The U.S. healthcare system continues to rebuild as it digs out from the COVID-19 pandemic, revealing several trends that will impact healthcare in 2023.
First, well-established healthcare companies will be motivated to maintain the status-quo which has delivered healthy profits in recent years. This means that innovation will likely emerge from second-tier companies and innovative companies looking to expand into healthcare.
Second, there will continue to be slow, steady growth for consumer health technology. It is only a matter of time before this consumer health technology will disrupt healthcare, much like Uber disrupted the taxi business.
Third, the recent explosion of artificial intelligence start-ups will slow and this space will see consolidation through merger and acquisition (M&A) activity, and some companies simply closing shop.
Take a closer look at these trends and how they will likely impact healthcare in 2023 and beyond.
1. Innovation from Outside as Large Healthcare Players Promote Profitable Status Quo
The large incumbent players in healthcare have generally performed well the last two years, from big pharmaceutical companies and large medical device companies to health insurance companies (like United Healthcare Group, which posted a $7.5B profit in Q3 2022). These record numbers will lessen pressures to innovate, at least in the short term.
Instead of investing in innovation in 2023, it is likely that that most of these large, incumbent players will be invested in maintaining the status quo and the profits it is yielding.
This means that that valuable innovation assets will likely come from “second tier” players. Companies aiming to become first tier or “left field” companies that are approaching medical innovation from a different angle, think big tech companies and retailers like Walmart and CVS.
This trend is especially visible in the medical imaging field. Many software companies have emerged over the last two years to offer products and services that better interpret medical images such as CT and MRI scans.
Until now, the large players such as GE, Siemens, Philips, etc., haven’t had much appetite for M&A. Presumably, they are observing where the field is going, assuming they have sufficient critical mass to enter at any time.
At the same, there are increasing synergies between the fields of medical imaging, treatment selection and treatment development, including precision medicine. This opens the door to other types of mergers and acquisitions, especially those aimed at connecting silos rather than going deeper into verticals.
A recent example of this trend is the acquisition of Arterys, a medical imaging company, by Tempus, a precision medicine company. This is an exciting evolution that is likely a necessary step to improve healthcare overall.
2. Slow, Steady Growth for Disrupting Consumer Health Tech
The largest company in the world will be a consumer health tech company, according to Andreessen Horowitz. The venture capital firm that backs bold entrepreneurs, makes this prediction because the current healthcare system is overly expensive for the quality of care and service provided. Specifically, the incentives in the current system do not reward institutions for providing the best service to patients at the best price.
At the same time, more people are increasingly interested in, and empowered to, monitor their own health. It is only a matter of time before a company, or network of companies, provide a viable alternative to the current opaque healthcare/insurance system. This technology will change healthcare, much like Uber permanently changed the transportation industry by using technology to introduce transparency in the obscure taxi business.
This technology won’t necessarily show how the current system works (it doesn’t), but instead it will help reveal what the health-disease continuum really looks like. Health is not binary (healthy or sick). In many cases is a spectrum. With this in mind, it’s reasonable to expect advances in 2023 toward a consumer-driven system that incentivizes health maintenance as an alternative to the current insurance-driven system that profits from disease and sickness.
Companies like Amazon will continue to integrate One Medical into a consumer-oriented world with a new care delivery models designed around technology. Apple will continue to establish dominance in the connected health devices market with their Apple Watch providing an interface for other tech companies to disseminate their own health apps.
These companies will have a significant strategic advantage because their incentives are aligned with keeping their customers healthy, an argument that is much harder to make for the incumbent healthcare players who don’t get paid when consumers are healthy.
3. Consolidation of AI Startups
There was a record number of medical AI technology deals, at high valuations for novel companies with little revenue and negative EBITDA (earnings before interest, taxes, depreciation and amortization) during 2020-22.
The declining economic climate combined with rapidly increasing interest rates, will have a profound effect on start-up financing in 2023. There will likely be a period when it is tougher to raise capital, forcing companies to raise money at a lower valuation just to cover operational costs.
Many companies will continue to cut costs. Others might go through a merger and acquisition transaction with strategic partners to shore up the balance sheet and provide a more robust offering to the market.
Undoubtedly, some companies will not survive. Those companies with little clinical data or “me-too products” will be the least equipped to navigate the leaner times ahead.
