After signing a letter of intent in late May, St. Louis, MO-based BJC HealthCare and Kansas City, MO-based Saint Luke’s Health System announced on Wednesday that they have signed a definitive merger agreement, having received the necessary regulatory approvals.
Based on opposite sides of the “Show-Me State,” the systems’ markets do not directly overlap. The merger, expected to close on Jan. 1, 2024, will create a $10B revenue, 28-hospital system spanning Missouri, southern Illinois, and eastern Kansas. The two systems plan to retain their respective brands and will be dually headquartered in St. Louis and Kansas City.
The Gist: BJC and Saint Luke’s are following in the footsteps of other recent mergers involving large health systems with no geographic overlap, which regulators have allowed to move forward. However, recent history shows there’s more to closing a deal than just passing regulatory muster.
Both the Sanford-Fairview and UnityPoint-Presbyterian mergers were called off earlier this year for non-regulatory reasons, including the concerns of local stakeholders.
Given the difficult financial environment and the growing threat of vertically integrated payers, health systems looking to pursue scale strategies must ensure they will actually realize the promise these combinations may hold.
According to a Wall Street Journal exclusive published this Wednesday, Bloomfield, CT-based Cigna and Louisville, KY-based Humana, two of the nation’s largest health insurers, are exploring a merger that could close as soon as the end of this year.
With Cigna valued at around $83B and Humana at roughly $62B, their potential combination would be the largest domestic merger of the year, not just in healthcare, but across all industries.
According to anonymous insiders, the companies are discussing a cash-and-stock deal, but nothing has been finalized. Should an agreement be reached, the merger is expected to receive close attention from antitrust authorities. Both Humana and Cigna have attempted to merge with rival insurers over the past decade, only to see the deals blocked on antitrust grounds.
The Gist: This would be a blockbuster deal, putting the combined entity on par with CVS Health and UnitedHealth Group.
Though Cigna and Humana have relatively little direct overlap in their health insurance businesses—Humana recently announced it will exit the commercial group business to focus on its more successful Medicare Advantage (MA) offerings and Cigna, mostly a commercial insurer, is reportedly shopping its much smaller MA business—their respective pharmacy benefit managers (PBMs) may be an antitrust sticking point. (By market share, Cigna’s Express Scripts is the second-largest PBM, while Humana’s CenterWell Pharmacy is fourth.)
Given the Biden administration’s focus on targeting potentially anticompetitive healthcare mergers, as well as rising Congressional scrutiny around PBMs, this potential merger is sure to face many hurdles prior to closing.
This week we showcase data from a recent American Antitrust Institute study on the growth of private equity (PE)-backed physician practices, and the impact of this growth on market competition and healthcare prices.
From 2012 to 2021, the annual number of practice acquisitions by private equity groups increased six-fold, especially in high-margin specialties. During this same time period, the number of metropolitan areas in which a single PE-backed practice held over 30 percent market share rose to cover over one quarter of the country.
These “hyper-concentrated” markets are especially prevalent in less-regulated states with fast-growing senior populations, like Arizona, Texas, and Florida.
The study also found an association between PE practice acquisitions and higher healthcare prices. In highly concentrated markets, certain specialties, like gastroenterology, were able to raise prices rise by as much as 18 percent.
While new Federal Trade Commission proposals demonstrate the government’s renewed interest in antitrust enforcement, it may be too little, too late to mitigate the impact of specialist concentration in many states.
We recently spoke with a health system COO who wanted help playing out scenarios regarding the relationship between specialist physicians and their private equity (PE) partners. The system is located in one of the markets referenced in a recent study that has some of the highest levels of private equity ownership in the country. One physician group, whose doctors provide almost all the system’s coverage for a key specialty, has worked with PE partners for five years, and the relationship is not going well. “We’re hearing that many of the younger doctors want to leave. And many of the others are close to retirement,” he shared.
“We’re really concerned about what could happen if the group implodes.” The key issue: the doctors signed very restrictive noncompete agreements when they sold their practice, which could prohibit them from working in the market.
The health system would consider bringing some of the doctors into their employed medical group, but executives are worried this might be impossible for the duration of the noncompete agreements. “If these doctors can’t stay locally, we might have to rebuild that specialty from scratch. And I can’t imagine how disruptive that would be,” he worried.
