Healthcare revolution has arrived, pitchforks are out

Healthcare prices have stopped rising, and soon revenue will be falling across the industry. Here is a video that makes the point that a “Deflationary crisis looms for healthcare market.”

The narrator talks about how the ACA was a “bandaid” for the industry. What he means is that prices stopped rising, but revenues continued to rise because more people were demanding more healthcare services. That flow of new customers will most likely go into reverse, with revenues going into outright decline.

Here is the graph from Hedgeye and BEA showing that healthcare pricing, while still positive, now consistently grows slower than the overall inflation rate. [they made a mistake on the label of the black line — Health care inflation]

That will be GREAT FOR THE USA. We have reached the point where spending 18%+ of GDP is really hurting the competitiveness of the country, and also suppressing entrepreneurship.

I predicted that that deflation would come to healthcare, based on what happened with the finance business. Both finance and healthcare pricing have a perverse relationship to technology advances. In most industries, improved technology increases efficiency and lowers prices. In finance and healthcare, the opposite has been true. Improved technology leads to improved pricing power and revenue capture. In 2007, finance reached 11% of GDP. At that point, the parasite seriously damaged the host, and we had the great recession. Since that time, finance has declined to less than 8% of GDP. It’s coming back into balance. This happened because the relationship to technology flipped. We fired the Masters of the Universe and hired “fintech”. Now, technology is likely to lead to higher efficiency and lower prices for everything from banking, to loans, to trading, to asset management.

The same dynamic is coming to healthcare, through a host of services that I call “digital advisors”. These are data driven apps, AI advisors, telehealth providers, and virtual clinics. A “virtual clinic” is a service that uses all of these tools to help manage chronic conditions such as diabetes, addiction, and congestive heart failure. Because they use a lot of automation, they are cheaper than going to the doctor. They are more attentive, with 30 second response times rather than weeks of waiting. Some of these digital advisors are really good at shopping for healthcare, and directing their clients to the most efficient, highest volume, specialized, low cost providers. That will “bend the cost curve”. It will also produce the classic symptoms of industry disruption as the expensive general purpose providers lose revenue.

It will make the rest of us healthier and wealthier.

We are planning to support these digital advisors by making a market for their services. As Ray Croc was rumored to have said, if your competitor is drowning, stick a hose in his mouth.