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Fee-For-Value Drives Trillion-Dollar Healthcare Opportunity
One of the main tenets of healthcare reform has been to better align payment/reimbursement schemes to incentivize healthcare providers for achieving improved outcomes and lower costs.
Historically, insurance companies (including Medicare) have made separate payments to providers for each of the individual services they provide to patients for a single illness, visit, or course of treatment. This payment system, called Fee-For-Service (FFS), incentivizes quantity over quality because a doctor gets paid more when they provide more services.
However, this traditional FFS payment model is experiencing massive disruption due to healthcare reform. The Patient Protection and Affordable Care Act (PPACA) advances new reimbursement models which incent doctors on the quality and cost of a patient episode rather than the number of services provided. This new system is called Fee-For-Value (FFV).
In an FFV system, providers take on financial risk for their patients, meaning that providers share in the burden of a poor outcome and the upside of more efficient and higher-quality care.
Since PPACA was enacted five years ago, nearly 20 percent of all healthcare payments are value-based. Healthcare industry experts expect this to increase to 75 percent or more by the year 2021. By our account, that’s easily a trillion-dollar-value shift that will take place in the next five-10 years. That’s not just a big, but a massive market opportunity for entrepreneurs and venture capitalists to pursue.
Here is a snapshot of companies leading the sector:
By our count, ~$4.5 billion of private equity dollars have been invested in companies capitalizing on the shift.
Within the FFV ecosystem, three segments stand out as driving the creation of new companies and capturing the attention of investors: consumer tools, new risk-bearing provider models, and telemedicine.
Interest in these areas should come as no surprise. In the new value-based world, consumer engagement and technologies that lower the cost of care become critically important to healthcare providers.
There are more than 175 companies listed on the BVP Healthcare Valuescape; the top ten in terms of VC/PE investment are Brighton Health, Zocdoc, Castlight (pre-IPO), HealthCatalyst, Welltok (a BVP-funded company), Alignment Health, American Well, GrandRounds, Evolent (pre-IPO) and Remedy Partners.
Four companies on the BVP Healthcare Valuescape (Evolent, Teladoc, Castlight, and Everyday Health) have gone public in the past two years. Given the massive trillion-dollar opportunity, we expect many more IPOs to come from this list in the years to come.
Authors:
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My experience as a Founder and CEO of several digital health companies has provided a great deal of insight into how health systems, pharmaceutical, and med device companies manage both their business and patients. Over the last 20 years, this experience has allowed me to develop a great network of partnerships that continue to positively impact my life.
Jonathan Govette is the Co-Founder at Oatmeal Health, an AI-enabled patient engagement service that coordinates lung cancer screenings for underserved, vulnerable patients.
Oatmeal Health is a veteran-owned and clinician-led platform that is changing how self-insured employers, FQHCs, and payers manage population risk and improve outcomes.
Through its discovery of novel AI systems, the company is enabling the full potential of its platform to identify high-risk patients early and intervene with screenings before their health worsens and healthcare costs spiral out of control while delivering a better experience to families, employers, clinicians, and health plans.
Jonathan received his B.S. from California Polytechnic University in San Luis Obispo, He developed optimal referral pathways and created the first-of-its-kind referral management platform in 2010. Jonathan was selected as the winner of Samsung’s Digital Health Conference, a finalist in Venturebat’s Health Beat Conference, and a Techstars / Cedar Sinai Alumni.
Trusted healthcare technology expert quoted in Forbes Magazine, HIMSS, Medcity News, Beckers Healthcare, Newsweek, Techcrunch, Modern Healthcare, and others. Collaborations with Cleveland Clinic, Harvard Medical, and AARP.
