When evaluating new opportunities in any sector it is important to understand non-market influences – the role legislation, regulation, relationships, etc. have on things such as competitive advantage and new entrants - perhaps none more so than in healthcare.

The Centers for Medicaid and Medicare (CMS) operates as the nation’s largest payer, and the healthcare industry at large is heavily regulated to promote safe and quality care for all. As a result, healthcare policy and market opportunities are inextricably intertwined.

For healthcare entrepreneurs and investors, having an ear to the ground on healthcare policy disrupters and priorities is valuable for anticipating trends, challenges, and opportunities for healthcare innovation now and in the future.

The Biden Administration’s initial priorities

President Joe Biden entered office during the peak of the COVID-19 pandemic and, as such, the new Administration began with a laser focus on curbing the uncontrolled spread of the virus and rising death rate. Healthcare reform more broadly had been a dominant issue during the presidential race as well.

Biden’s support of a public health insurance option under the Affordable Care Act received the most attention, however his stated healthcare plan contained a broad list of healthcare policy goals that were categorized into the following three buckets:

Reduce Healthcare Costs. Under the Affordable Care Act (ACA), many formerly uninsured Americans became covered through tax subsidies for those earning 100-400% of the federal poverty level for annual income. For those making just under 100% of the poverty level in states that did not expand Medicaid, however, coverage remained largely unaffordable.

A major stated priority of the Biden Administration was to close this gap between those who require financial assistance to afford coverage and those who receive subsidies by changing the eligibility requirements. Other proposed mechanisms for reducing costs included lowering the Medicare eligibility age from 65 to 60, which would result in older individuals receiving affordable care sooner, and initiatives to combat high and rising drug costs due to lack of transparency.

Give Americans More Choice and Increase Access. Arguably the most controversial element of Biden’s healthcare campaign agenda was expanding affordable coverage options on the ACA marketplace through a public health insurance option. This government-run insurance plan would be available for purchase alongside commercial plans on the marketplace for all Americans.

In addition to helping more individuals access an affordable plan and lowering individual spending costs directly, the entry of a public option would likely create strong price competition for commercial and employer-sponsored plans and drive down overall costs.

Make Our Healthcare System Less Complex to Navigate. This bucket doubles down on the role of patient experience across the other two arms of Biden’s plan. The list of priorities in this category includes reducing surprise medical billing, addressing market concentration among major players, partnering with providers to develop innovative care delivery models and patient population-tailored solutions, and implementing policies championing women’s, home and community healthcare.

The First Nine Months

There are numerous mechanisms through which an administration can turn policy priorities into reality, but the large majority involve cooperation with and among members of Congress. In the current legislature, Democrats maintain a tiny majority in both the House and the Senate.

Some healthcare provisions can be passed via the reconciliation process (if related to revenue, spending, the federal debt etc.) and require 50 Senate votes and the vice president’s vote, while others require 60 out of 100 Senate votes for a bill to pass. This presents a significant hurdle for numerous policy priorities outlined, given the strongly divided nature of Congress today.

As mentioned, President Biden’s initial policy focus to date has been intertwined with the urgent need to address the COVID-19 pandemic and resultant economic and social welfare crises. So far, the most substantial healthcare policy movement has come in the American Rescue Plan and its follow-on American Families Act, as well as the “Human Infrastructure Bill.”

The American Rescue Plan (ARP). Known colloquially as the “stimulus bill” or COVID-19 relief package, this legislation contained the largest increase in government subsidization and expansion of eligibility for health insurance since ACA was enacted in 2010.

The bill does this in two primary ways. First, it removes the existing income limit (400% of the poverty level) on families eligible for health insurance tax credits and caps the amount any household will pay in premiums at 8.5% of annual income per year.

A special enrollment period was opened to allow new sign-ups under these subsidies, and two million Americans signed up for coverage between February and August of this year. Second, the bill incentivizes states that have not yet expanded Medicaid to do so by offering to increase the Federal Medicaid Assistance Percentage (FAMP), or amount the federal government pays states to administer Medicaid services, by 5% for two years.