When the FTC announced a proposed rule earlier this year that would ban employers from imposing noncompete agreements, many health systems reacted with alarm, fearing the that the freedom to move would lead to frequent bidding wars, ultimately driving up the cost of physician talent in the market.
But the situation shows how perspectives would change depending on who holds the noncompete.
Mid-sized markets like this one, where coverage for several specialties may come from single groups, are particularly vulnerable. Regardless, this situation highlights the need to diversify physician relationships to guard against getting caught in a “coverage crisis”.
Last week the Department of Justice (DOJ) and the Federal Trade Commission (FTC) proposed thirteen new merger guidelines that, if finalized, would provide federal regulators greater ability to scrutinize mergers across all industries, including healthcare.
The guidelines expand which mergers could be potentially illegal and therefore worth probing, including those with lower monetary value and those in which the newly combined organization would control 30 percent or greater market share, and would increase scrutiny on transactions that are part of a series of multiple acquisitions by an organization. They also seek to limit the ability of an organization to justify an acquisition on the grounds that the weaker party in the deal would be unable to continue to operate. Comments on the guidelines are being accepted until September 18.
The Gist: To date, federal regulators have struggled to prevent non-traditional mergers between companies that provide different services, operate in different markets, or are below the monetary threshold for review.
The proposed guidelines would significantly increase FTC and DOJ scrutiny at all levels of hospital mergers, and also jeopardize physician and other care asset acquisitions by health systems, payers, and private equity-backed organizations. They are the latest from the Biden Administration in a recent, multi-part push to reduce consolidation through greater antitrust enforcement.
This effort includes last month’s proposal to add additional reporting requirements for mergers outlined in the Hart-Scott-Rodino Act, as well as the FTC’s move earlier this month to withdraw two antitrust policy statements focused on healthcare markets that both agencies say are now “outdated.” Those now-rescinded statements provided guidance on antitrust safety zones, including for accountable care organizations participating in the Medicare Shared Savings Program and for mergers between two hospitals in which one is much smaller.
As first half 2023 financial results are reported and many prepare for a busy last half, strategic planning for healthcare services providers and insurers point to 4 issues requiring attention in every boardroom and C suite:
Private equity maturity wall:
The last half of 2023 (and into 2024) is a buyer’s market for global PE investments in healthcare services: 40% of PE investments in hospitals, medical groups and insurtech will hit their maturity wall in the next 12 months. Valuations of companies in these portfolios are below their targeted range; limited partner’ investing in PE funds is down 28% from pre-pandemic peak while fund raising by large, publicly traded, global funds dominate fund raising lifting PE dry powder to a record $3.7 trillion going into the last half of 2023.
In the U.S. healthcare services market, conditions favor well-capitalized big players—global private equity funds and large cap aggregators (i.e., Optum, CVS, Goldman Sachs, Blackstone et al) who have $1 trillion to invest in deals that enhance their platforms. Deals done via special purpose acquisition corporations (SPACS) and smaller PE funds in physicians, hospitals, ambulatory services and others are especially vulnerable. (see Bain and Pitchbook citations below). Addressing the growing role of large-cap PE and strategic investors as partners, collaborators, competitors or disruptors is table stakes for most organizations recognizing they have the wind at their backs.
Consolidation muscle by DOJ and FTC:
Healthcare is in the crosshair of the FTC and DOJ, especially hospitals and health insurers. Hospital markets have become increasingly concentrated: only 12% of the 306 Hospital Referral Regions is considered unconcentrated vs. 23% in 2008. In the 384 insurance markets, 23% are unconcentrated, down from 35% in 2020. Wages for healthcare workers are lower, prices for consumers are higher and choices fewer in concentrated markets prompting stricter guidelines announced last week by the oversight agencies. Big hospitals and big insurers are vulnerable to intensified scrutiny. (See Regulatory Action section below).
