Morgan Stanley Research and Investment Management analysts
discuss how AI can keep costs down for the industry and give
patients a more personalized experience.
----- Transcript -----
Craig Hettenbach: Welcome to Thoughts on the
Market. I'm Craig Hettenbach, Morgan Stanley's U.S. Healthcare
Technology and Providers analyst.
Today I'm here with my colleague Steve Rodgers from Morgan
Stanley Capital Partners to talk about a growing and
underappreciated segment of healthcare – the behind-the-scenes
technology that is transforming the sector to keep costs down and
improve patient care.
It's Monday, December 9th at 9am in New York.
In 2022, the size of the U.S. healthcare sector was [$]4.5
trillion and is projected to grow to [$]6.8 trillion in
2030, accounting for 20 per cent of overall U.S. GDP. We
know that the U.S. population is aging, and we expect to see 71
million U.S. citizens age 65 and over by 2030. That puts ever
growing demand on health care systems.
So, Steve, you and your colleagues in investment management have
been looking lately at key macro trends driving change in the
healthcare sector.
What are these drivers and how do they work together?
Steve Rodgers: When we look at the health care
landscape, we really think about four major macro trends. The
first is cost containment. And this is just this simple idea that
costs are escalating at an unsustainable rate. The second is
demographics; we also know that things like obesity is increasing
the prevalence of chronic conditions and increasing the overall
utilization of the healthcare system. And so, we're looking at
ways to invest behind that macro trend.
We've also identified something called consumerism. And
consumerism stems from the reality that today, patients are
taking more of a financial responsibility in their healthcare.
And with that comes more decision making. So, the old days –
where the patient received healthcare services, but the payer
paid, and there was really no link between the two – have moved
on.
We call it the retailization of health care. Waiting in the
office for your appointment for 30 minutes used to be a standard.
Today, that's unacceptable because these patients will move to
the next provider who's providing them a better retail
experience.
The final macro driver we call enabling technology. Health care
has lagged many other industry segments in the use of technology
as a source of efficiency. I like to give the example of
chemotherapy treatments, right? Technology would produce a new
chemotherapy treatment, and while that's great for patient care
and outcomes. It actually could lead to increased costs to the
system because it was an added route that people would go down.
Now there's technology which allows a provider to say, “Start
with this one because of your genetic makeup.” And not only will
you have a better outcome more quickly, but it will be less cost
to the system. We're also seeing that kind of efficiency happen
on the administrative side of healthcare as well.
The way we think about these macro trends and how they work
together is really thinking about demand versus supply. So, we
see demand drivers coming from demographics and consumerism. We
see supply drivers coming from cost containment and really
enabling technology has impacts on both demand and supply.
Craig Hettenbach: Let's focus more specifically
on just how digitization and cost containment dovetail. When
people talk about the impact of AI and ML on healthcare,
typically the focus is on things like big pharma, medical
equipment, and hospitals. But there's actually a whole intricate
infrastructure that helps healthcare run.
Can you talk about these behind-the-scenes businesses and why
investment managers are so interested in the opportunities they
offer?
Steve Rodgers: Yeah, it's really important. We
focus on investments that are using technology to enable their
businesses. And so that's automation. That's machine learning.
It's AI. But all of these technologies are being used behind the
scenes to make care more efficient and they're a better use of
our dollars.
For example the personalization of communications from health
plans. So historically a health plan would send the same
communication, you know, to – the same form to every patient.
Well now, technology allows the health plan, at the point of
generating that communication, to know that information about the
person that's getting it. And having the ability to personalize
it in ways that might help them be more likely to interact with
it. Maybe they're trying to get them to do something about their
health. Well, they can take an administrative communication, you
know, called an explanation of benefit, which really just
explains how much you owe versus how much the health plan owes.
And you can also add important information to that that might
help you utilize your benefits better.
Another example that we see is on the hospital side. As people I
think have heard, hospitals have been very inefficient, right?
They pay bills the wrong bills, they're
duplicative invoices, and there haven't been really good ways to
figure that out. Well, we now have technology that can identify
those duplicative invoices, that can actually identify that there
are multiple contracts that they have with a vendor and direct
them to use the cheapest one.
Last one that I would highlight is around the procurement of
pharmaceuticals. So, again, if you imagine a hospital system that
has 50 different hospitals and one person at each hospital might
be buying the pharmaceuticals that fit to the needs they have in
that facility. Well, now there's technology that's really helping
consolidate those purchases, get the benefits of scale. Also
tracking what is a very dynamic pricing market and figuring out
today this channels is less costly than that one, so buy it from
here; tomorrow it might be different.
We're seeing behind-the-scenes uses of technology in all of those
types of areas, which are leading to efficiencies.
Craig Hettenbach: That's really interesting and
I agree. Sometimes investors can overlook healthcare
infrastructure as an area offering a lot of hidden growth. Let's
take a subsector like Revenue Cycle Management or RCM. What is it
exactly and what opportunities does it offer when it comes to
technology and cost containment?
Steve Rodgers: What it is, it really is the
whole process from start to finish of a healthcare episode. So,
starting with something as simple as eligibility, or is this
patient eligible for this procedure?
