Out-Of-Pocket’s 2023 predictions
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Happy Predictions Season
I am a sheeple that is also doing predictions posts. I’m a little late to this since 2023 already started, so if I’ve copied someone else by accident…I also do not care.
Last year’s predictions I actually thought I did pretty well.
- A big tech company did buy a company for $1B+
- The FTC launched a formal inquiry into PBMs
- No Surprises has been a shitshow with providers suing and lots of debates around arbitration
- There was an executive order to push for a stronger bioeconomy
But it’s easy when you make the predictions broad enough and cherry pick supporting evidence that shows you were right! Which is exactly what I’m going to do again this year! But I think it’s fun to give directional thoughts.
Respond to this email with one 2023 prediction. I’ll post my favorite ones in a follow-up newsletter. Please don’t make your responses super long.
1) Market downturn
The consensus amongst people I talk to is that next year we’re probably going to go further into a recession. Some potential second order effects of this:
- The payer mix starts tilting away from employer-sponsored plans and more towards Medicaid/individual exchange.
- Startups selling to startups will become a less tenable strategy and those companies will have to go to larger enterprises.
- Customer willingness to add net new vendors or experiment with new buckets of spend basically evaporates - vendors increasingly need to fit into an existing budget, compete on price instead of features, or replace a full time employee for the customer.
- Companies with existing distribution either create or buy mediocre products to check the box that the vendor is asking for.
- Debt becomes more prevalent in startup land as fundraising becomes much tighter (which might blow up in some companies' faces). We’ll see more structured rounds with liquidation preferences, downside protections, etc.**
- The gap between “invoice sent” and actual payment hitting the bank becomes longer for payers/providers as they figure out their priority of paying vendors, causing cash crunches for many companies.
- The supply shortage might actually get better because more frontline staff may come out of retirement or delay retirement.
- Your friends with amorphous jobs who are independently “advising” or “consulting” but are somehow in Miami all the time end up back mid-management at F500 companies.
**If you are an employee at a startup and your company just raised, you should 100% be asking whether the latest investors have downside protections, ESPECIALLY if you’re considering exercising your equity. In many cases investors will give a company a “good” valuation but in the case a company doesn’t hit that valuation at exit, the investors make sure they’re getting paid first before your equity.
2) Non-academic hospitals become first customers
Historically digital health companies have tried to get the Mayo Clinics, Cleveland Clinics, and other brand name hospitals as first customers. They'll grind away at a pilot with the faint glimmer of hope that they'll convert to a customer, become a logo they can use in their sales deck, and ride easy to the IPO. Only for the big hospital to put out a research paper and never talk to the startup again. On top of that, these hospitals are now incubating and starting companies themselves after realizing their value. This is going to make it really hard for startups to target these academic hospitals as first customers.
On the flipside, there seems to be an increasing appetite to partner with tech companies from lesser known hospitals. A combination of getting stretched extremely thin/ operations running off the rails due to COVID + a need to figure out how to get referrals might be driving this. For example, we've seen a16z partner with Bassett Healthcare Network for their portfolio companies to test out solutions and Carbon partnering with John Muir Health. I'm excited to see whether this leads to more interesting contracting as well, since brand name hospitals are addicted to fee-for-service whereas these other hospitals are getting crushed financially anyway and might be more open to shifting to VBC if they have a tech partner to help with care outside of the clinic.
3) Remote patient monitoring sees payer pushback
Remote patient monitoring (RPM) is a fancy way to say sending connected devices to patients as part of their care plan. Usage of remote patient monitoring really started ripping during COVID thanks to the flexibility around telemedicine use + CPT codes (99453 - 99458) that made it easier to get reimbursed.
I saw quite a few pitches for different RPM startups in the last couple years. I think the use of connected devices can be very useful, but most of the pitches I saw were basically around helping practices bill these CPT codes without needing to really change anything in their workflows. In fact, it seems like data is coming out around how certain practices basically just gave every patient RPM and billed for it.
My guess is next year, payers are going to be a bit more scrutinizing around how they reimburse for RPM and will want certain documentation/steps in place to make sure only the correct patients get it.
4) The ripple effect of price transparency
Haters in healthcare have a simple morning routine. Wake up, brush their teeth, talk about the price transparency rules aren’t going to change anything, and drink coffee that’s as bitter as they are.