Defamatory attacks on nonprofit health systems:
In the past 3 years, private, not-for-profit multi-hospital systems have been targeted for excess profits, inadequate charity care and executive compensation. Labor unions (i.e., SEIU) and privately funded foundations (i.e., West, Arnold Venture, Lown Institute) have joined national health insurers in claims that NFP systems are price gaugers undeserving of the federal, state and local tax exemptions they enjoy. It comes at a time when faith in the U.S. health system is at a modern-day low (Gallup), healthcare access and affordability concerns among consumers are growing and hospital price transparency still lagging (36% are fully compliant with the 2021 Executive Order).
Notably, over the last 20 years, NFP hospitals have become less dominant as a share of all hospitals (61% in 2002 vs. 58% last year) while investor-owned hospitals have shown dramatic growth (from 15% in 2002 to 24% last year). Thus, the majority of local NFP hospitals have joined systems creating prominent brands and market dominance in most regions. But polling indicates many of these brands is more closely associated with “big business” than “not-for-profit health” so they’re soft targets for critics. It is likely unflattering attention to large, NFP systems will increase in the next 12 months prompting state and federal regulatory actions and erosion of public support. (See New England Journal citation in Quotables below)
Campaign 2024 healthcare rhetoric:
Republican candidates will claim healthcare is not affordable and blame Democrats. Democrats will counter that the Affordable Care Act’s expanded coverage and the Biden administration’s attack on drug prices (vis a vis the Inflation Reduction Act) illustrate their active attention to healthcare in contrast to the GOP’s less specific posturing.
Campaigns in both parties will call for increased regulation of hospitals, prescription drug manufacturers, health insurers and PBMs. All will cast the health industry as a cesspool for greed and corruption, decry its performance on equitable access, affordability, price transparency and improvements in the public’s health and herald its frontline workers (nurses, physicians et al) as innocent victims of a system run amuck.
To date, 16 candidates (12 R, 3 D, 1 I) have announced they’re candidates for the White House while campaigns for state and local office are also ramping up in 46 states where local, state and national elections are synced. Healthcare will figure prominently in all. In campaign season, healthcare is especially vulnerable to misinformation and hyper-attention to its bad actors. Until November 5, 2024, that’s reality.
My take:
These issues frame the near-term context for strategic planning in every sector of U.S. healthcare. They do not define the long-term destination of the system nor roles key sectors and organizations will play. That’s unknown.
What’s known for sure is that AI will modify up to 70% of the tasks in health delivery and financing and disrupt its workforce.
Black Swans like the pandemic will prompt attention to gaps in service delivery and inequities in access.
People will be sick, injured, die and be born.
And the economics of healthcare will force uncomfortable discussions about its value and performance.
In the U.S. system, attention to regulatory issues is a necessary investment by organizations in every state and at the federal level. Details about these efforts is readily accessible on websites for each organization’s trade group. They’re the rule changes, laws and administrative actions to which all are attentive. They’re today’s issues.
Less attention is given the long-term. That focus is often more academic than practical—much the same as Robert Oppenheimer’s early musings about the future of nuclear fusion. But the Manhattan Project produced two bombs (Little Boy and Fat Man) that detonated above the Japanese cities of Hiroshima and Nagasaki in 1945, triggering the end of World War II.
The four issues above should be treated as near and present dangers to the U.S. health system requiring attention in every organization. But responses to these do not define the future of the U.S. system. That’s the Manhattan Project that’s urgently needed in our system.
The Taylor Swift ticketing debacle of 2022 left thousands of frustrated ‘Swifties’ without a chance to see their favorite artist in concert. And it also highlighted the trouble that arises when companies like Ticketmaster gain monopolistic control.
In any industry, market consolidation limits competition, choice and access to goods and services, all of which drive up prices.
But there’s another—often overlooked—consequence.
Market leaders that grow too powerful become complacent. And, when that happens, innovation dies. Healthcare offers a prime example.
And industry of monopolies
De facto monopolies abound in almost every healthcare sector: Hospitals and health systems, drug and device manufacturers, and doctors backed by private equity. The result is that U.S. healthcare has become a conglomerate of monopolies.
For two decades, this intense concentration of power has inflicted harm on patients, communities and the health of the nation. For most of the 21st century, medical costs have risen faster than overall inflation, America’s life expectancy (and overall health) has stagnated, and the pace of innovation has slowed to a crawl.
This article, the first in a series about the ominous and omnipresent monopolies of healthcare, focuses on how merged hospitals and powerful health systems have raised the price, lowered the quality and decreased the convenience of American medicine.
