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The Future of Healthcare: Virtual-First
Why the emerging "virtual-first" ecosystem marks the start a new era.
A confluence of macro trends has resulted in the moment for healthcare to finally change — and massive opportunities for innovators. Over the next decade, power in healthcare will shift from health systems to payers and consumers and unicorns will be created in a new layer of healthcare referred to as the virtual-first ecosystem.
I know, I know…another buzzword in healthcare?! We’re still defining “digital therapeutics”! Whereas digital therapeutics use clinically-validated digital “drugs” to improve outcomes, virtual-first providers are recreating real care pathways with a digital-first mindset. They’re providing end-to-end medical care. And they’re about to upend traditional care delivery.
This is the first post in a series that will describe the macro trends creating the virtual-first ecosystem and how the virtual-first ecosystem will shape the entire healthcare landscape for years to come. And, of course, I’ll highlight opportunities for innovation.
The Lost Decade of Healthcare
Remember that hopeful feeling after the Affordable Care Act was passed? We’re shifting to value! Finally! The fee-for-service (FFS) construct is dead!
Of course, that didn’t happen. Most providers still operate in a FFS environment. Rather than shifting to risk and innovating on care models, health systems spent the last decade consolidating to increase revenue by increasing facility fees and bargaining power in insurer negotiations. The result: spiraling healthcare costs.
The irony here is that by focusing solely on optimizing fee-for-service revenue, health systems created the “perfect storm” for virtual-first providers to disrupt them.
The Virtual-First “Perfect Storm”
I apologize for subjecting you to yet another “macro issues in healthcare” list, but it’s important to highlight the exact macro trends that virtual-first healthcare companies can capitalize on. Virtual-first companies are emerging due to three issues:
High Cost For Employers & Society: driven by high prices, not high utilization. Regional health system monopolies drive up prices and create massive price variability for the same service. For example, a single health system (Sutter) has 223 distinct prices ranging from $7,634 to $89,244 for a C-section. (below)
High Cost for Consumers: in response to rising costs, payers shifted costs to consumers, primarily by increasing deductibles so they can “shop” for services. This doesn’t work: it only caused more medical bankruptcies and rationing of life-critical drugs like insulin.
Awful Consumer Experience: healthcare is a confusing, fragmented consumer experience due to a lack of technology adoption. This is largely an artifact of the fee-for-service payment system: health systems aren’t incented to adopt technology that increases efficiency because it paradoxically decreases revenue. Revenue is maximized by in-person, face-to-face encounters with an assigned CPT code.
The next decade of healthcare will be marked by virtual-first providers and payers working together to create massive value by making progress on all three of these issues. Virtual-first providers will create great consumer experiences. Payers will create dynamic plan designs that reduce cost sharing for consumers. Together, they can create cost savings by steering consumers to low-cost providers. Ultimately, we’ll finally have a more consumer-centric, and cheaper, virtual-first healthcare system.
Yes, We’ve Tried Before. Payers Can’t Do it Alone.
Payers have long understood that pricing variability increases spend, and accordingly adopted programs attempting to “steer” patients to high-quality, lost-cost providers like price transparency tools, centers of excellence, and second opinions.
Traditional approaches have been self-serving and lack empathy for the consumer. If I’m getting a knee replacement and my insurance company randomly calls me and asks me to use a different provider, I might be…..skeptical, even if you try to give me gift cards. Who thinks their insurance company has their best interests in mind?!
Consumer trust is paramount to enable steering and reduce spend. Over time, payers eroded consumer trust through cost containment measures like prior authorization and increased copays and deductibles. Member engagement strategies are typically abysmal: how often do you hear from your insurance company? Its no wonder payers have low NPS scores!
Fortunately, payers can work with value-based, consumer-centric virtual-first providers to win back consumer trust and enable steerage.
