T E N BY: DOUGLAS HERVEY, JD/MBA
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TEN H E A LT H C A R E SERVICES SEGMENTS POISED FOR GROWTH B Y : D O U G L A S H E R V E Y, J D / M B A
T E N H E A LT H CA R E SERVICES SEGMENTS POISED FOR GROWTH Manufacturing dominated the U.S. employment sector thirty years ago. Then the service sector led national job creation and growth. Healthcare jobs now comprise the second most dominant employment sector and will soon displace professional and business services as the leader. Figure 1: Employment by Major Industry Sector, 2019 vs. 2029 CG / 01
Beyond job creation, healthcare spending is massive and rising. Healthcare accounted for $3.8 trillion in
annual spending in 2019 or $11,582 per person. That is 17.7% of the U.S.’s Gross Domestic Product. In 2019,
Medicare spending had grown 6.7% to $799 billion, Medicaid spending 2.9% to $614 billion, private health
insurance spending 3.7% to $1.2 trillion, and out-of-pocket spending 4.6% to $407 billion. Physician drug
spending and hospital expenditures have also continued to rise faster than wages.i
The U.S. spends over 25% more than any other developed nation on healthcare.ii And national forecasts
predict no sign of spending growth abating any time soon. Spending is projected to grow 5.4% between
2019-2028 and hit $6.2 trillion by 2028. And since healthcare spending is growing faster than the national
gross domestic product, healthcare’s share of the economy will continue to rise.iii
Figure 2: U.S. Healthcare Spending at a Glance
National Health Expenditures (NHE)
NHE grew 4.6% to $3.8 trillion in 2019, or $11,582 per person, and accounted for 17.7% of Gross
Domestic Product (GDP).
Medicare spending grew 6.7% to $799 billion in 2019, or 21 % of total NHE.
Medicaid spending grew 2.9% to $614 billion in 2019, or 16 % of total NHE.
Private health insurance spending grew 3.7% to $1.2 trillion in 2019, or 31 % of total NHE.
Out of pocket spending grew 4.6% to $407 billion in 2019, or 11% of total NHE.
Hospital expenditures grew 6.2% to $1.2 trillion in 2019, faster than the 4.2% growth in 2018.
Physician and clinical services expenditures grew 4.6% to $772 billion in 2019, faster growth than the
4.0% in 2018.
Prescription drug spending increased 5.7% to $370 billion in 2019, faster than the 3.8% growth in 2018.
National health spending is projected to grow at an average annual rate of 5.4% for 2019-28 and to
reach $6.2 trillion by 2028.
Because NHE is projected to grow 1.1% faster than gross domestic product per year on average over
2019–28, the health share of the economy is projected to rise from 17.7% in 2018 to 19.7% in 2028.
Source: CMS
Which healthcare services segments stand to benefit most from healthcare spending growth? Which
segments will be most attractive to strategic and private equity investors? This article highlights ten
healthcare services segments acquisitive organizations should prioritize given each segment’s growth
and long-term tailwinds. While one cannot predict the future, this article assesses past and current trends
to forecast likely growth areas moving forward. This article is the first in a three part series covering (1)
healthcare services, followed by (2) tech-heavy services and healthcare IT, and (3) life sciences & pharma.
CG / 02Figure 3: Ten Healthcare Services Segments Poised for Growth
Te n H e a l t h c a r e S e r v i c e s S e g m e n t s P o i s e d fo r G r o w t h
1. RISK-BEARING PHYSICIAN GROUPS
A new wave of innovative providers such as Oak Street, Cityblock, VillageMD, and ChenMed are hoping to
flip the traditional care delivery model by assuming financial risk—often through upfront payer payments—
and prioritizing outreach and preventative care for their most complex patients’ medical and behavioral
issues.iv There is clearly bi-partisan government recognition that the alternative to cost-effective and
value-based care is an economically unsustainable path toward adding inpatient facilities, emergency
departments, and urgent-care centers. The Biden team has picked up where the Trump administration left
with new planned programs for radiation oncology and rural providers.v While the number of accountable
care organizations (ACOs) participating in the Medicare Shared Savings Program dropped by 7.7% in 2021,
the Trump administration implemented changes that required ACOs to assume more two-sided risk.vi
Consequently, the percentage of Medicare shared savings ACOs assuming two-sided risk increased from
37% in 2020 to 41% in 2021.vii Expect increased value-based care activity in the coming years as more
federal value-based care programs become mandatory in nature.