Future articles will look at drug companies who wield unfettered pricing power, coalitions of specialist physicians who gain monopolistic leverage, and the payers (businesses, insurers and the government) who tolerate market consolidation. The series will conclude with a look at who stands the best chance of shattering this conglomerate of monopolies and bringing innovation back to healthcare.
How hospitals consolidate power
The hospital industry is now home to a pair of seemingly contradictory trends. On one hand, economic losses in recent years have resulted in record rates of hospital (and hospital service) closures. On the other hand, the overall market size, value and revenue of U.S. hospitals are growing.
This is no incongruity. It’s what happens when hospitals and health systems merge and eliminate competition in communities.
Today, the 40 largest health systems own 2,073 hospitals, roughly one-third of all emergency and acute-care facilities in the United States. The top 10 health systems own a sixth of all hospitals and combine for $226.7 billion in net patient revenues.
Though the Federal Trade Commission and the Antitrust Division of the DOJ are charged with enforcing antitrust laws in healthcare markets and preventing anticompetitive conduct, legal loopholes and intense lobbying continue to spur hospital consolidation. Rarely are hospital M&A requests denied or even challenged.
The ills of hospital consolidation
The rapid and recent increase in hospital consolidation has left hundreds of communities with only one option for inpatient care.
But the lack of choice is only one of the downsides.
Hospital administrators know that state and federal statutes require insurers and self-funded businesses to provide hospital care within 15 miles of (or 30 minutes from) a member’s home or work. And they understand that insurers must accept their pricing demands if they want to sell policies in these consolidated markets. As a result, studies confirm that hospital prices and profits are higher in uncompetitive geographies.
These elevated prices negatively impact the pocketbooks of patients and force local governments (which must balance their budgets) to redirect funds toward hospitals and away from local police, schools and infrastructure projects.
Perhaps most concerning of all is the lack of quality improvement following hospital consolidation. Contrary to what administrators claim, clinical outcomes for patients are no better in consolidated locations than in competitive ones—despite significantly higher costs.
How hospitals could innovate (and why they don’t)
Hospital care in the United States accounts for more than 30% of total medical expenses (about $1.5 trillion). Even though fewer patients are being admitted each year, these costs continue to rise at a feverish pace.
If our nation wants to improve medical outcomes and make healthcare more affordable, a great place to start would be to innovate care-delivery in our country’s hospitals.
To illuminate what’s possible, below are three practical innovations that would simultaneously improve clinical outcomes and lower costs. And yet, despite the massive benefits for patients, few hospital-system administrators appear willing to embrace these changes.
Innovation 1: Leveraging economies of scale
In most industries, bigger is better because size equals cost savings. This advantage is known as economies of scale.
Ostensibly, when bigger hospitals acquire smaller ones, they gain negotiating power—along with plenty of opportunities to eliminate redundancies. These factors could and should result in lower prices for medical care.
Instead, when hospitals merge, the inefficiencies of both the acquirer and the acquired usually persist. Rather than closing small, ineffective clinical services, the newly expanded hospital system keeps them open. That’s because hospital administrators prefer to raise prices and keep people happy rather than undergo the painstaking process of becoming more efficient.
The result isn’t just higher healthcare costs, but also missed opportunities to improve quality.
Following M&A, health systems continue to schedule orthopedic, cardiac and neurosurgical procedures across multiple low-volume hospitals. They’d be better off creating centers of excellence and doing all total joint replacements, heart surgeries and neurosurgical procedures in a single hospital or placing each of the three specialties in a different one. Doing so would increase the case volumes for surgeons and operative teams in that specialty, augmenting their experience and expertise—leading to better outcomes for patients.
But hospital administrators bristle at the idea, fearing pushback from communities where these services close.
Innovation 2: Switching to a seven-day hospital
When patients are admitted on a Friday night, rather than a Monday or Tuesday night, they spend on average an extra day in the hospital.
This delay occurs because hospitals cut back services on weekends and, therefore, frequently postpone non-emergent procedures until Monday. For patients, this extra day in the hospital is costly, inconvenient and risky. The longer the patient stays admitted, the greater the odds of experiencing a hospital acquired infection, medical error or complications from underlying disease.