The Virtual-First Healthcare Era
We’re in the early innings of a new era — an era where healthcare becomes virtual. Virtual-first healthcare companies create exceptional consumer experiences by providing convenient, longitudinal, and human care that consumers love. They can then leverage that strong consumer loyalty to steer consumers to low-cost care, creating significant cost savings. Consumers win. Society wins.
The virtual-first ecosystem includes a range of providers, including virtual primary care (i.e. Doctor on Demand), navigation (i.e. Accolade), behavioral health (i.e. Ginger), and virtual specialty providers (i.e. Hinge Health for MSK).
The most enduring, impactful, and successful virtual-first providers will share the following characteristics:
Provide Convenient, Continuous Care: as I’ve written extensively in a separate article, virtual-first providers must create consumer-centric experiences to win loyalty and succeed commercially. This means developing a deep understanding of consumers’ needs and delivering convenient, whole-person virtual care both synchronously and asynchronously.
Value-Based: to deliver these exceptional digital consumer experiences, virtual-first providers must be untethered from the shackles of CPT codes. This means they must contract directly with payers. To gain commercial traction, they’ll focus on serving payer’s needs and reducing the total cost of care.
Utilize Alternative Health Professionals: in an effort to reduce the total cost of care, virtual-first providers will utilize advanced practice and ancillary providers such as nurse practitioners, pharmacists, health coaches, navigators, and dietitians. All will operate at the top of their licenses.
Integrated with Local Providers: the best way to deliver cost savings is to capitalize on the aforementioned pricing variability and to navigate patients to lower priced providers or sites of care. Therefore, leading virtual-first providers will integrate with in-person, local healthcare.
The Virtual-First Health Plan Opportunity
Because virtual-first providers must align to payers, payers are uniquely positioned to capture value from the emerging virtual-first ecosystem. Forward-thinking payers can pair exceptional virtual-first consumer experiences with novel plan design to earn consumer trust and the right to steer to lower cost sites of care, ultimately improving financial performance.
Traditionally, virtual-first providers have struggled with consumer acceptance. Implementation and marketing efforts have fallen short for a variety of reasons, such as a lack of member email addresses. It’s hard to enroll members.
To address this, health plans will increasingly utilize novel plan designs that reduce consumer cost sharing for preferred virtual-first providers, driving consumers to their “digital front door” by making it cheaper than alternatives. Once consumers enroll, virtual-first providers will deliver excellent virtual experiences and help control the cost of downstream care.
For example, Harvard Pilgrim created a Virtual HMO plan with Doctor On Demand, requiring a virtual-first PCP visit for referrals to specialty visits, labs, and imaging — you know, the expensive stuff. Studies show patients listen to their doctor’s recommendation of what facility or doctor to go next. So, hypothetically, a health plan-aligned PCP can save a lot of money by sending consumers to lower cost downstream providers. Plans can reduce cost sharing for those services, so consumers win, too!
Integrating the Virtual-First Ecosystem
No journey is without speed bumps. The proliferation of virtual-first vendors has created a fragmented landscape of vendors and overwhelmed employers, health plans, and consumers. There’s too many vendors to contract. Too many eligibility files. Fractured marketing campaigns are confusing members. Stakeholders need simplification!
We’re entering a period of consolidation and partnering in the virtual-first ecosystem. Two layers will emerge from the fray: “front door” companies focused on simplifying the consumer journey and best-in-breed specialty providers.
A slide from ShareCare’s SPAC illustrating the “vendor fatigue” problem
You’re probably familiar with what I refer to as the “front door integrators”: companies like Teladoc, Grand Rounds, and Virgin Pulse that provide some combination of virtual primary care, care navigation, expert medical/second opinion, behavioral health, symptom checkers, and other low acuity services. They want to be the “front door” of healthcare for payers.
It might seem strange I lump all these services together. As digital health business models shift to being priced based on utilization, a company’s value is predicated on reaching the right consumer at the right time. Companies realize virtual services can cross-refer to increase utilization; virtual primary care providers can refer to an expert medical opinion service. Therefore, a tightly integrated vendor can increase revenue by cross-referring between services. From buyers’ perspective, higher utilization typically in increased savings, and it’s fewer contracts and vendors to deal with.
