The pandemic has had a huge impact on our health systems. When Covid-19 took hold last year, it brought elective procedures that drive revenue at hospitals and clinical trial enrollment to a screeching halt. News reports over the past 18 months have shown the toll it has taken on physicians, nurses and healthcare staff. But it has also paved the way for wider adoption of virtual care platforms, and other digital health tools to support remote patient monitoring
supporting the wider goal of shifting from fee-for-service to value-based care.
Fredrikson & Byron Shareholders Ryan Johnson and Jeffrey Steinle co-chair the law firm’s Life Sciences Group. Johnson, who is in the firm’s health law group, helps his clients develop and launch innovative business models designed to improve healthcare quality, accessibility, and affordability. He serves as outside general counsel for digital health companies, healthcare providers, and life science companies that are transforming healthcare through innovation and cutting-edge science and technology. He advises investors, senior executives, and corporate boards on the strategic threats and opportunities arising from emerging technologies and new laws and regulations, especially those affecting the healthcare industry.
Steinle, who is in the firm’s corporate and securities group, advises life science
companies executing M&A, financing, joint venture, licensing and commercial
transactions. He also serves as outside general counsel to life science companies. He navigates highly regulated environments and negotiates effective strategic and
commercial relationships to help clients develop, commercialize and sell their products.
Johnson and Steinle offered their insights on the pandemic’s impact on digital health and medtech investment in a recent interview.
To hear more from Ryan Johnson and Jeffrey Steinle, check out their Spotlight Video interview.
“Health systems have lost billions of dollars due to not being able to carry out elective procedures. The virus demonstrated a lack of resilience in the healthcare system with things like the personal protective equipment supply chain and the exhaustion of healthcare workers,” Steinle said. “But if a silver lining can be taken from this healthcare crisis, it’s the rapid adoption and scaling of telemedicine and forms of virtual care as well as a greater focus on health equity.”
Steinle observed that hospitals are more focused on models of care delivery involving virtual care, the reflection of how broad societal shifts we have seen during the pandemic are causing hospitals and state governments to rethink how they handle Covid-19 surges in terms of their system capacity.
Johnson noted that the impact of the pandemic on hospitals has highlighted the vulnerability of fee-for-service models. Value-based care models where the provider’s revenue stream is tied to a patient population also were disrupted by the pandemic.
The suspension of some regulatory requirements for telemedicine-enabled health systems to adapt their services for virtual care is one trend that could have long-term implications for the use of these services for value-based care and population health. For example, CMS adjusted its rules to allow smartphones to be used for telemedicine encounters. Another is the increasingly robust investment in these technologies by health systems, which are also keen to integrate them.
“As state governments and the federal government waived certain burdensome requirements for telemedicine and remote patient monitoring during Covid-19, providers started offering more elements of them and started doing more patient monitoring,” said Johnson. “They’re buying new tools and technologies to support these virtual care and remote monitoring programs. All these tools are very helpful for value-based care models. The waivers to support these programs will continue and become permanent. They will allow for better patient engagement
and better management from a population health perspective.”
The Covid-19 pandemic laid bare racial disparities in healthcare, with higher hospitalization rates and death rates impacting diverse populations. This has propelled interest in doing more to promote improving social determinants of health and population health — a process that also involves quantifying the effectiveness of these programs.
Steinle noted that the format behind these programs has shifted to taking input from community members to develop healthcare programs that are uniquely suited to the needs of those communities that are then supported by academic centers, health systems or payers, rather than “one-size fits all” programs that may not fit the needs of local communities.
Although both Johnson and Steinle believe payers are very interested in social determinants of health and identifying health disparities based on economic, neighborhood and other demographic factors, they stressed the importance of developing programs that are measurable and can demonstrate objective improvement with repeatable results, especially from startups.
One challenge Steinle sees with population health programs, especially with remote patient monitoring components, is the mismatch in reimbursement models between device companies, for which fee-for-service continues to be the dominant reimbursement model, and value-based care models, which use bundled payments.
The medical device sector is slowly adding digital components to create data streams for patients and clinical decision support to better understand a particular patient’s condition.
“In transitioning to broader population health programs, a lot of the problem is trying to figure out some of the healthcare improvements and the cost savings that come with that,” Steinle said. “Then as an entrepreneur, if you’re a device company moving into digital health, how do you demonstrate those cost savings? I think there's some really promising stuff coming out of academic centers and some health systems. But I am not quite sure that our reimbursement
system is really designed to make the most use of some things that can be pretty impactful.”
Asked about best practices for value-based care initiatives, Johnson noted that with some programs, there is a mismatch between the healthcare data needs and the capabilities of the technology that providers use for these programs. He noted that sometimes EHR providers aren’t set up to give providers the most accurate assessment of a patient’s individual risk and they lack the right tools to make informed decisions about their care.
“I think it’s really important to make sure that when groups put these value-based care ratings together they need to understand what the physicians and providers need to get optimum results and also understand the best way to engage patients — what are the best apps, what’s the best platform to ensure there is effective communication between patients and providers so that providers can better manage the health of their patient population,” Johnson said.
Steinle and Johnson noted that several factors have contributed to the robust investment landscape in healthcare. The abundance of dry powder from strategics, private equity, venture capital, and from SPACs. There have been many investments boosting valuations of digital health companies. The low interest rates have made it advantageous to do M&A deals and investments.
Johnson said in the past couple of years he has seen more activity from hospitals and health systems in digital health tech, licensing digital health tools through an affiliated entity and even acquiring them outright from digital health companies. That reflects the trend of providers preferring to source tech from outside rather than develop it in-house.
The success investment arms of health systems have had in recent years has proved the ability of strategic investors in healthcare settings has done a lot to shake off the skepticism with which traditional venture capital investors used to perceive these investors.
“Most of the health systems have formed very sophisticated, smart teams of investors that can evaluate deals to make very smart investments that provide a lot of value to their targets,” said Johnson.
Steinle pointed out that most of the strategic investors have their roots in traditional venture capital. He added that digital health startups are well served when they have strategic investors in healthcare on their board and traditional VCs as investors, providing a great dynamic for these companies.
Both Steinle and Johnson regard behavioral health and remote patient monitoring through medical devices as hot areas of investment that they expect will continue to gain traction.
“The ability to use your smartphone to monitor your heart on a platform connected to your physician through a telehealth program will continue to expand and lead to fewer in-person visits with the physician.”
Although the coronavirus pandemic’s impact will continue to be felt for the foreseeable future, new insights gleaned from the deployment of virtual care and the advancement of digital health companies benefiting from investment will shape the future of the patient and physician experience.
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