It would be possible for physicians and staff to spread the work over seven days, thus eliminating delays in care. By having the necessary, qualified staff present seven days a week, inpatients could get essential, but non-emergent treatments on weekends without delay. They could also receive sophisticated diagnostic tests and undergo procedures soon after admission, every day of the week. As a result, patients would get better sooner with fewer total inpatient days and far lower costs.
Hospital administrators don’t make the change because they worry it would upset the doctors and nurses who prefer to work weekdays, not weekends.
Innovation 3: Bringing hospitals into homes
During Covid-19, hospitals quickly ran out of staffed beds. Patients were sent home on intravenous medications with monitoring devices and brief nurse visits when needed.
Clinical outcomes were equivalent to (and often better than) the current inpatient care and costs were markedly less.
Building on this success, hospitals could expand this approach with readily available technologies.
Whereas doctors and nurses today check on hospitalized patients intermittently, a team of clinicians set up in centralized location could monitor hundreds of patients (in their homes) around the clock.
By sending patients home with devices that continuously measure blood pressure, pulse and blood oxygenation—along with digital scales that can calibrate fluctuations in a patient’s weight, indicating either dehydration or excess fluid retention—patients can recuperate from the comforts of home. And when family members have questions or concerns, they can obtain assistance and advice through video.
Despite dozens of advantages, use of the “hospital at home” model is receding now that Covid-19 has waned.
That’s because hospital CEOs and CFOs are paid to fill beds in their brick-and-mortar facilities. And so, unless their facilities are full, they prefer that doctors and nurses treat patients in a hospital bed rather than in people’s own homes.
Opportunities for hospital innovations abound. These three are just a few of many changes that could transform medical care. Instead of taking advantage of them, hospital administrators continue to construct expensive new buildings, add beds and raise prices.
Last Thursday, the Federal Trade Commission (FTC) released a proposed rule that would ban employers from imposing noncompete agreements on their employees. Noncompetes affect roughly 20 percent of the American workforce, and healthcare providers would be particularly impacted by this change, as far greater shares of physicians—at least 45 percent of primary care physicians, according to one oft-cited study—are bound by such agreements.
The rulemaking process is expected to be contentious, as the US Chamber of Commerce has declared the proposal “blatantly unlawful”. While it is unclear whether the rule would apply to not-for-profit entities, the American Hospital Association has released a statement siding with the Chamber of Commerce and urging that the issue continue to be left to states to determine.
The Gist: Should this sweeping rule go into effect, it would significantly shift bargaining power in the healthcare sector in favor of doctors, allowing them the opportunity to move away from their current employers while retaining local patient relationships.
The competitive landscape for physician talent would change dramatically, particularly for revenue-driving specialists, who would have far greater flexibility to move from one organization to another, and to push aggressively for higher compensation and other benefits.
Given that the FTC cited suppressed competition in healthcare as an outcome of current noncomplete agreements, the burden will be on organizations that employ physicians—including health systems and insurers, as well as private equity-backed corporate entities—to prove that physician noncompetes areessential to their operations and do not raise prices, as the FTC has suggested.
We expect 2023 to be a pivotal year for the industry, as the accelerated acceptance of virtual care and demographic trends, such as an aging population, increasing chronic illnesses and healthcare worker shortages, sustain demand for medtech-enabled solutions.
The combination of rapid developments in novel healthcare technology and heightened demand for integrated tech-enabled care has continued to fuel innovation in the medtech industry. At the same time, medtech innovators – whether in digital health, wearables and AI-driven offerings in healthcare, or diagnostics, telemedicine and health IT solutions – continue to face a patchwork of laws, rules and norms across the world. Life sciences and healthcare innovators and regulators are also looking to medtech to increase access to care and health equity. Here are ten global medtech themes we are tracking in the coming year:
Focus on digital tuck-in acquisitions in medtech M&A
Despite continued uncertainty in the overall financial market, medtech M&A activity continued at a steady pace in 2022. This year witnessed a rise in tuck-in acquisitions of smaller companies that can be easily integrated into buyers’ existing infrastructure and product offerings, as opposed to significantly sized takeovers of businesses that aren’t squarely aligned with buyers’ existing businesses lines. Medtech acquirers have been particularly focused on developing their digital capabilities to innovate and reach customers in new ways. As digitization continues to transform the industry, we expect acquirers to continue to prioritize the value of digital and data assets as they evaluate potential targets.
