Sheppard Mullin’s Top 10 Takeaways from HLTH 2023

At HLTH 2023, we saw a focus on certain themes, including the shift in investments and M&A activity, hospital and health system innovation and transformation, the implementation of AI, and healthcare management. Below are our top 10 takeaways from what we heard, and did not hear, at HLTH 2023.

1. Capital and the Coming Health Startup Reckoning. Companies raising capital and the investor community continue to struggle with valuation expectations based on the outlier valuations that appeared in 2021. Issuers will need to raise capital or go to market in 2024, and there will be a reckoning in terms of the valuations they are able to support. Stakeholders expect that this shift in valuations and tightening of capital will lead to an uptick in M&A activity once there is a “meeting of the minds” among buyers and sellers. Many expect consolidation to be particularly active in the digital health sector.
2. Hospital and Health System Innovation and Transformation. Stakeholders are focused on the transformation of hospitals and health systems, which are in a fragile state and squeezed by the move to outpatient services, rising labor costs, dropping Medicare fee for service reimbursements, and quality costs. These stakeholders look to transform the current models by adopting innovative technologies, including data analytics and AI, and aligning incentives to make value-based care more successful.
3. A Need for Holistic Care and Coordination. As discussed in our prior blog post, many healthcare companies are focused on care coordination and management for specific conditions and specialties, but few are tackling holistic care coordination across the various sectors in healthcare and in the care delivery and payment vertical. Stakeholders are looking to “wellness by design” and the “quantified self.” “Super apps” were discussed as a means to solve the coordination deficit, by aggregating the massive amounts of information being generated in a multi-faceted wellness space.
4. Diabetes and Chronic Condition Care. Diabetes continues to be top of mind for payors and providers alike, with diabetes in America worsening despite increased investment in diabetes care. Fourteen percent of all 2022 medical visits related to diabetes. Almost a quarter of all individuals with diabetes are unaware that they suffer from the disease, further illustrating the need for prevention at the pre-diabetes stage through population health management, alignment of incentives, and the creation of incentivized care coordination.
5. Early Testing and Diagnostics Modalities. Companies are developing and launching early testing and diagnostics modalities, both for provider and consumer at-home use. With care coordination, the value of these products to the overall care delivery system could be enhanced.
6. Stakeholders Are Finding AI’s Role in Healthcare. AI was a pervasive topic at HLTH 2023, and it seems nearly-settled that healthcare stakeholders see AI as a tool, rather than a replacement, for providers. It is also widely accepted that developing trust is as important as developing the software and algorithms to run AI in healthcare. For now, AI’s role is likely to be more operational than clinical in nature, but as trust in AI builds through increased transparency and eliminating inherent biases, AI may make its way to the point of care.
7. Bias, Health Equity and Checks on AI and Large Language Model (LLM) Tools. The rapid pace of adoption of digital health solutions, AI and LLM tools are causing health equity concerns as some stakeholders lean on those tools to solve for inherent bias and increase health equity. However, it is worth noting that those tools themselves often have the same biases built into them; therefore, it is paramount that technologies incorporate safeguards to mitigate such biases.
8. Heightened Enforcement in the Medicare Space. There continues to be concern over enforcement activity relating to the Medicare Advantage program, whether as a result of Medicare Advantage risk adjustment, ACO REACH, underutilization or otherwise. We expect that this will continue to be an area of focus for DOJ enforcement in the next couple of years, driven both by recent high-value recoveries as well as the continued increase in government spend on the Medicare Advantage program. Potential solutions to reign in exploitation were debated, with a minority of stakeholders proposing a return to a fee for service model coupled with an expansion of the ACO REACH program, which is also under attack, as evidenced by the September resolution of the California legislature calling on President Biden to end ACO REACH.
9. Food is Medicine. As part of a focus on the social determinants of health, we saw a focus on addressing food insecurity and healthy food/food quality to drive cost savings and improved outcomes across the board.
10. Few Speakers Discussed Healthcare Professional Shortages. Few speakers and presenters at HLTH focused on the growing infrastructure deficiencies that could contribute to or worsen shortages of nurses and other essential providers. If the industry does not solve this issue, providers will continue to be stretched thin and will have little-to-no bandwidth to learn and adopt the innovative technologies and solutions that are intended to improve those providers’ abilities, overall patient care and total cost of care.

In addition to the above, we expect increased focus on more targeted and effective patient engagement, as well as advancements in behavioral health, oncology, and musculoskeletal care to drive the industry forward as we head into 2024.