Now that payer data has come out and some time has passed, I think this fiscal year will be the first time you see the price transparency actually change anything.
- I think the price variance bands at hospitals will get narrower.
- Employers are using this data to see if they’re getting a shit deal from their third-party administrators and insurers who negotiate deals and pay out claims, and some are suing when they realize they’re not doing a good job. In this case, they might be misunderstanding how the claims payment logic works, but all the more reason to use this as an opportunity to move to simplified payments or even direct contracting between employer and providers.
- More antitrust cases will be filed as it becomes easier to use data to build the case around monopolistic abuses of power.
Or things could just continue as they always have, but how depressing would it be to just constantly think that?
5) The rise of biosimilars
Pharma companies have long prevented biosimilars coming to the market with different stall tactics (patent thicketing, pay-to-delay, etc.). And even the ones that have come to market have kind of been a bust due to issues with PBM formularies, questions of efficacy and whether they can actually be swapped out with the original biologic, etc.
I think 2023 might actually be the year for biosimilars (which are sort of like generics for large molecule drugs). For one, the Ensuring Innovation Act was signed that aimed to close some of the loopholes that delay biosimilar entry. Second, Abbvie has settled its disputes against Humira biosimilars and now it seems like there are at least 7 FDA approved biosimilars ready to enter the market. Third, pharmacy spend is one of the fastest growing buckets for payers and employers, and they’re very actively looking for ways to control it (e.g. Medicare Advantage plans in particular use tools like prior authorizations to steer towards biosimilars). Finally, the Inflation Reduction Act has boosted reimbursement to biosimilars.
Previous biologics have had mixed results in uptake, but I wouldn’t be surprised if the massive pent up demand for Humira (adalimumab) biosimilars ends up yielding extremely fast uptake in market share. Bevacizumab had 42% in a year after the launch of biosimilars, maybe adalimumab will reach a higher amount in a year.
I’m curious what the second order effects of this are. Some guesses:
- More scrutiny and lawsuits against pharmaceutical benefit managers and 340B hospitals, both of which cause weird pricing distortions that actually incentivize the uptake of more expensive drugs.
- Smoother pathways for bringing biosimilars to market - newly introduced bills are trying to lower the burden of proof around “interchangeability” between a branded and biosimilar drug.
- A lot more time and money spent by the different biopharma companies trying to convince prescribers that their version is the more legit one. Pharma companies with big brand name biologics will probably start releasing their own authorized biologics, which they can say is the same drug as the name brand with the same manufacturing expertise, etc.
- It also means a lot more investment into post-market data collection + studies from the biosimilar manufacturers to demonstrate to providers that their drug is legitimately just as good since a lot of doctors will probably be skeptical. Or the biosimilar companies might even push to go into value-based care arrangements in order to shift payers toward them.
- An increased demand for biomanufacturing. There’s a lot more contract development and manufacturing company (CDMOs) with expertise in manufacturing antibodies, a key piece in enabling more biologics and biosimilars. Demand for this kind of expertise is probably going to jump pretty significantly.
6) Another big tech acquisition (attempt?)
Last year I said we’ll see a big tech acquisition above $1B+ and Amazon bought One Medical. Apollo granted the gift of prophecy to his greatest shitposters.
I think we’ll see another big tech company make a sizable healthcare acquisition. The core business models for many large tech companies are hitting saturation or feel some form of existential threat (e.g. Google search eaten by Tik Tok search/chatGPT, Facebook ads getting murdered by Apple). Investor pressure will force them to find new growth stories, and healthcare feels like an easy narrative to spin with an acquisition to show they’re serious.
An open question is whether the FTC/DOJ actually lets that happen though. It’s unclear.
If I was a betting man I’d guess….Google/Verily buying a Modernizing Medicine, Komodo, or someone that touches health data more closely. A runner up would be Apple buying some medical device company.
A dark horse, if you consider them “big tech” in healthcare, is Epic. The company seems to be feeling some pressure from the new interoperability rules and also recently shut down its app stores. A curveball would be them making a $1B+ acquisition. This would be extremely unlike them since Epic prides themselves in building in-house, but what predictions list would be fun without a totally crazy one?