Continued interest by private equity and other financial sponsors
Private equity firms, healthcare-focused funds and other financial sponsors have continued to display a strong appetite for investing in Medtech companies, with top targets in subsectors such as diagnostics and healthcare IT solutions. Later-stage medtech companies in particular are gaining a larger share of venture capital funding, as later-stage investments allow financial sponsors to focus on businesses with higher yields, as well as less time to market and capital reimbursement. Demographic trends, including an aging population and the increasing prevalence of chronic diseases, coupled with healthcare technology advancements have created robust demand for medtech-enabled solutions. Additionally, medtech offerings have broad applications that can extend beyond stakeholders in a specific therapy area, product category or care setting, offering the ability to satisfy unmet needs with large patient bases.
Strategic medtech collaborations as the new norm
Strategic medtech collaborations and partnerships have become the new norm in our increasingly connected digital healthcare ecosystem. In response to heightened consumer demand for tech-enabled care, pharmaceutical and medtech companies are collaborating to use digital technologies to engage with consumers, unlocking a vast range of treatments such as personalized medicine. Additionally, as the market rapidly evolves towards data-driven healthcare, we expect medtech companies to continue to work collaboratively to address existing barriers to data sharing and promote interoperability of healthcare data.
Continued scrutiny by antitrust and competition authorities
As expected, global antitrust and competition authorities continued to focus on the tech, life sciences and medtech sectors in 2022. The US, UK and EU authorities have stepped up efforts to investigate and challenge conduct by large pharma and technology companies pursuing mergers and acquisitions. We expect these authorities to assess similar concerns in the digital health context in an effort to account for the value of combined datasets and the interoperability of various offerings that could be derived from digital health mergers and acquisitions. Furthermore, geopolitical tensions have resulted in new and expanded foreign investment regimes to improve the resilience of domestic healthcare systems. Notably this year, the UK government implemented the National Security and Investment Act that allows it to restrict transactions that may threaten national security, including in the AI and data infrastructure sectors. Sensitive data continues to be a recurring theme for foreign investment review for Committee on Foreign Investment in the US and that of the EU as well.
Growing importance of data privacy and security
Increasing regulatory attention to sensitive health data and the escalating rise of ransomware attacks has made data privacy and security more important than ever for medtech innovators. The Federal Trade Commission has issued several statements about its willingness to “fully” enforce the law against the illegal use and sharing of highly sensitive data. Additionally, several state privacy laws coming into effect in 2023 create new categories of sensitive personal data, including health data, and impose novel obligations on innovators to obtain data-related consents. As ransomware continues to pose security-related threats, the US Department of Health and Human Services renewed calls for all covered entities and business associates to prioritize cybersecurity. New standards, such as cybersecurity label rating programs for connected devices, aim to address security risks. In the EU, medtech providers will need to consider how the launch of the European Health Data Space and newly proposed data regulation, such as the Data Act and AI Act, could impact their data use and sharing practices.
More active engagement with FDA/EMA/MHRA
We expect companies active in the medtech sector, particularly those that make use of AI and other advanced technologies, to continue their conversations with the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”), the Medicines and Healthcare Products Regulatory Agency (“MHRA”) and other regulators as such companies grow their medtech business lines and establish their associated regulatory compliance infrastructure. Given the unique regulatory issues arising from the implementation of digital health technologies, we expect the FDA, EMA and MHRA to provide additional guidance on AI/ML-based software-as-a-medical device and the remote management of clinical trials. 2022 saw stakeholders in the life sciences and medtech industries collaborate with regulatory authorities to push forward the acceptance of digital endpoints that rely on sensor-generated data collected outside of a clinical setting. As the industry shifts to decentralized clinical trials, we expect both innovators and regulators to work together to evaluate the associated clinical, privacy and safety risks in the development and use of such digital endpoints.