Finally, the bill provides funding for community health centers. Taken together, these provisions aim to reduce individuals’ healthcare costs and increase both choice and access.

The American Families Plan (AFP). This follow-on legislation to the ARP aims to increase spending in areas related to children, motherhood, education and healthcare. It includes language that would make the ARP tax subsidies and Child Income Tax Credit payments permanent. It also seeks to establish a national paid family leave program and commits additional funding for health equity initiatives.

When Biden introduced the bill in April, he spoke about the importance of decreasing drug pricing by allowing Medicare to directly negotiate prices with drug companies for the first time. Congressional Democrats also lobbied to lower the Medicare eligibility to age 60 and capping other Medicaid expenses in this bill. While the bill is still being debated, the current version does not include these provisions.

The Reconciliation Bill. Another place we may see healthcare legislation enacted this fall is the 2022 Reconciliation Bill (the detailed policy blueprint that follows a budget resolution). This bill can be passed with a simple majority in a special process that can only be utilized once per year.

The draft bill currently contains the tax implications that would put the AFP into action, as well as numerous healthcare provisions, lending to its designation as the “human infrastructure bill”. As written, the legislation will expand Medicare benefits to include dental, hearing and vision coverage. It is also another avenue through which the administration hopes to lower drug prices and provide additional funding for home and community health.

Executive actions. The final mechanism through which President Biden has signaled his healthcare policy intentions has been through executive actions. To date the president has issued several that touch the healthcare system. These include:

• an order to strengthen Medicaid and the ACA.
• an order to advance racial equity and support underserved communities, including removing barriers to health equity.
• an order to reduce anticompetitive behavior across numerous industries, including hospital systems, that directs several government agencies to review and revise guidelines for hospital system mergers, reduces surprise medical billing and increases the penalty for hospitals who do not price transparency requirements.
• an order specifically addressing the endemic Black maternal health crisis.

This last action pledges investment towards reducing maternal mortality and morbidity, approves the first Medicaid section 1115 waiver to extend postpartum coverage, and directs $12 million in funding for maternal obstetrics care in rural communities. Taken together, these actions are indications of priority issues for the responsible government agencies to tackle.

In summary, the president’s actions to date have highlighted the idea that he continues to champion a strong progressive healthcare agenda while facing an uphill battle in Congress to turn the more sweeping changes into a reality.

So far, he has opted for strengthening and expanding the existing ACA coverage rather than pivoting to a more disruptive path such as a public option or “Medicare for All.” 

Next, we'll turn to what this healthcare policy landscape indicates about trends and opportunities for healthcare innovation, and key players to watch.

Looking Ahead – Implications for Healthcare Innovators

For healthcare innovators and investors, the government’s health policy priorities can serve as guideposts for how the “rules of the game” in healthcare may change, where federal dollars may be directed and, in a sea of critical issues, which ones may be championed first.

Based on the preceding analysis of the healthcare policy environment as of September 2021, the following themes are likely to be key areas for disruption in the near term. Companies making moves in these spaces are worth following closely as we observe the impacts of anticipated changes and the continued momentum of stated priorities in both the public and private sectors.

Novel delivery models. Biden requested $400million for home and community-based services in his budget proposal. These include home health support, nursing services, rehabilitation therapies and other preventive services such as smoking cessation and healthy eating programs. An important cornerstone of these services is their role in bringing resources to underserved populations, including BIPOC and LGBTQIA+ communities, to increase the quality, affordability and accessibility of care and drive health equity.

Direct contracting with CMS is a novel payment model that has also received significant attention from both the public and private sectors. The models allow providers to engage in risk-sharing arrangements with Medicare for the first time, transforming its traditional fee-for-service arrangement with the goal of lowering costs and improving care quality.

