The Great Dispersion and the Future of Healthcare

Feb 3, 2021 | Blog

Among all the other shock waves COVID-19 has sent round the world is the impact it’s having on the business of healthcare (which accounts for 20% of US GDP). That’s according to serial entrepreneur and self-made millionaire Scott Galloway.

An avid follower of Amazon and e-commerce trends, Galloway predicts dispersion in healthcare will reshuffle up to $3 trillion of stakeholder value in his latest video.

By “dispersion” Galloway means the shift of distribution from less efficient to more efficient mechanisms – for example, the way Amazon took the old retail experience and moved it from the store, to the desktop, to your mobile phone.

COVID as catalyst in our $4T U.S. healthcare system

He calls COVID-19 “this generation’s paradigm shift,” and points to the huge opportunities that are being created for “people and businesses that focus on two things:

“One: bringing a service or product directly to the consumer.

“And two, delivering the service or product with a 10x improvement in speed or cost relative to an existing process or offering.”

The most fertile opportunities, he says, are in industries with low Net Promoter Scores (NPS).

Another target industry experiencing the same impact are TV service providers. In 2015, their NPS scores were abysmal. Seeing the opportunity to address consumer frustration, Reed Hastings “vertically integrated the box office,” Galloway says.

In doing so, he was able to more than triple Netflix’s original content budget and disperse it all to your personal TV. And he points out, the Great Dispersion in TV has “paid off for Netflix shareholders, with shares quadrupling, adding $200 billion to its market capitalization since 2015.”

Fast forward to the healthcare industry in 2020, which features THE worst NPS scores in our economy. Galloway’s prediction: “One of the greatest transfers of stakeholder value in history is likely to happen over the next five years in healthcare, shifting from incumbents to new players.”

…But look out when you’re in the minefield

For investors considering this sector it is wise to acknowledge that much of the healthcare will not easily spend their way out of current issues. We are in agreement about warning against the upstarts who have great ideas but lack the knowledge of how to adapt them to our messy and inefficient healthcare system.

Nevertheless, 30%, or $1.2 trillion worth of healthcare spend, happens in physician and clinical services and retail prescription drugs. These areas are ripe for dispersion.

Necessity, the mother of invention

Thanks to COVID, “regulatory hurdles of telemedicine have begun to melt away,” he says. In fact, tele-health visits as a percentage of total visits to a doctor’s office in the U.S. shot up from less than 1% to a peak of 14% in April. One company reaping the rewards is Teladoc, a provider of telemedicine service. In the first nine months of 2020, it facilitated 7.6 million virtual patient visits. Its stock was up 110% by December. McKinsey and Company predicts up to $250 billion of current US healthcare spend could potentially be virtualized.

Another necessity that must be addressed in healthcare is taking aggressive action on chronic conditions. A huge majority of healthcare spending – 90%, the CDC estimates – is linked to chronic conditions, which are avoidable through early detection and preventative strategies. Unfortunately, Americans, and currently our healthcare system, aren’t big on prevention.

The cost to the American economy is huge: According to a study released by the Milken Institute, the annual economic impact on the U.S. economy of the most common chronic diseases is calculated to be more than $1 trillion.

A reliable sherpa for navigating the terrain

Galloway rightly describes the great investment opportunities around the digitization of the last major chunk of the U.S. economy represents. We at Caduceus couldn’t agree more. And while we may not mimic Galloway’s inimitable dry and humorous delivery, we are happy to tell prospective investors how to take advantage of this enormous transfer of “gallons of capital”. Because healthcare is complex, challenging, and not an area to invest in without substantial experience. Let Caduceus guide you through this investment journey.