2. HOMECARE AND HOME HEALTHCARE
More than 10,000 people turn 65 every day. And an AARP survey suggests that 90% of people aged 65
and older want to remain in their homes and 80% believe they always will.viii Our long-term care system
cannot absorb this growing demand with its limited bed supply.ix Consequently, cost saving home care
that is increasingly tech savvy is growing more than costly facility-based care. CMS has stated that
60 different acute care conditions, such as asthma, congestive heart failure, pneumonia, and chronic
obstructive pulmonary disease can be treated safely in home settings with proper monitoring and
treatment protocols.x And CMS now reimburses therapist assistants, rather than just therapists, to provide
maintenance therapy within the Medicare home health benefit.xi CMS is also allowing Medicare Advantage
plans to offer home palliative care and supports for individuals in activities such as bathing, dressing, and
cooking.xii The increased footprint of hospital-at-home models and tailwinds from COVID-19 will continue
to drive home-based care utilization where care costs are often 20-25% less than hospital-based care.xiii
CG / 033. HOME AND CLINIC-BASED INFUSION CARE CMS has loosened physician supervision requirements over the past several years for chemo and radiation outpatient infusion services.xiv And there is a growing need to help hospitals transition stable patients to home- and clinic-based settings to free up hospital bed space due to COVID outbreaks. Without the home or alternative clinic-based sites to deliver infusion therapy, patients would otherwise stay in hospitals much longer than necessary and also take needed hospital bed space. Technology is also enabling the care quality provided in the home and alternate infusion settings to be just as good as hospital-based care. And home-based infusion care could help reduce unnecessary readmission and prolonged infection rates. Consequently, the intravenous delivery of medications such as chemotherapy using a pump in the patient’s home and in clinics will increase.xv 4. ON-SITE/NEAR-SITE CLINICS Accessible, consumer friendly, and technologically savvy on-site/near-site care could disrupt the $260 billion U.S. primary care market.xvi Almost 90% of business leaders claim that offering health benefits to workers will become fiscally unsustainable over the next five to ten years. Business leaders also believe that providing preventive and primary care could cut long-term specialty care costs, and that on-site care could lower long-term absenteeism and improve retention.xvii The Affordable Care Act (ACA) required businesses with 50 or more employees to offer affordable health insurance, which spurred increased on-site/near-site clinic building. More coverage also increased demand for primary-care services, which decreased patients’ abilities to schedule traditional provider appointments. Today, 61% of employers with 5,000 or more employees have on-site clinics.xviii Some on-site/near-site clinics are pairing additional ancillary services such as behavioral health, nutrition, and financial security alongside traditional primary care offerings. These clinics can upcharge but also share more savings with employers as employees’ spending decreases. Eden Health self identifies as a "collaborative care company" because it offers in-person and virtual primary care, mental health, physical therapy, insurance support and more for employers.xix 5. INSURTECH HEALTH PL ANS There is lots of white space potential in insurtech as marquee brands are growing 30% a year.xx Four health plans within this segment have gone public in the past year—Alignment Healthcare, Oscar Health, Clover Health, and Bright Health. Segment competitors that effectively discern local market dynamics and know how to create a differentiated value proposition that resonates with consumers in a curated way stand to benefit most. Successful insurtech disruptors will be those that harness technology in ways traditional insurance companies do not and form strong provider partnerships to drive consumer benefits through value-based contracting. For example, Alignment Health is offering personalized health plans that target social determinants of health through benefits such as pre-paid debit cards to help beneficiaries buy health and grocery products or get a home security system.xxi They also create specific benefit structures targeted to racial, ethnic, and socioeconomic subgroups, including Harmony for Asian-American policyholders.xxii 6 . A M B U L ATO R Y S U R G I C A L C E N T E R S ( AS C S ) The U.S.’s 5700 ASCs are a large $30 billion in annual revenues market that performs nearly 22.5 million procedures.xxiii xxiv ASCs are increasingly serving patients needing total joint, cardiac, and vascular specialty care, and more complex procedures across additional specialties. Consequently, outpatient settings now conduct over 50% of surgeries, up from 32% in 2005.xxv Overall inpatient discharge volumes are predicted to decline 1% by 2029, while outpatient volumes are predicted to increase 19%, with ASCs predicting 25% growth over the same time period.xxvi Several factors are driving this. The Trump administration recently CG / 04
