August Update, 2018: Digital Health

We have frequently written about technology and its impact on different industries. Healthcare, a major area of interest for Davis Rea, touches so many people globally. The perfect type of industry to invest within. Unfortunately, the costs of care are soaring and fewer every day are eligible or able to afford care even as our population ages. In America alone, healthcare is a $3 trillion-dollar business, equivalent to 20% of U.S. gross domestic product (GDP) and growing steadily to 25%. In the U.K., healthcare costs are 10% of GDP. Clearly, there are more than just demographics at play in the huge disparities in costs and access. This is the kind of industry we like—everyone needs it, and it’s ripe for improvement in its cost, delivery and accessibility.

“Health organizations are increasingly turning to tech companies to facilitate this transformation in care delivery and lower health costs. Tech companies’ expertise in data management and analysis, along with their significant compute power, can help support health care payers, health systems and consumer by providing a broader overview of how health is assessed and delivered. This will allow insurers and payers to better provide positive outcomes for patients, which will help lower health expenditures.” (Business Insider Intelligence, July 2018)

Companies that you own: Amazon, Apple and Google are already big players and huge disruptors in the healthcare industry. Often one hears about the problems these companies are facing and usually, it involves their global domination because they know so much about us. As investors, we also need to keep our eye clearly on what they are planning for the future and health is a big, target-rich environment screaming for what they do best: innovation and information management. Someday you may be paying them to know where you are and how you are doing. As we age, privacy takes on less importance, as we fear more about our health. These companies impact on healthcare and hence their revenues are set to soar, and we believe the trend is very early. The following is a very high-level overview of what we see. One thing is for certain, we believe the aforementioned companies are very focused on using all that information about you for your good and for that you will pay them.

The major drivers of innovation will be the ones who can pay for advancement and in this case, it will be the insurers and providers of services. Their overriding objectives are profit maximization (and/or survival) via reduced capital outlays, maximizing constrained resources and enhancing capabilities. We expect significant collaboration with cash-rich, tech-savvy capitalists looking to keep up their red-hot domination of all things data and social and at the end of the day, health, is social and data. Apple, Amazon, Google and Facebook know everything about you and someday you may think that’s good.

The collection of patient and consumer data in more digital forms can minimize avoidable provider interaction, improve health outcomes and promote patient independence. New tools for patients, medical professionals, and insurers are being invented that allow for faster, less expensive, more detailed and easily shared data. Artificial intelligence (AI) mixed with cloud computing and personal devices are allowing for advanced data analysis; providing insurers, medical practitioners and patients huge insights into patient behaviour allowing for more specialized and individual health management outcomes. Patients are more quickly served, thoroughly examined, diagnosed, prescribed and monitored often without leaving their home.

Amazon’s plan is to utilize its significant cloud computing abilities and its unparalleled logistic and e-commerce power to greatly reduce the costs of supply management and pharmaceuticals in the healthcare industry. Alexa, its artificial intelligence (AI) home device is set to become your connection to medical advice and an order management tool. They recently purchased an online Pharmacy with robotic capabilities for fulfillment and delivery of your prescription. Amazon is specifically targeting seniors with its in-home devices because the elderly are the largest growth market and suffer the most from chronic illness and mobility issues. The number of people aged 65+ will double in America by 2050 and represent 21% of the population (up from 15% today), and we bet most will use Amazon for some, if not all, of their household needs.

Apple, the most valuable company in the world, is investing big time into health. It’s adding more functionality to the devices we use and love today. The Apple Watch is monitoring your every heartbeat. Soon it will be able to diagnose and monitor other indicators that could warn of diabetic conditions, epileptic symptoms, and heart conditions. The list of uses for payers, providers of health care, and users of their beloved products will only grow as Apple vigorously uses its cash hoard to incentivize developers to invent applications for their devices. Your phone is the repository of all your information and with Apple’s focus on privacy, we bet its attractiveness to consumers will only grow. We would not be surprised if insurers subsidize your use of an Apple watch or phone, so they can provide enhanced services or lower costs to you and them. Aetna, one of the largest American health insurers, is piloting a program to distribute Apple Watches to some of its customers this year. It’s not outside the realm of probabilities that your insurance company buys your phone. Telephone companies still “buy” your phone if you work on the installment plan. 91% of healthcare providers believe that wearables (like the Apple Watch) are a component of their healthcare solutions. With $243 billion in cash, we doubt Apple will not be part of a $3 trillion market.

Google: 80% of all Internet users have searched for health-related issues online. We could stop there and let your imagination run wild about what Google could do in the health and insurance markets given what they know about you… The trick, or the lie, is that they really do want to do good and to do so, they believe the more they know the more good they can do. (It does make sense as long as you believe their motto, which is “do no evil”.) Google is using its massive computer skills in artificial intelligence, virtual reality and augmented reality to increase doctors’ abilities to quickly and accurately diagnose disease, and while also using its huge computer and cloud computing platforms to enhance and lower the costs of healthcare delivery.

But Google spends its riches in far more esoteric ways as well. They have teamed up with hospitals to analyze hospital visits to retrospectively see how improvements could be made to better outcomes. Its deep learning and voice recognition AI is learning how to record doctor visits and make notes so that the doctor can spend more time with patients and less with making notes. Its AI is viewing millions of scans of brains and tumors to more accurately and faster diagnose disease or tumors.

Google is working to make miniaturized devices that can be part of your contact lenses to monitor glucose levels for diabetics, alleviating the need for a daily finger prick test. They are working with a major biotech company to identify the genomic cause of three forms of inflammatory disease which combined are a $100 billion-dollar market today. The list of investments goes on and as of yet, have not been financially profitable, but the payoffs to society and the company will likely be substantial over time and still, it is amongst the most profitable companies in the world. “Do no evil” indeed. Of all the companies mentioned in this report, Google is hands down the leader.

The ramifications of these companies putting their enormous cash and technical expertise to work quickly destroys the argument that these companies are a fad, or bubble destined to crash. I am a student of business, and not many businesses have ever had so much promise for themselves, their investors and society at large. They have changed the world already and they will again.

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