 amid an economic shutdown that catapulted the nation into an instant recession. Nearly every sector of the economy has been broadsided by its effects. Rippling beneath the surface have been pockets of technological advance and investment opportunities, perhaps nowhere more than in the healthcare sector.
We are witnessing a wave of unexpected innovations in healthcare caused by the pandemic. With staff furloughed to reduce costs and in-person service curtailed, healthcare organizations are discovering new, more efficient delivery models. These include deploying robots for remote patient monitoring, third-party telemetry tools, vastly expanded use of telemedicine and an array of streamlined check-in venues and methods.
Many of these advances will outlive the pandemic, as healthcare providers recognize the time and costs saved by diving deeper into technology. For example, although telemedicine has been around for decades, its sudden and nearly universal adoption during the COVID-19 crisis has revealed more vividly to healthcare executives its benefits. Doctors report that up to 80% of their visits are currently being conducted virtually and that this experience has led them to recognize that a significant percentage of medical issues can be addressed in this way.
“Telemedicine has suddenly transformed from being a long-term ‘nice-to-have’ for increasing efficiency and expanding access to an essential requirement for patient triage, diagnostics, and engagement,” say Jonathan Bluth and Adam Abramowitz of Intrepid Investment Bankers.
As volume-based care has suffered under the new paradigm, the long-awaited shift towards value-based care may finally come to fruition. Experts and advisors expect significantly increased attention to be placed on capitation, Medicare Advantage plans, and accountable care organizations going forward, all sparked by the pandemic.
Indeed, if providers can work with payors to secure long-term reimbursement and deploy sustainable clinical model improvements, COVID-19 might redefine the healthcare experience for the better. In general, many payers have loosened restrictions and changed regulations affecting billing during the pandemic to provide for wider coverage of telehealth services.
How will this alter the investment landscape in healthcare? The pause in mergers and acquisitions in the second quarter of 2020 may linger, say Bluth and Abramowitz. “The speed of change and lack of visibility of the scope of the damage and the timing and velocity of the rebound make it difficult to price risk and value assets,” they write.
Let’s consider the impact Covid-19 is having on the prospects of three healthcare sub-sectors: home health, long-term care and autism services.
Home health has been buffeted by the response to the virus, with providers scrambling to maintain distancing in a hands-on care delivery model. Home health agencies have responded with increased telecare visits and more phone and video calls. Phone apps are helping enlist the aid of neighbors by connecting homebound patients to their community for help with grocery shopping, pharmacy pickups and health monitoring. Taken together, these innovations are creating efficiencies in the home health model that can convey benefits to patients and investors after the crisis has ebbed.
The future is bleaker for nursing homes, where 30,000 of the Covid-related deaths have occurred. Costs have exploded as facilities work to meet CDC guidelines, patient loads have plummeted as patients pass away and leave unreplaced by admissions, staff have deserted for health fears and reimbursements have fallen as states rope-in Medicaid expenditures. Occupancy in many homes has dropped below the 80% break-even level and are unlikely to rebound while the coronavirus persists.
For autistic individuals, the crisis has been a decidedly mixed bag. On the one hand, those with autism may by nature practice social distancing and these new social norms may provide relief and ease anxiety for some of these individuals. On the other hand, disrupted routines particularly affect those with autism, especially kids who may rely on daily support from professionals in their homes and schools. A lack of in-home services and the widespread shut down of clinics leaves children and families without the stabilizing support systems upon which they once relied. In addition, many with autism are least prepared to cope with the social isolation and economic strain. More potent tools delivering care remotely can reshape the delivery of services and benefit those enterprises that act fastest.
Nonetheless, a changing landscape does not mean the industry is doomed. Despite difficulties brought on by shutdowns, in-home and school-based providers are surviving by providing enhanced remote services. While smaller providers are bound to feel a greater strain throughout the pandemic, lean times create more opportunities for add-on acquisitions by larger providers that are more equipped financially to manage the present disruption. In fact, we are already beginning to see this kind of activity, with larger companies buying smaller ones using creative deal structures and existing financial relationships, hopeful to avoid reticent lenders and complicated debt financing. We don’t know how much longer the industry will experience this drastic reshape, but the companies thriving in this current environment are the ones whose buyers and investors have raised their level of scrutiny when it comes to discerning whether these consolidation behaviors are sustainable or provide long-term benefit.
As we monitor the state of the industry in the weeks and months ahead, some questions will help us qualify the changes to come:
- What telehealth solutions are viable on a long-term basis?
- How do outcomes from telehealth compare to direct services? Who benefits from telehealth?
- How has the use of telehealth during COVID changed the service provider model for autism services and to what degree will the model change permanently?
- Which service providers will blend in-person services with telehealth better?
- Will this cause the mid-sized providers to start consolidating? (so they can get more scale and take advantage of cost efficiencies.)
In the end, a spirit of innovation is what continues to propel healthcare services forward through this exceptional epoch. While the headlines may portend a stormy future, reasons for optimism remain. The expansion of telehealth to near ubiquity is increasing patient access at a time we need it most. A shift towards value-based care rather than volume-based care is underway, and consolidation activity is gradually starting to stabilize the market for service providers. With the right guidance, healthcare services could emerge from the pandemic stronger and more patient-centric.