In Vivo
Executive Summary
- Large, well-capitalized digital insurgents are disrupting incumbent payers and providers in their most profitable, strategic areas.
- Entrenched players are investing in digital superficially, neglecting key opportunities, such as optimizing patient routing to low-cost providers.
- Payers and providers can improve margins with the right investment posture.
This article originally appeared on In Vivo (subscription required).
The US health care system is long overdue for the disruption currently underway. Intractable problems persist: the lack of cost transparency, patients’ struggle to find in-network doctors, denials of claims, inaccessible medical records and neglected follow-up care. While traditional payers and providers have attempted to make improvements on the margins, they struggle to deliver meaningful changes in core processes and to derive substantial returns on their investments.
Digital insurgents have been scaling and are now well positioned to tackle many of the industry’s pain points. Consider Amazon Care in the primary care space, Livongo in chronic care management, Cedar in payments or Medically Home in hospital-at-home services. These companies and many others like them see a broken system ripe for disruption. The funding bears this out: the overall market for digital health has seen funding levels rise from $5.7bn in 2017 to $14bn in 2020, with 2021 already on track to outpace last year. The digital health market size was valued at $96.5bn in 2020, with a 15.1% compound annual growth rate projected through 2028.
Most of this funding targets specific, known gaps in the industry. For instance, Accolade helps workers navigate their health benefits and access in-person care, mitigating the challenge of finding the right in-network doctor. Through an adjacency push, Accolade has recently acquired PlushCare, entering the care delivery business directly—a sign of things to come.
Similarly, Cedar works to simplify the medical billing process through a digital patient billing service. By clarifying health care costs and affordability options, the company says that nearly 75% of its patients avoid collections. As a result, it achieves an 88% satisfaction rating. In addition, Cedar will acquire Ooda, a platform for payer workflows, bringing together payers and providers on a single platform to evolve a dysfunctional payments system. These moves represent the coming disintermediation of health care payments—just as PayPal, Square and Stripe have done in financial services.
These nimble, tech-savvy insurgents are rapidly making inroads in high-value services across the payer and provider value chains. The threat to incumbents is real. Nimbler insurgents will pick off traditional payers’ and providers’ value-added, higher-margin services, reducing legacy payers’ purview to lower-margin services. This will commoditize incumbents and erode their value propositions, pushing them behind the scenes to the end patient or consumer. Imagine a health system reduced solely to acute care inpatient facilities or a health plan writing only catastrophic coverage policies—this could be the future for companies that do not evolve quickly.