In response to this phenomenon, we’ve seen a flurry of consolidation amongst the “front door” virtual-first services to offer the most services and consumer touchpoints. As it turns out, many of these companies will be features, not standalone companies. Grand Rounds and Doctor on Demand merged. Teladoc has assembled a slew of services. Glen Tullman is launching Transcarent, which offers medical opinions, virtual PCPs, and more out the gate. The consolidation war has started.
The Virtual-First Specialty Care Opportunity
Some digital health commentators believe vendor fatigue and multibillion dollar consolidation marks the end of payer-focused specialty virtual care. They question buyers’ appetite for an ever-expanding menu of virtual-first specialty providers focused on ever-shrinking patient populations. Employers and payers certainly can’t manage 1,000 specialty vendors!
Front door integrators increasingly realize their value is not only triaging and navigating consumers to cost-effective in-person care, but also in integrating and driving utilization of virtual-first specialty providers and vendors. That’s why I refer to them as “integrators” — they simplify contracting and implementation for buyers and help consumers during the initial phase of their health journey.
Front door integrators’ approach goes beyond ESI’s and CVS’s “Digital Health Formularies” that simplify contracting; they also improve consumer utilization of cost-saving virtual providers, enhancing their overall value statement to buyers. This isn’t the future: it’s happening now. Welltok has a Connected Partner Ecosystem, Solera launched Solera Connect, and Virgin Pulse has a Partner Network, among others. They want to be the solution to vendor fatigue and fragmented experiences.
This will create a massive opportunity for best-in-breed virtual-first specialty providers. No single company can serve all consumers. It’s too complicated. Instead, best-in-breed virtual-first specialty providers will handle more complex (and costly) patients. They’ll provide specialized, whole-person care tailored to specific demographics or comorbidity clusters and can assist with navigation to specialized in-person services.
We’re still in early innings of virtual-first specialty care. We’ve seen multiple multi-billion-dollar companies emerge in high priority condition groups like cardiometabolic and MSK. Expect to see the best-in-breed trend to continue in “second tier” condition groups, like Oshi Health for digestive health, and my company, Visana Health, for women’s health. We’re already witnessing early payer adoption in these categories, and I very much believe the momentum will continue.
In fact, we need virtual-first specialty care to be successful to move the needle on healthcare costs and consumer experience. Diabetes and MSK represent only a small percent of overall healthcare spend and consumers, so we need to invest beyond those conditions to truly put a dent healthcare costs. There’s no silver bullet.
Of course, vendor fatigue concerns are valid. That’s exactly why we need collaboration in the virtual-first space to drive the the field forward. Virtual-first providers and payers need to work to create novel ways to reduce contracting and implementation friction. Virtual-first providers need to partner with one another for care coordination. A group of virtual-first providers and payers are collaborating in an initiative called IMPACT to tackle these issues now.
The future of virtual-first healthcare is bright. We can serve patients better, create consumer-centric healthcare experiences, and reduce costs. A handful of virtual-first unicorns have demonstrated the value of the virtual-first segment; that number will continue to grow in new specialty segments. Beyond virtual-first specialty care, we’ll see exciting opportunities in startups providing virtual-first infrastructure, reducing friction between payers and virtual-first providers, and more. Stay tuned for more!
On The Horizon
In future posts in this “virtual-first series,” I’ll cover virtual-first startup opportunities more in-depth, outline how incumbent health plans are approaching the virtual-first space, discuss how brick & mortar providers can respond to the virtual-first movement, and more. Subscribe to follow along.
A health plan or employer wanting to learn more about how use the emerging virtual-first space to better serve your members.
An investor looking to invest in a pioneering virtual-first women’s health company with a big upside. Visana is kicking off a fundraise shortly. I’d especially love to hear from healthcare operator angels.
A like-minded individual who wants to network and trade notes in the virtual-first space.