investment viewpoints

Healthcare needs the digital treatment

Healthcare needs the digital treatment
Henk Grootveld - Head of Trends Investing

Henk Grootveld

Head of Trends Investing
Pascal Menges - Head of Equity Investment Process and Research, Client Portfolio Manager

Pascal Menges

Head of Equity Investment Process and Research, Client Portfolio Manager

The diagnosis for technological intervention in the delivery of healthcare services has been made, but the prescription hasn’t yet been written.

Over the last 50 years, the global healthcare bill has outgrown global GDP. The most extreme rise in costs has taken place in the US, where total healthcare costs have outgrown national GDP since the 1970s and, in 2019, the annual bill amounted to 18% of output. In Europe, healthcare costs as percentage of GDP are lower than in the US, as the European average sits at 9.9%, ranging from 5.3% in Luxembourg to 11.9% in Switzerland. However, costs have also risen steadily. Without changes to the healthcare system, costs will simply continue to outgrow GDP due to a raft of  inefficiencies, such as the decentralised nature of many healthcare systems, flawed incentive structures, and a focus on treatment over prevention. This situation stands to be exacerbated by the ageing of societies and the growing number of chronically ill patients.

The majority of healthcare costs are spent in the last years of life and, due the ageing of societies, the number of people reaching that point will increase substantially in the coming years. On top of that, the incidence of serious illness tends to increase with age. In 2019, 60% of adults in the US had one or more chronic conditions that required lifelong, and therefore expensive, treatment. Of the country’s total healthcare bill of USD 4 trillion, already USD 2.5 trillion is spend on treating chronic diseases, and ageing will only increase this spend.

Dementia, Parkinson’s disease and arthritis are among the causes of medical dependency that become more prevalent with age. These conditions require far longer treatment than cancer or heart disease, where the demise of patients can unfortunately occur more rapidly if therapy is unsuccessful. Capacity for dementia care in most Western countries is not sufficient to treat the rapidly growing number of patients with dementia, and especially Alzheimer’s disease. Treatments are perhaps advancing, but rapidly ageing societies will still substantially increase the costs of medical care of the elderly, especially given the long duration of conditions like dementia.

The focus now needs to be on how to reduce healthcare costs and build a more efficient system before we reach a breaking point. We believe the answer lies with digitalisation. From payments to dating and from autos to shopping, digitalisation is already being embraced by most parts of society. However, the conservative healthcare industry has been very hesitant to welcome the disruptive forces of digitalisation. With the use of proven digital tools, health technology has the potential to lower costs and improve outcomes.

We believe that there are three trends set to transform healthcare for the better. There is the growing prevalence of connected care, which has only been exacerbated by the pandemic. Doctors have consulted many patients online and people recovering from coronavirus at home have been monitored remotely by doctors via connected medical devices. Connecting to a physician via telehealth will become the norm just as wearing connected devices that constantly measure vital signs. Continuous Glucose Measuring devices have already changed the life of many type 1 diabetes patients, for example.

We also anticipate there will be a much greater focus on prevention. The healthcare system will adopt a greater focus on prevention through the use of better and earlier diagnostics, personal medicine and lifestyle changes. Research conducted by the Bipartican Policy Center suggests a combination of regular exercise and a healthy diet can help avoid 50% of all chronic diseases today. General practitioners, lifestyle coaches and psychotherapists are engaged in trying to improve peoples’ lifestyles and prevent obesity-related or other chronic diseases.

Finally, we expect the trend towards greater efficiency to accelerate. It is our view that the healthcare system can become simpler, faster and more affordable by embracing automation, artificial intelligence and outsourcing. There is clear potential for artificial intelligence to lower the cost and increase the efficiency of radiology services, or for researching new treatments, especially since the algorithms can interrogate digital copies of our DNA. Robots can easily provide more assistance in surgery than the roughly 20 procedures they are programmed to do today. Many more automated healthcare services need to be developed and rolled out this decade and, furthermore, be embraced in an industry that has been somewhat resistant to the notion.

The digital genie is out of the bottle for good. In the consumer services and manufacturing sectors, its powers have simplified processes, eliminated middlemen and, above all, lowered costs. The healthcare system is in sore need of this treatment.

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