removed a number of procedures from the inpatient-only list. Despite the move being in doubt, CMS’s long- term need to save money coupled with technology advancements will facilitate more care in non-hospital based outpatient environments, especially since ASCs often provide superior quality and more efficient care than hospitals. Commercial payers are also exerting leverage for providers to offer more care in lower-cost settings. Lastly, the COVID-19 crisis has also spurred more investment in outpatient facilities as some patients continue to avoid hospital settings where possible. Half of provider respondents in a recent survey said the pandemic has prompted them to add more outpatient facilities such as ambulatory surgery centers, urgent-care clinics, and free-standing emergency departments.xxvii 7. H E A LT H C A R E STA F F I N G C O MPA N I E S Many vendors have released tools to streamline operational efficiencies through supply and demand predictive analytics. But no tool can fully solve for labor shortages. The aging workforce and patient demographic are fueling staffing shortages. One study revealed that 55% of all registered nurses are at least 50 years old, and 52% of the active physician workforce is 55 or older.xxviii The U.S. system is experiencing all-time highs in patient demand but has a limited supply to address needs. State regulatory efforts could further stretch supply and demand imbalances. For example, Massachusetts residents in 2018 voted on whether to increase required nurse-to-patient ratios. It failed but other states may try and do the same.xxix Clinical staffing aside, it has also become increasingly difficult for hospitals to internally manage everything related to MACRA legislation, SNF usage, EMR certification, and billing. Staffing entities can offer provider clients with information systems support, specialized training programs, administrative support, regional management, billing, risk management, and compliance services. 8. MEDICAL CASE MANAGEMENT Nearly one-fifth of Medicare patients who are discharged from a hospital are readmitted within 30 days.xxx Readmissions cost the U.S. system over $40 billion annually.xxxi Health plans and at-risk providers can reduce medical expenses and improve discharge efficiencies through improved case management and coordination. Companies like naviHealth and Signify Health manage millions of Medicare Advantage and ACO members, often through home-based, physician led care that involves families in the care coordination process. Target populations are often people with multiple chronic conditions such as COPD and asthma. At times these services involve delegated capitation from a health plan that shifts risks to the care manager who then provides credentialing, utilization management, network contracting, case management, disease management, denials, and claims payment services. Key services that drive willingness to pay include: (1) offering end-to-end chronic condition management (CCM) services with licensed staff; (2) providing patients with 24/7 access to and continuity of care; (3) utilizing technology platforms that support and streamline CCM activities and that integrate smoothly with an EHR platform; and (4) extending one’s care team with a service tailored to meet patient and clinical needs while preserving workflow continuity. 9. SPECIALTY PHARMACY Seven of the top 10 drugs are specialty drugs, and a continued focus on specialty treatments supported by a strong pipeline of new drugs will continue to propel category spend.xxxii The 65+ population is projected to more than double to 100 million by 2060, rising from 15% to a 24% share of the US population.xxxiii And chronic diseases are increasingly more prevalent, representing 84% of all healthcare spending.xxxiv Individuals with at least one chronic disease fill 28.8 scripts per year, compared to 1.4 filled scripts for those with none.xxxv The 65+ population which has a higher prevalence of chronic disease and specialty drug needs also has a 90% prescription drug utilization rate compared to 58% for those under 65, underscoring their high demand for specialty services.xxxvi Increased innovation is also spurring a robust CG / 05
specialty drug pipeline and more FDA specialty drug approvals. There are 7,000 drugs in development,
most of which are for treating oncology, neurologic disorders, and infectious diseases.xxxvii Specialty
pharmacies that will sustain competitive advantages will (1) offer a high touch patient approach; (2)
provide long-standing deep relationships with referral sources; (3) maintain strong payer relationships;
(4) have differentiated analytics, reporting, and compliance tools; and (5) develop strong pharmaceutical
manufacturer relationships.