Increasing medtech localization in the Asia Pacific region
2022 saw multinational companies (“MNCs”), including American pharma/device makers make an active effort to expand their medtech business lines in the Asia Pacific region. At the same time, government authorities in the region have been increasingly focused on incentivizing local innovation, approving government grants and prohibiting the importation of non-approved medical equipment. In light of MNCs’ market share of the medical device market in the Asia Pacific region, especially in China, we expect the emergence of the domestic medtech industry to prompt discussions among MNCs, local innovators and government authorities over the long-term development of the global market for medical technology.
Long-term adoption of telehealth and remote patient monitoring technologies
The Covid-19 pandemic saw the rise of telehealth and remote patient monitoring technologies as key modes of healthcare delivery. The telehealth industry remains focused on enabling remote consultations and long-term patient management for patients with chronic conditions. Looking forward, we expect to see increased innovation in non-invasive technologies that can provide early diagnostics and ongoing disease management in a low-friction manner. At the same time, we anticipate telehealth companies to face increasing scrutiny from regulatory authorities around the world for fraud and abuse by patients and providers. Consumer and patient data privacy and security in connection with telehealth and remote patient monitoring continue to remain top of mind for regulators as well.
Women’s health and privacy concerns for medtech
We expect to see increased consumer health tech adoption for reproductive care, especially in light of the U.S. Supreme Court’s decision to overturn Roe v. Wade. Following the Dobbs decision, a number of states introduced or passed legislation that prohibits or restricts access to reproductive health services beyond abortion. In response, women’s health-focused companies are expanding their virtual fertility and pregnancy, telemedicine and other services to patients. At the same time, such companies need to assess the legal risks stemming from the collection and storage of their customers’ personal health information, which could then be used as evidence to prosecute customers for obtaining illegal reproductive health services. We expect companies active in this space to take steps to navigate the patchwork of data privacy and security laws across jurisdictions while establishing clear digital health governance mechanisms to safeguard their customers’ data privacy and security.
Addressing inequities in the implementation of digital healthcare technologies
Medtech innovators and regulators have been increasingly focused on addressing inequities in the healthcare system and the data used to train AI and ML-based digital healthcare technologies. In 2022, a number of medtech companies collaborated to provide technologies that result in improved patient outcomes across all populations, as well as boost participation of diverse populations in clinical trials. In parallel, we are seeing increased interest from regulators to reduce bias in digital health technologies and the accompanying datasets, as evidenced by the EU’s proposed AI Act and the UK’s health data strategy. In the US, which currently lacks comprehensive government regulation of AI in healthcare, there have been increasing calls for institutional commitments in the area of algorithmovigilance. Because of the inaccurate conclusions that may result from biased technologies and data, MedTech companies must prioritize health equity in the implementation of digital healthcare technologies so that everyone can benefit from the latest scientific advances.
In conclusion, the medtech industry has remained resilient amidst the challenging macroeconomic environment. We expect 2023 to be a pivotal year for the industry, as the accelerated acceptance of virtual care and demographic trends, such as an aging population, increasing chronic illnesses and healthcare worker shortages, sustain demand for medtech-enabled solutions. At the same time, the rapidly changing legal and regulatory landscape will continue to be a key issue for medtech innovators moving forward. Adopting a global, forward-thinking regulatory compliance strategy can help MedTech companies stay competitive and ultimately, achieve better outcomes for patients.
The FTC is investigating US Anesthesia Providers (USAP), a private equity (PE)-backed group with 4.5K physicians working in nine states, over concerns of monopoly power in certain markets. The inquiry is focused on USAP’s acquisition history, which has followed the PE “playbook” of rolling up small anesthesiology groups into a single entity large enough to exert leverage in contract negotiations. USAP’s presence in Texas and Colorado is likely to be of particular interest, as it controls at least 30 percent of the anesthesiology market in both states.
The Gist:Like many other PE-backed physician groups, USAP achieved market power mostly through myriad acquisitions too small to warrant regulatory attention on their own. The probe is in line with recent government scrutiny of private equity influence in the healthcare sector, and will no doubt be closely watched by investors and PE-backed groups.
If USAP is forced to divest from certain markets, the precedent could prove especially damaging to other rapidly growing investor-backed physician groups, particularly those staffing hospital functions, who are already being rocked by ramifications of the No Surprises Act.
HENRY KOTULA 