Then once that procedure happens, it has to be documented and
coded and billed. And then once that bill goes out that needs to
be collected and paid on. So, this whole process is really how
healthcare works and it's one of the most important business
processes for healthcare companies .
And what we've seen with revenue cycle is it's been a very,
historically, a very manual process that involved a lot of human
effort. So early on, some of the most basic functions of revenue
cycle were automated. So, the example I can give there would be
the front-end entry of a claim.
So that used to be sent over by fax and a person would have to
look at that and type it into a computer and start the processing
that way. Well that, for a long time, that's now been automated
with either what's called OCR, which is a scanning technology.
But even, you know, now, a lot of that's coming in digitally. But
a lot of the rest of the process is still manual. And the reason
is because the tasks are so complex. So, to resolve a claim, you
often need to pull data from multiple sources. There'd be some
subjective determinations about what's allowed or not allowed.
You would then need to apply [it] against a multiple complex
rules and benefits. And sometimes the sheer dollars involved
would make it too risky to just pay that claim without someone
actually looking at it. Really we're entering an automation cycle
where some of these new technologies are making it possible to
reliably automate these more complex functions.
And so it's a combination of machine learning and AI but it's
really driving efficiencies that are really exciting from an
investment perspective to us right now.
Craig Hettenbach: Got it. In addition to revenue
cycle management, are there any other subsectors that look
interesting to you right now?
Steve Rodgers: We also, we call it cost cycle
management. This is the idea of applying the same principles that
we're seeing in revenue cycle to the purchasing of providers. So
that can be supply costs, inventory management. Another area that
we think is interesting is self insured employer outsourcing. One
of the main frustrations that we hear time and time again from
self insured employers is that their employees are not utilizing
the benefits that they have. With technology, companies that are
finding ways to get broader and better adoption; then in turn
allowing these employers to see better utilization, which is
going to lead to a healthier workforce and hopefully do so also,
with some cost containment.
So Craig, it's clear that there's an overlap between what we look
at from the investment management side and what you and your
colleagues focus on in research. How do you think about analyzing
how AI and machine learning are impacting healthcare?
Craig Hettenbach: Yeah, so for research across
the department, we came up with a framework to look at and that's
the NEXT framework. So number one, new business opportunities to
evaluate. Number two, efficiencies. Number three, external
productivity. And number four, content creation. So those are
four things to help kind of frame what the opportunity set looks
like, when leveraging AI and technology.
Steve Rodgers: And how does this framework apply
to your space, healthcare services and technology specifically?
Craig Hettenbach: The second point of that next
framework, the E for efficiencies, is something that we're
already starting to see the tangible benefits. And so, just to
give you some context here, the CEO of a leading hospital, at a
conference recently said that 25 to 30 per cent of overall
healthcare costs are tied to administrative.
So there is a lot of low hanging fruit there. There's other areas
within whether you think about things like prior authorizations
that are still done manually, either via fax, phone, email. Those
are things that some health plans and technology partners are
looking to automate. So, I think the efficiencies – we’re still
early on, but you're starting to see at least the business case
in terms of investments there.
And then there's the longer term look on the clinical side. And I
think the understanding there is that's going to take longer. An
executive at a recent industry conference I was at, I thought he
said it best when he said, ‘You know, AI is going to save time
before it saves lives.’
Steve Rodgers: How is this technology changing
how physicians or providers do their jobs?
Craig Hettenbach: When we look at what's
happened with physicians and nurses and still not too far removed
from COVID and just burnout, it's palpable. And I think it's
something that technology can certainly be used as an enhancer.
So ambient listening is a new technology. When we think about
electronic health records; yes, it's great to get that
information into that record, but it's also timely and consuming.
And so, I think things like that – that can listen to and
populate notes – is going to be a real time saver for both
doctors and patients.
And on the patient side as well, when we think about just our
experience, right? Healthcare just has a long ways to go in terms
of response time. And that's something that I think more
automation and technology, whether it's things like scheduling or
check-ins and things like that, I think ultimately you'll see
more technology deployed.
Okay, Steve, are there any other potentially overlooked near term
or longer-term pockets of opportunity within health care that you
think investors should focus on?
Steve Rodgers: Yeah, I think a general rule for
investors or, you know, a heuristic that they should think about
is, really trying to invest behind the things that are providing
– really trying to stay on the right side of healthcare. And so,
when we look at things like cost containment, you know, we see
companies out there where they might be benefiting from
inefficiency in the system. Those are things that I'd stay away
from.
I'd focus on companies that are providing better quality care at
a lower cost and staying on the right side of healthcare. Because
I do believe that a lot of these investments – the AI, the
technology – are going to drive efficiency and really eradicate
some of these business models that are really taking advantage of
the inefficiencies in the healthcare system.
Craig Hettenbach: Great, Steve, well that's very
helpful and thanks for taking the time to talk today.
Steve Rodgers: Great speaking with you, Craig.
Craig Hettenbach: And thanks for listening. If
you enjoy Thoughts on the Market, please leave us a review
wherever you listen and share the podcast with a friend or
colleagues today.
Kommentare (0)
Melde dich an, um einen Kommentar zu schreiben.