Our Healthcare Vision
Health is the essential, universal human need, yet the healthcare industry is failing people across the globe. Everywhere, demand and costs are increasing, but not always efficacy. We are optimistic that consumerisation, technology and innovation in payment models can yield better, more accessible and lower cost care.
Health is the essential, universal human need, yet the healthcare industry is struggling to deliver accessible, effective, and affordable care to all. Demand for healthcare is growing rapidly as a result of population ageing, chronic disease expansion, and the search for higher quality of life. By way of example, in Western Europe the average age of the population is now 43; in the US, 6 in 10 adults suffer from one chronic condition and 4 in 10 suffer from two or more; and everywhere wellness is increasingly becoming consumers number one priority.
The cost of healthcare is spiralling, creating an affordability crisis. In the US, healthcare spending represents almost 18% of GDP today, up from 10% at the end of the 1980s. Even in single payer markets, healthcare costs as a share of GDP have doubled in the last 30 years, with countries like Sweden and the UK now spending roughly 10%-11% of GDP on healthcare. These costs are heading to levels that will be hard to sustain. Sweden, for example, already pays USD 5,900 per annum in healthcare cost per capita. In the US, where employer-funded coverage is a mainstay, there is a risk that ballooning healthcare costs put companies at a competitive disadvantage in the international marketplace. And patients are increasingly being forced to pay for healthcare out of pocket as more of the direct cost is passed on to them: out of pocket medical expenses are now more than USD 1,000 for every person in the US - the same spending as the top eight health insurers combined.
The growth in financial cost of healthcare is not necessarily leading to better outcomes. Care providers in most healthcare systems have been reimbursed via a fee-for-service model, which has led to overconsumption and a lack of accountability for patients’ long-term health. The growing scale and complexity of healthcare has created an enormous administrative burden on physicians, reducing their effectiveness. Overconsumption, administrative complexity, and care delivery failure have created huge, often hidden waste. In the US, the Institute of Medicine estimates that waste represents over a third of the USD 3.6tn US healthcare economy. In the UK, regarded as one of the most efficient healthcare systems, waste pockets are still common throughout the NHS with 51% of NHS providers agreeing or strongly agreeing that their Trusts waste too much money through inefficiency.
The impact of COVID-19
COVID-19 has had a profound impact on how healthcare is delivered and paid for. It has accelerated the uptake of virtual care and introduced previously wary consumers and providers to the convenience and efficacy of telemedicine. According to a McKinsey study, adoption has exploded, from 11% of US consumers using telehealth in 2019 to 46% of consumers using it at the peak of the first wave in the spring of 2020. Moreover, many have indicated their interest in using telehealth going forward, indicating this is a permanent change in consumer behaviour.
The global pandemic has also laid bare the issues with fee-for-service payment models as cancelled appointments and surgeries have left providers financially vulnerable. On the other hand, value-based care models have absorbed the impact of the pandemic whilst still caring for those in need. COVID-19 has proven that value-based care is a more sustainable and resilient payment mechanism than fee-for-service.
Despite these challenges, we are optimistic that delivering better care to more people at lower cost is achievable for four reasons: the urgency of the problem for payers, the size of the prize for solution providers, the enabling role of technology and the readiness of the consumer to change habits.
Payers are determined to find fresh solutions and reforms, most importantly by incentivising accountable care. Encouraged by governments and self-insured payers, innovators are shifting the marketplace to value-based reimbursement which pays care providers based on better health outcomes rather than the number of appointments held, prescriptions written, or surgeries performed. These payment models reward businesses that reduce cost of care and focus on care management rather than solely the point of care. In the UK, the National Health Service capitates primary care such that general practitioners (GP) receive a fixed reimbursement per patient and hence are responsible for managing cost of care. In the US, value-based care is also gaining traction and most advanced in the Medicare Advantage programme, a federally-funded Medicare health plan offered by private companies, which has witnessed enrolment double in the past decade to cover more than 22m people. Fostering an environment that incentivizes preventive, continuous, long term-oriented care is critical for healthcare innovation as, according to the WHO, 80% of health determinants occur outside of the hospital.
Technology is beginning to have a decisive impact on healthcare. The way we access advice, choose doctors, receive treatment, and pay medical bills has already advanced in the last decade. Even so, healthcare is less “digital” today than almost any other sector of the economy, In part, this is due to information being fragmented and siloed in healthcare, reducing the ability to collect and mine data for insights. Developments in medical science and the application of big data, machine learning, and digital delivery will accelerate the adoption curve. Technology crucially will help providers practice at the top of their game, surface data insights at the right time, and augment a doctor’s reach to deliver population health. Patients will increasingly receive preventative care at a personalised level anytime and anywhere, thereby reducing the burden on the acute care infrastructure.
Consumer expectations are shifting
Consumers are looking to take control of their health and, as they are increasingly shouldering more of their healthcare expenditure, they are seeking the same level of service they receive in other areas of their lives. Healthcare services are consistently ranked among the worst performing industries for customer satisfaction, including with respect to access, price, and convenience. The average Net Promoter Score (NPS) of a US health insurer is 19, a pharmacy is 29, Amazon is in the 60s and Apple is in the 70s. Yet, the same people who shop on Amazon and use an iPhone buy healthcare.
At Kinnevik, our mission is to build digital businesses that address material, everyday consumer needs. We seek companies that are leveraging technology to address some of the largest challenges in healthcare. To date, we have invested in five innovators – Babylon, Cedar, Livongo, VillageMD and Cityblock– that are focusing on these distinct issues. Babylon is redefining access to care; Cedar is elevating the patient's financial experience; Livongo is transforming care management for chronic conditions; VillageMD is scaling the delivery of full stack, high-quality, value-based care and Cityblock is improving the health of complex, underserved populations through tech-enabled value-based care.
Our companies use data-driven tools that combine proprietary and third-party data with machine learning capabilities to develop cost-effective products that are easily accessible and make patient’s lives better at the time of need. Whilst these are young companies, the results are already there to see. NHS data has shown that Babylon’s “GP at Hand” is delivering 15%-28% savings in hospitals costs. Providers using Cedar have seen approximately a 30% increase in patient collections and a 95% or greater patient satisfaction rating. Livongo has an NPS of 64, delivers measurable and sustained clinical improvements as well as saves employers money with a ~6% reduction in medical spending in the first year of using Livongo. Moreover, the merger of Livongo and Teladoc will create the largest, consumer-centered virtual care platform covering the full spectrum of health needs and offering high-quality, personalised, tech-enabled longitudinal care. VillageMD delivers exceptional patient experiences whilst lowering the total cost of care, resulting in a 39% lower rate of acute admissions than market average and USD 200 PMPM savings on average for MA patients. The expansion of the partnership with Walgreens will substantially grow VillageMD’s footprint, reach and ability to provide high-quality care. Finally, Cityblock has partnered with multiple payers to cover thousands of lives and deliver tech-enabled, personalised primary care, behavioural support, and social services to thousands of members.
We believe our growing portfolio of disruptors can generate lasting value, which, in turn, helps reduce the cost of care and alleviate funding constraints. This should create a win-win-win for consumers, governments, and the healthcare economy.