1 0 . N O N - E M E R G E N C Y M E D I C A L T R A N S P O R TAT I O N ( N E M T )
NEMT can be defined as a transportation service provided to individuals who are not in an emergency
situation but need more assistance than a taxi service is able to provide. Each year nearly four million
Americans miss or delay medical care due to transportation challenges, and cumulative missed
appointments and care delays annually cost our health system an extra $150 billion.xxxviii Competitors in
this space generally fit into one of two categories: companies who are offering the rides themselves,
and companies who host a platform that communicates between different customer touch points known
as brokers. There is some overlap, as certain companies that offer user and company platforms also are
building out their own vehicle fleets. Example competitors include ModivCare, MTM, and Express Medical
Transporters. Ride Share companies such as Uber and Lyft have also entered this space. The current
global market size is estimated to be $7.6 billion, of which the U.S. has become the dominant region.xxxix
This segment is growing at a 6-7% annual industry CAGR and reports project that by 2026 it will reach
$10.6B.xl The global COVID pandemic accounts for some of this growth. But even though COVID accelerated
the short-term growth rate over the past 18 months, the NEMT market should sustain growth in the coming
years. Regulatory and legislative support for the space as well as value-based care trends will help serve as
long-term segment tailwinds.
CONCLUSION
These ten segments show great promise over the next decade. Each of these categories has strong
supply/demand fundamentals independent of the pandemic. Most of these areas have become even more
relevant during COVID. Irrespective of COVID, it is important to map the strategic importance and patient-
benefiting opportunities that each of these segments presents for your organization and the growth
impact they will have on the healthcare industry and broader economy in the coming months and years.
i CMS. “National Health Expenditures: Fast Facts,” Accessed (August 2, 2021). https://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ NationalHealth ExpendData/NHE-Fact-Sheet
ii John Hopkins School of Public Health. “U.S. Health Care Spending Highest Among Developed Countries,”
(January 7, 2019). https://www.jhsph.edu/news/news-releases/2019/us-health-care-spending-highest-
among-developed-countries.html
iii CMS. “National Health Expenditures: Fast Facts,” Accessed (August 2, 2021). https://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ NationalHealth ExpendData/NHE-Fact-Sheet
iv Modern Healthcare. “For-profit Companies Competing for Primary-Care Patients with New Models,” (January
18, 2020). https://www.modernhealthcare.com/clinical/profit-companies-competing-primary-care-patients-
new-models
v National Rural Health Association. “National Rural Emergency Hospital (REH) Model Summary,” (April 12, 2021).
https://www.ruralhealthweb.org/NRHA/media/Emerge_NRHA/Advocacy/Government%20affairs/2021/04-15-
21-NRHA-Rural-Emergency-Hospital-overview.pdf
CG / 06vi CMS. “Shared Savings Program Fast Facts – As of January 1, 2021,” Accessed (January 21, 2021). https://www.
cms.gov/files/document/2021-shared-savings-program-fast-facts.pdf
vii Id.
viii AARP. “Preparing for an Aging Population,” (January 2020). https://www.aarp.org/livable-communities/about/
info-2018/aarp-livable-communities-preparing-for-an-aging-nation.html.
ix Modern Healthcare. “Making Home the Safest Place t be in an Unsafe Time,” (May 11, 2021). https://www.
modernhealthcare.com/opinion-editorial/making-home-safest-place-be-unsafe-time
x CMS. “CMS Announces Comprehensive Strategy to Enhance Hospital Capacity Amid COVID-19 Surge,”
(November 25, 2020). https://www.cms.gov/newsroom/press-releases/cms-announces-comprehensive-
strategy-enhance-hospital-capacity-amid-covid-19-surge
xi CMS. “42 CFR Parts 409, 414, 484, 486: Medicare and Medicaid Programs; CY 2020 Home Health Prospective
Payment System Rate Update; Home Health Value-Based Purchasing Model; Home Health Quality Reporting
Requirements; and Home Infusion Therapy Requirements,” (November 1, 2019). https://www.federalregister.
gov/ documents/2019/11/08/2019-24026/medicare-and-medicaid-programs-cy-2020-home-health-
prospective-payment-system-rate-update-home
xii CMS. “Medicare Benefit Policy Manual,” (November 6, 2020). https://www.cms.gov/Regulations-and-Guidance/
Guidance/Manuals/Downloads/bp102c07.pdf
xiii Modern Healthcare. “Pandemic Forced Insurers to Pay for In-Home Treatments,” (June 23, 2020). https://www.