[Usual disclosures, I have no inside information here. It’s just for fun!]
7) Employers move to “Total Cost of Care” arrangements
Next year, employers are going to experience serious sticker shock with their health insurance premiums and will be looking to their vendors to reduce pricing. The “front door for healthcare” companies are going to try and push into total cost of care arrangements so that they can get more revenue beyond just the front door. This is already happening in some places:
- Crossover and Aetna partner on launching fixed-fee payments for employers and looking at others payers as well.
- Cigna’s investment in VillageMD explicitly calls out moving into value-based care arrangements for commercial employer plans
- Curative is launching a $0 copay, $0 deductible plan with an employer in Houston that requires an hour-long health assessment each year.
- Morgan Health invested $50M into Vera Whole Health to offer advanced primary care + capitated arrangements for employers.
I sense this will become more common for employers in the next year or two as they look to cut costs and pick vendors that can go at-risk with them. There are still a lot of open questions around how this would work, especially without a mechanism like risk adjustment, which is basically the only way this works in Medicare Advantage. Also, all the problems with benchmarking that we talked about in the value-based care breakdown are even worse in the employer segment.
8) FDA/DEA crackdown on ketamine + compounding pharmacies
The DEA seems to be actively investigating the providers of telemedicine stimulant providers. I think two areas they might look to next are ketamine providers and compounding pharmacies.
Several companies have been doing direct-to-consumer advertising for ketamine. It’s very jarring to go from watching a friend's instagram story about their baby to WANNA TRY KETAMINE????. Companies seem to have different levels of assessment and supervision required while you’re taking the ketamine at home. I’m guessing there are similarly some bad actors here that are playing a little too fast and loose.
Compounding pharmacies have become sorta shady in areas of drug shortages like the new weight loss drugs (e.g. semaglutide). Compounding pharmacies get some leeway in terms of changing drug formulations and use the same active ingredients to create their own versions of drugs, but it’s a pretty gray area. A lot of endocrinologists seem unhappy with this because of the inconsistency of the product + the pharma companies have sorta started cracking down on this saying they’re infringing on their product. And also…no one seems to be sure how the compounding pharmacies are getting the materials when there’s a shortage?
“Karl Nadolsky, an endocrinologist in Michigan, said a sales representative from a compounding pharmacy left a handwritten note at his office claiming to have stock of compounded semaglutide should he be interested in providing it to his patients.” - Wall Street Journal
Like this is how ransom notes should operate, not obesity drugs.
Both of these seem like areas that will be scrutinized.
9) A social media shift in healthcare
Last year I got dragged on Twitter for a tweet about cover letters that was misinterpreted. I ended up on Reddit, Instagram meme accounts, etc. I know how ridiculous this sounds - but people got very mad about this.
As a result, I got several DMs about how I had a punchable face (not wrong). Someone subscribed my email to the Church of Scientology, several political campaigns, and every single erectile dysfunction company (which was a great chance to see how their drip campaigns worked).
Honestly it was a terrible few days before it passed over. I’m a pretty boring account on Twitter that makes extremely niche jokes about how “real-world evidence” should be called “biodata bio data”, but even I got dragged into the online mob. I think more healthcare accounts on Twitter and Tik Tok are going to experience this and wonder if it’s worthwhile to be such public faces, especially as Elon brings back a lot more anti-healthcare institution accounts onto Twitter and himself boosts those messages.
On top of that there’s real risk now being on a platform where the rules might change. Elon temporarily stopped people from linking out to other social media sites on Twitter, banning Tik Tok seems to get explored more seriously every passing day, etc.
I think some of the three things happen:
- We see the rise in popularity of pseudonymous healthcare accounts. This is surprisingly uncommon in healthcare but in finance twitter there’s a ton of very prominent accounts that are some stock photo or anime avatar without a real name.
- New social media channels emerge. Most likely it will be a retreat to smaller micro-communities like Slack groups, but there’s a chance a new social media for healthcare actually manages to take off.
- People stick to the existing social media channels. Linkedin seems like a natural transition for most, maybe Doximity starts poppin’ off, or they just stay on Twitter and endure it.
Twitter is one of the biggest channels for Out-Of-Pocket and at this point I’ve developed relatively thick skin, so I probably won’t be going anywhere. But there’s a cruel irony to my business now being at the mercy of a $44B Twitter shitposter.