3 Predictions for Healthcare in 2023: Outside Innovators, Disruption from Consumer Health Tech, and AI Consolidation
3 Predictions for Healthcare in 2023: Outside Innovators, Disruption from Consumer Health Tech, and AI Consolidation
The U.S. healthcare system continues to rebuild as it digs out from the COVID-19 pandemic, revealing several trends that will impact healthcare in 2023.
First, well-established healthcare companies will be motivated to maintain the status-quo which has delivered healthy profits in recent years. This means that innovation will likely emerge from second-tier companies and innovative companies looking to expand into healthcare.
Second, there will continue to be slow, steady growth for consumer health technology. It is only a matter of time before this consumer health technology will disrupt healthcare, much like Uber disrupted the taxi business.
Third, the recent explosion of artificial intelligence start-ups will slow and this space will see consolidation through merger and acquisition (M&A) activity, and some companies simply closing shop.
Take a closer look at these trends and how they will likely impact healthcare in 2023 and beyond.
1. Innovation from Outside as Large Healthcare Players Promote Profitable Status Quo
The large incumbent players in healthcare have generally performed well the last two years, from big pharmaceutical companies and large medical device companies to health insurance companies (like United Healthcare Group, which posted a $7.5B profit in Q3 2022). These record numbers will lessen pressures to innovate, at least in the short term.
Instead of investing in innovation in 2023, it is likely that that most of these large, incumbent players will be invested in maintaining the status quo and the profits it is yielding.
This means that that valuable innovation assets will likely come from “second tier” players. Companies aiming to become first tier or “left field” companies that are approaching medical innovation from a different angle, think big tech companies and retailers like Walmart and CVS.
This trend is especially visible in the medical imaging field. Many software companies have emerged over the last two years to offer products and services that better interpret medical images such as CT and MRI scans.
Until now, the large players such as GE, Siemens, Philips, etc., haven’t had much appetite for M&A. Presumably, they are observing where the field is going, assuming they have sufficient critical mass to enter at any time.
At the same, there are increasing synergies between the fields of medical imaging, treatment selection and treatment development, including precision medicine. This opens the door to other types of mergers and acquisitions, especially those aimed at connecting silos rather than going deeper into verticals.
A recent example of this trend is the acquisition of Arterys, a medical imaging company, by Tempus, a precision medicine company. This is an exciting evolution that is likely a necessary step to improve healthcare overall.
2. Slow, Steady Growth for Disrupting Consumer Health Tech
The largest company in the world will be a consumer health tech company, according to Andreessen Horowitz. The venture capital firm that backs bold entrepreneurs, makes this prediction because the current healthcare system is overly expensive for the quality of care and service provided. Specifically, the incentives in the current system do not reward institutions for providing the best service to patients at the best price.
At the same time, more people are increasingly interested in, and empowered to, monitor their own health. It is only a matter of time before a company, or network of companies, provide a viable alternative to the current opaque healthcare/insurance system. This technology will change healthcare, much like Uber permanently changed the transportation industry by using technology to introduce transparency in the obscure taxi business.
This technology won’t necessarily show how the current system works (it doesn’t), but instead it will help reveal what the health-disease continuum really looks like. Health is not binary (healthy or sick). In many cases is a spectrum. With this in mind, it’s reasonable to expect advances in 2023 toward a consumer-driven system that incentivizes health maintenance as an alternative to the current insurance-driven system that profits from disease and sickness.
Companies like Amazon will continue to integrate One Medical into a consumer-oriented world with a new care delivery models designed around technology. Apple will continue to establish dominance in the connected health devices market with their Apple Watch providing an interface for other tech companies to disseminate their own health apps.
These companies will have a significant strategic advantage because their incentives are aligned with keeping their customers healthy, an argument that is much harder to make for the incumbent healthcare players who don’t get paid when consumers are healthy.
3. Consolidation of AI Startups
There was a record number of medical AI technology deals, at high valuations for novel companies with little revenue and negative EBITDA (earnings before interest, taxes, depreciation and amortization) during 2020-22.
The declining economic climate combined with rapidly increasing interest rates, will have a profound effect on start-up financing in 2023. There will likely be a period when it is tougher to raise capital, forcing companies to raise money at a lower valuation just to cover operational costs.
Many companies will continue to cut costs. Others might go through a merger and acquisition transaction with strategic partners to shore up the balance sheet and provide a more robust offering to the market.
Undoubtedly, some companies will not survive. Those companies with little clinical data or “me-too products” will be the least equipped to navigate the leaner times ahead.