Healthcare Services typically comprises the largest component of spend in healthcare systems. In the United States in 2012, for example, $2.0 trillion, or ~70% of the total $2.8 trillion of healthcare spend was dedicated to healthcare services. We believe rapid growth will continue in the sector due to key themes such as the aging of the population as well as changes in regulations. These dynamics will increase the number of insured individuals and force payers and providers to adopt and adapt to new payment models, which shift the balance from “quantity” of care to “quality” of care.
Given the combination of rising healthcare costs and government budget challenges, there are efforts under way to bring healthcare spending growth in line with GDP growth through a combination of lower overall payments, improved efficiency and shifting of costs to consumers and private markets. Payers will therefore increasingly contract with providers who can deliver quality care at a lower cost. As a result, disruption is occurring in the United States as we move from a payment system that pays a fee for each service provided to one that shifts the risk of healthcare utilization onto providers. This shift in reimbursement structure is at the heart of both private insurer initiatives as well as government initiatives to create Accountable Care Organizations, Bundled Payments and Medical Homes.
The Healthcare Information Technology (“HCIT”) market represents a $30 billion opportunity and is the fastest growing sector in healthcare, with a 5-year expected CAGR of ~9%. A portion of this accelerated growth can be attributed to the passage of federal health legislation that provides significant funding to healthcare organizations as an incentive to adopt interoperable clinical and administrative information systems. The HCIT sector is diverse, primarily responding to the unique needs of hospitals, physicians, managed care organizations and pharmaceutical companies. HCIT is also a critical facilitator of patient engagement and consumerism, as patients will continue to need a variety of tools as they become more active purchasers of healthcare.
We believe there are attractive investment opportunities in the healthcare services and HCIT industries that play into these themes.