10) Generative AI in healthcare
If you haven’t been messing around with chatGPT, DALL-E, or any of the other generative AI tools you’ve been living under a rock or have a healthy social life so you’re not on the internet 100% of the time.
Honestly, when you use the tools, it feels like magic. It’s the first piece of tech I’ve shown my dad, a physician, and he was actually impressed. This was important to me, because he’s still yelling at me after convincing him to invest in crypto, the last piece of tech I showed him.
I think we’re going to see a lot of pitches next year that use generative AI in some capacity. My guess is that a lot of “first time in healthcare” people will gravitate to the consumer use case (“we use GPT to argue down your healthcare bill”) but the actual value will come in B2B workflows.
- Making manual data collection and entry much easier
- Reformatting raw data into different reports and outputs
- Tools that auto generate different patient materials that companies can look over and edit
- Generate synthetic datasets trained on real patient data and histories
- Help providers generate letters of appeal to payers, who then use their on versions to read and argue it
I also think this will still need a human-in-the-loop and deep workflow integration to be valuable. For example: InpharmD is embedded into Epic and uses GPT for literature summarizing + a clinical pharmacist to verify and structure data to answer drug queries. (Disclosure: investor)
As GPT-4 comes out next year, what you’ll be able to do will get even crazier.
11) Out-Of-Pocket acquires Optum
In a total WWE style reversal, Optum gets acquired by a newsletter. Out-Of-Pocket becomes the number 1 employer of physicians in the country. It gets blocked on antitrust grounds because the combined entity would take up too much real estate in the brains of healthcare people.
Nah but seriously- in 2023, Out-Of-Pocket is gonna keep doing its thing. Tbh I run the company on vibes and not metrics, but apparently that’s not a great way to sell things?
Newsletter - I’ll keep putting out analyses in the newsletter on what’s happening in healthcare in an entertaining way. Currently the newsletter is at 21K+ people with a 52% average open rate, and hopefully continues to grow if you all keep enjoying it.
Courses - New courses are coming out. Healthcare 101 Industry Crash Course and Healthcare Marketing 101 are currently enrolling for the classes that start next week. Healthcare Product 201 and Claims Data 101 are running alphas that start in the next few weeks (email me if you’re interested). Healthcare Operations 101 is currently in development. So far more than 200 people have signed up or taken a course!
Hopefully this mini university can help companies onboard new employees to their slice of healthcare and role much quicker and spare internal employees from having to do it each time.
In-person stuff - The Operations Knowledgefest conference was a hit and there seems to be more experimentation on the conference and peer learning side. Maybe not 2023, but I always thought it’d be interesting to see more healthcare specific coworking spaces - shockingly there aren’t really that many in New York.
Helping companies hire - Keep growing the Talent Collective and make it easy for companies to hire individuals, contractors, agencies, etc. and also make it easy for people to find a job that works for them. I think there’s more here around pre-screening and also figuring out good ways to match the two parties that can be valuable.
If you’re hiring, sign up to see the 250+ vetted people looking for their next healthcare gig + 10 each week. If you’re a person looking for your next or first healthcare gig, sign up to talk to the 55+ companies hiring. If you’re a venture firm, you should gift a 3 month subscription to your portfolio company after investing in them so they can build their team quickly (email me).
Investing - Continue angel investing in pre-seed and seed stage healthcare companies, specifically ones that have great products with high engagement and natural word of mouth adoption. So far I’ve invested in 24 companies, and I’ve gotten to learn a lot from each of them and the industries they operate, while hopefully providing a small amount of value/help.
It keeps me optimistic to talk to entrepreneurs that see a better future for healthcare. We can’t get too sucked into the sadness and cynicism.
Succinctly describing what this is - Awkwardly telling people that “my company is basically explaining how the business of healthcare works” while people nod as if that actually made anything more clear.
Let’s see how this year shapes up, I appreciate you all joining in on the ride as Out-Of-Pocket enters year 3.
Nikhil aka. “prediction posts are astrology for newsletter writers"
Other posts: outofpocket.health/posts
Thanks to Malay Gandhi, Morgan Cheatham, and Gaurav Singal for looking at drafts of this
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