Numerous De Novo primary care organizations are participating in the initial pilot cohort with CMS (the Global and Professional Direct Contracting Model), however the administration recently paused the second cohort of this pilot for undisclosed reasons.

Involved providers expressed dissatisfaction with this decision. We can expect to see demand for alternative modes of care delivery and payment to remain strong alongside a focus on the outcomes and ROI of these services over the next few years.

Key healthcare innovators include:

• One Medical/Iora Health (Disclosure: Flare Partners is a shareholder in Iora Health.) These two primary care providers recently joined forces, bringing expertise in delivering services to the commercially insured and Medicare enrollees under one roof. The newly combined entity will have access to 120 million people (40% of the U.S. population) and aims to deliver “human-centered, technology-powered” patient-first primary care to people at every stage of life.
• Oak Street Health This value-based primary care provider for adults on Medicare IPO'ed in August of 2020, and has seen significant growth over the past year. The provider continues to innovate in telehealth and behavioral health offerings, alongside opening more physical clinics.
• Other players to watch are  Upward Health, Heal, Vincere Health, Cityblock Health and Cayaba Care. (Disclosure: Flare Capital Partners is a shareholder of Cayaba Care.) 

Patient Population Tailored Solutions. Within the overarching goal of increasing and simplifying access to healthcare services, Biden has targeted specific underserved patient populations for support. 

Women’s healthcare is a top priority that has received attention in the president’s executive orders and the AFP. While the language in the AFP legislation is broad, we can expect to see the expansion of solutions providing high-quality maternal healthcare options and decreasing maternal and infant mortality rates, especially among Black women.

Within women’s healthcare, specific issues have found traction, including infertility and family planning, menopause and PCOS. 

Behavioral health has also been earmarked as a priority for future funding, alongside mental health and substance abuse disorders.

Finally, the LGBTQ+ community, those in end of life and hospice care, and the autistic and disabled communities have been identified as priority investment areas.

Key healthcare innovators here include:

Women’s health.

• Maven Clinic This on-demand virtual women’s health-service clinic has been a leader in the space since its launch in 2014. The company raised $110 million in Series D funding this summer, becoming the first women and family health-focused “unicorn.” Maven recently expanded offerings to include holistic care for LGBTQ+ women and families and healthcare financing tools.

Mental and behavioral health.

• Sondermind This mental health provider is building a network that offers easier access to therapy alongside a business model that helps therapists provide care without the burden of operating a small business. The company just raised a large Series C at valuation over $1 billion.  

Kidney care.

• Somatus (Disclosure: Flare Capital Partners is a shareholder in Somatus.) This market leader in value-based kidney care is working across the healthcare ecosystem and partnering with payers, health systems and providers to bring vertically integrated clinical services to patients that delay and prevent disease progression.

LGBTQ+.

• Folx Folx is a digital healthcare service provider offering personalized care for the LGBTQIA+ community, including hormone therapy, PReP, STI testing, online education and more. The company raised its Series A in early 2021.

Other players to watch: Elektra (Disclosure: Flare Capital Partners is a shareholder in Elektra), Frame Fertility, Visana Health and Plume.

Reduce Costs and Increase Access. This is a broad theme that has bipartisan support, and a few notable trends will likely receive even more attention under the current administration. 

Remote patient monitoring is allowing physicians to observe patient trends and receive real-time patient data outside of in-person visits. This constant feedback loop has the power to increase patient engagement and positive behavior change by providing individuals real-time information about their own health, which can decrease costs by limiting the need for medical intervention. 

Related to this shift towards continuous care is the widespread support for value-based care (VBC). Remote monitoring is powering the ability to accurately measure and attribute patient outcomes, a foundational component of value-based payment models.

Under the Biden Administration, the likely expansion of ACA provisions, including incentives for Medicaid expansion, mean that we may see scaling of the best VBC Medicare and Medicaid models and/or the piloting of new ones, as well as the continued expansion of health plans focusing on Medicare Advantage.

