Plenty of people are gearing up to make a—ahem—killing in the senior care business. Is it an opportunity or a mirage?
The World Is Getting Grayer
One of the more interesting types of strategic inflection points are caused by demographic shifts. And by all accounts, we are in for a doozy when it comes to an aging population.
By 2050, the number of people in the world aged 60 or older will be 22 percent of the total global population. And those people may not just go quietly into that good night. As Bank of America analysts have noted, a host of companies are entering the market for “delaying death,” which they estimate could be worth $600 billion by 2025. Among the technologies coming together to make a 100-year life routine are genomics, big data/AI health, future food, robotics, and “moonshot medicine.” With a number of companies ranging from manufacturers to high-tech artificial intelligence analysts expecting to benefit from these new developments, investors are curious about where to place their bets on people living longer, healthier lives.
Will Investors Find Gold in the Silver Boom?
No one disputes that services for seniors is a huge and growing opportunity. It’s anywhere from $300 billion to $500 billion in financial opportunity by 2026, as the number of people aged 60 years or older rises from 900 million to 2 billion between 2015 and 2050 (moving from 12 percent to 22 percent of the total global population).
The numbers have attracted investors. Companies such as InnovAge have adopted a for-profit model, with investment from private equity firms. But despite the numbers, in some sectors profits are hard to find.
Those who made investments in skilled nursing facilities have in many cases lost out as a shift to value-based reimbursements, new technologies, and patient preferences have reduced the days people spend in skilled nursing facilities.
Similarly, those who thought that building housing for seniors who would need more care was a sure thing have been disappointed. As Boomers are living longer, healthier lives, they’re also not particularly interested in moving into homes dedicated for the elderly. In a case of moving a little early on a pending inflection point, developers have over 600,000 of such units on the market, creating a glut of unoccupied homes. Recent research, moreover, suggests that people in the past only move into such homes when they are well into their 80’s, and even that statistic might change if people are healthier for longer.
Will All That VC Money Flowing into Healthcare Create an Inflection Point?
A chronic (no pun intended) problem that gets in the way of lowering cost or improving other aspects of healthcare is that the system is fragmented—cost savings in one place don’t necessarily benefit other parties. Intermountain Health, for instance, famously lost millions in reimbursements when it improved the quality of care and patient outcomes because patients needed fewer procedures and were generally healthier. Private insurers pocketed the savings.
But what if using advanced technology meant that you could benefit from innovations that reduced cost in the system? Seeing this as an opportunity, literally billions in investment has gone into startups seeking to improve communication, prevent the onset of diseases, and facilitate the mechanics of interactions within the healthcare system. So-called Insurtech companies such as Clover Health are betting that they can operate efficiently enough that the per-patient flat payment they get from Medicaid Advantage will cover both care and profits. The dream is that advanced analytics, better data, and more comprehensive monitoring will bring costs well under their current levels, leaving room for rich profits.
So far, the road has been anything but smooth. Clover has had a bumpy ride and incurred losses, although it recently seems to have overcome the qualms and raised over $500 to expand.
The Awkward Question of Private Profits in Senior Care
Despite the investment and interest, an open question remains whether services specifically aimed at seniors will be rich sources of profit in the long run. Part of the difficulty is that making specific predictions about what is likely to happen as people age is well-nigh impossible as technologies change and societal preferences and expectations shift.
Consider long term care insurance. It was supposed to provide a fix for the support most of us will need at the end of life. But, providers have been taken by surprise by how long people are increasingly living and how much medical costs have gone up. So the policies have been drastically under-priced, locking even smart firms like GE into providing benefits that cost significantly more than the funds taken in in premiums. Even worse, the benefits provided by the policies were often promised based on costs at a very different historical time, pushing additional caregiving on to family members who pay a tremendous economic and personal cost.
And of course when a provider gets into financial difficulties, the care they are prepared to provide is highly likely to suffer. Unsanitary kitchens, untrained and inadequate staff, residents who needed help going unheeded, wrongly administered medications…and the list goes on. In a tale of unintended consequences, laws creating the assisted living category were designed to make it easier for community and other care groups to operate more home-like facilities than nursing homes. Instead, these facilities became magnets for banks, private investors, and Real Estate Investment Trusts. As one heartbroken customer whose 91-year-old mother died when she was attacked by ants observed, “You think you’re going into a caregiving situation, and you’re really a pawn in a real-estate deal.” Another example of how the financialization of the economy creates unintended negative effects.
The reality is that despite for-profit interest, it’s really hard to give great care and get great returns.
Instead, consider the home care model created and successfully operated by Buurtzorg, which I learned about at the Global Peter Drucker Forum last month. Based in the Netherlands, the not-for-profit organization employs self-managed teams of nurses who are accountable for managing the care of a defined group of people in their community. Unlike other models, in which care is fragmented between providers with different levels of skill and training, Buurtzorg nurses provide complete care—whether it requires advanced skills or is more basic, such as help with feeding or dressing. It seems to have accomplished a miracle, as patients report high levels of satisfaction, nurses report high levels of satisfaction and engagement, and—miraculously—costs appear to be lower than alternative models.
It may well be a more sustainable model than one which goes looking for profits.