modernhealthcare.com/insurance/pandemic-forced-insurers-pay-home-treatments
xiv CMS. “Hospital Outpatient Therapeutic Areas that Have been Evaluated for a Change in Supervision Level,”
(May 8, 2020). https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment /HospitalOutpatient PPS/
Downloads /Hospital-Outpatient-Therapeutic-Services.pdf
xv Modern Healthcare. “CVS to Scale Infusion Therapy Business Nationwide,” (April 17, 2020). https://www.
modernhealthcare.com/home-health/cvs-scale-infusion-therapy-business-nationwide
xvi Modern Healthcare. “Startups will Build the Worksite Clinic of your Company’s Dreams. But is the Cost Impact
of these Clinics an Illusion,” (June 22, 2021). https://www.modernhealthcare.com/healthcare-economics/
startups-will-build-worksite-clinic-your-companys-dreams-cost-impact-these
xvii National Business Group on Health. “2020 Large Employers Health Care Strategy and Plan Design Survey,”
(January 12, 2020). https://www.businessgrouphealth.org/resources/2020-large-employers-health-care-
strategy-and-plan-design-survey
xviii Id.
xix Modern Healthcare. “Startups will Build the Worksite Clinic of your Company’s Dreams. But is the Cost Impact
of these Clinics an Illusion,” (June 22, 2021). https://www.modernhealthcare.com/healthcare-economics/
startups-will-build-worksite-clinic-your-companys-dreams-cost-impact-these
xx Modern Healthcare. “Alignment Healthcare is the Only Insurtech Trading Up. Here’s how it Plans to Grow,” (July
12, 2021). https://www.modernhealthcare.com/insurance/alignment-healthcare-only-insurtech-trading-up-
heres-how-it-plans-grow
xxi Id.
xxii Id.
xxiii IBIS World. “Ambulatory Surgery Centers in the US-Market Size 2002-2026,” (December 30, 2020). https://
www.ibisworld.com/industry-statistics/market-size/ambulatory-surgery-centers-united-states/
xxiv Beckers ASC. “The Number of ASCs in the US: A State-by-State Breakdown,” (June 19, 2020). https://www.
beckersasc.com/asc-news/the-number-of-ascs-in-the-us-a-state-by-state-breakdown.html
xxv Beckers ASC. “The Evolution of ASCS in 50 years + What the Future Holds,” (February 11, 2020). https://www.
beckersasc.com/asc-news/the-evolution-of-ascs-in-50-years-what-the-future-holds-6-industry-leaders-
thoughts.html
CG / 07xxvi Vizient. “2021 Impact of Change Forecast Highlights,” (June 2, 2021). https://newsroom. vizientinc.com /
content/1221/files/Documents/2021_PR_ImpactOfChange.pdf
xxvii Modern Healthcare. “Providers Focus on Adding Nurses, Expanding Outpatient Care,” (February 20, 2021).
https://www.modernhealthcare.com/finance/providers-focus-adding-nurses-expanding-outpatient-care.
xxviii NCSBN. “National Nursing Workforce Study,” (2018). https://www.ncsbn.org/workforce.htm
xxix Definitive Healthcare. “Top 8 Healthcare Trends in 2019,” (March 2019). https://blog.definitivehc.com/top-8-
healthcare-trends-2019
xxx New England Journal of Medicine. “Rehospitalizations among Patients in the Medicare Fee-for-Service
Program,” (April 2, 2009). https://www.nejm.org/doi/full/10.1056/nejmsa0803563
xxxi Agency for Healthcare Research and Reform. “Conditions with the Largest Number of Adult Hospital
Readmissions by Payer, 2011,” (April 2014). https://www.hcup-us.ahrq.gov/reports/statbriefs/sb172-
Conditions-Readmissions-Payer.pdf
xxxii IQVIA. “Medicine Use and Spending in the U.S.,” (May 2017). https://www.iqvia.com/insights/the-iqvia-institute/
reports/medicine-use-and-spending-in-the-us-review-of-2017-outlook-to-2022\
xxxiii Id.
xxxiv Id.
xxxv Id.
xxxvi Id.
xxxvii Id.
xxxviii Health Management Technology. “Missed Appointments Cost the U.S. Healthcare System $150B Each Year,”
(May 2017). https://www.scisolutions.com/uploads/news/Missed-Appts-Cost-HMT-Article-042617.pdf
xxxix Research and Markets. “Non-Emergency Medical Transportation Market Research Report by End User,” (July
2021). https://www.researchandmarkets.com/reports/4995103/non-emergency-medical-transportation-
market.
xl Id.
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