Opportunities will also arise for companies enabling this shift via new backend IT and EMR technologies and services.

Key healthcare innovators include:

Virtual/telehealth.

• Eden Health (Disclosure: Flare Capital Partners is a shareholder of Eden Health.) This direct-to-employer provider offers integrated, continuous, team-based healthcare. The company recently closed a $60M Series C fundraise and is expanding its physical clinic footprint into the Midwest.

Digital front door/patient engagement.

• Gyant This virtual assistant platform serves as a “digital front door” that allows patients to self-navigate to the right care at the right time, avoid unnecessary care and decrease overall costs.
• Other players to watch: Higi (Disclosure Flare Capital Partners is a shareholder of Higi.), Buoy, and Memora.

Make the System Less Complex. Finally, a strong sentiment in the ARP and AFP is that the complex, often convoluted nature of the medical industrial complex makes it unnecessarily difficult for individuals to get the care that they need in a timely and affordable manner.

The public option is one means through which the Administration could try to simplify the system, however, as discussed, this is not likely to happen under the current legislature. Still, there will be opportunities for innovators in healthcare navigation, especially if changes such as the tax subsidy increases become permanent.

Ancillaries and intermediaries in the health insurance market will likely be in higher demand as more individuals gain access to affordable coverage. Cost and billing optimization services may also have an expansion opportunity, as one of the administration’s stated goals is to reduce surprise billing for healthcare services, and the latest executive order added to the momentum around price transparency.

Lastly, the push to remove prior authorization requirements is likely to grow in popularity especially for critical services such as substance abuse treatment. Not only will this drive access and increase transparency for patients, but it is also an essential step towards reducing the stigma associated with mental and behavioral health services.

Nearly 1/3 of states have already passed their own laws limiting the use of prior authorization requirements.

Key healthcare innovator:

• Cohere Health (Disclosure Flare Capital Partners is a shareholder in Cohere Health.) This company officially launched in 2021 and completed both a Series A and B raise in a matter of months. The startup is deploying digital solutions to remove prior authorization barriers and drive collaboration between payers and providers.
• Other players to watch include Cedar, Accolade and Olive.

In Conclusion

As we move into the fall, it remains to be seen how many of the discussed priorities will ultimately receive substantial government funding. It is frequently said that a president’s budget request to Congress is “dead upon arrival,” because ultimately the legislature must decide whether to put dollars behind his or her requests and, over halfway through 2021, very few pieces of legislation have been signed into law.

It appears that the most likely and lasting policy changes from this administration will be measures expanding ACA and allowing more individuals to enroll in affordable coverage. 

At a higher level, the sentiments expressed through the president’s stated priorities indicate a larger deployment of government resources and support towards improving our healthcare system’s inefficiencies and inequities than we have seen in recent years.

The healthcare earmarks from Congress are also inherently valuable, because they bring attention to high priority issues. Alongside this, the private sector continues to drive forward on value-based care models, virtual healthcare and reducing racial disparities, all of which have been super charged during the COVID-19 pandemic. 

There has also been astronomical growth in private capital investment in digital health and novel innovative solutions over the past year, with $14.7 billion being invested in the first half of 2021 alone, more than all of 2020 combined.

Mental health, consumer healthcare models, on-demand virtual care and drug development have received the most funding, and align with many of the government priorities outlined here. Given this significant investment and support from diverse stakeholders across the digital health ecosystem, the momentum on these issues is likely to continue with or without specific regulatory interventions.

While healthcare policy trends are only one subset of forces driving healthcare innovation, they are useful for healthcare entrepreneurs and investors to follow and understand, because they influence support for, traction on and outcomes of key healthcare issues.

Specifically, identifying and operationalizing solutions that address key priorities, as well as being vocal about issues that are not receiving adequate public sector attention, can increase momentum, create valuable partnerships and, ultimately, drive more meaningful change for the American healthcare system.