Morgan Stanley
  • Research
  • May 11, 2020

Why COVID-19 Could Reshape the Future of Health Care

The pandemic has exposed many flaws in the U.S. health-care system and underscored the benefits of streamlined regulation and innovation in areas such as telemedicine and digital health technologies. Here are 5 areas likely to be the focus of change.

As the U.S. scrambled to confront the COVID-19 pandemic, an unprecedented joint effort developed among federal and state governments, regulators, hospitals, suppliers and health-care providers. Out of necessity, institutions altered how they function—and how they cooperate—to save lives.

Although the pandemic exposed flaws and weaknesses in the health-care system, it also revealed unprecedented flexibility, cooperation and innovation in areas such as telemedicine, streamlined regulation and digital health technologies related to electronic patient records and contact tracing.

A new report from Morgan Stanley Research examines the potential new shape of health-care services in a post-outbreak world and identifies five key areas that may hold promise for consumers, health professionals and investors.

“The efficiencies and expansion of care, as well as the potential to reduce medicine's carbon footprint, point to permanent changes and opportunities," says Ricky Goldwasser, equity analyst covering health-care services and technology and lead author of the report. “As the opportunities unfold, we expect to see increased venture and private equity funds flow into health-care services and digital health tech, translating to increased initial-public-offering activity over the midterm and, potentially, a more modernized health-care system.”

Regulation: Health-Care’s Highest Barrier to Entry

Over the past six weeks, the Centers for Medicare & Medicaid Services (CMS) and the Food and Drug Administration (FDA) have shown new regulatory flexibility. Both agencies quickly responded to market needs, from changing telehealth reimbursement, to expanding the role of medical residents, to accelerating the approval process for diagnostics.

As an example, in March the FDA released new formal guidance in support of virtual clinical trials. This will likely encourage a broader shift to virtual trials post-pandemic, opening the door to companies that create alternative processes.

While some of the new regulations could be rolled back as the economy reopens, some of the changes will likely stick. This could have far-reaching impact, accelerating new business models as well as clinical trials of new drugs. In addition, this relaxed regulatory climate could provide the opportunity that tech companies have been looking for to establish a leading position in health care.

Telehealth: Ready for Primetime

Last year, usage of telehealth services by clinicians was estimated to be in the single digits—and largely in the areas of mental health. But according to a survey from IMS Health, a U.S. healthcare information and data provider, telehealth services use by clinicians surged past 50% in April.

 This significant shift demonstrates how updated behavioral changes during a crisis can accelerate adoption of an existing technology. Since the pandemic lockdown, virtual meetings are the “new normal," so the move to telehealth could signal a longer-term change in health-care delivery.

Also fueling the spike was the quick action by the CMS to broaden Medicare rules around access to telehealth services, ensuring that Medicare will pay for virtual care under the same code as physician office visits, while waiving patient cost-sharing for virtual visits. Post-COVID-19, the report's analysts expect providers and hospitals to shift a larger volume of patient care to telehealth.

“Virtual interactions have an opening to become part of the 'standard of care,' and not just concentrated in mental health interactions," says Goldwasser. Recent trends show that “top telehealth diagnoses addressed chronic asymptomatic conditions, including diabetes, hypertension and cholesterol. Longer term, we see this shift as driving lower medical costs, benefitting payors and plan sponsors."

Beyond telehealth, digital health technologies could see accelerated adoption. Digital pharmacies could deliver opportunities for investors, and major e-commerce companies will likely speed up entry into the health-care marketplace.

Democratizing resources and data access

Historically, privacy concerns have been a major hurdle to data sharing in health care. However, the COVID-19 outbreak highlighted the red tape and inefficiencies that arise with a lack of data interoperability.

For example, New York has put all area hospitals into a single statewide system, enabling the sharing of patient data, equipment and supplies, as well as doctors and nurses. After the pandemic, the report's analysts expect a more collaborative health-care environment that fosters data interoperability and record-sharing. Tech companies could also play a bigger role in meeting the need for greater transparency of data and individual electronic health records.

Trends to watch include accelerated development of the Individual Patient Record, as health-care companies build data registries on COVID-19 testing and hospitalizations. This could help researchers study the disease through data analytics. As well, use of wearables and other consumer-facing technology may increase post-pandemic, integrating data from these devices with individual medical records.

Expanding Health Care

As tens of millions of unemployed Americans lose health insurance tied to their jobs, attitudes toward the role of the federal government in health care are likely to change. The one-two punch of COVID-19 and the economic crisis will likely accelerate the shift from private health insurance companies to government-sponsored programs. In response, the government could waive Medicaid work requirements, expand the reach of the Affordable Care Act, or lower the Medicare eligibility age to 60.

As the U.S. returns to a more normalized environment, the report expects higher commercial, exchange and Medicaid/Medicare insurance enrollment; greater managed-care presence in exchanges; and CMS policy updates to help meet the urgent need for uninsured Americans to have access to health coverage. In this climate, public companies with the largest Medicaid/exchange market share could thrive.

Repatriating the Supply Chain

Perhaps most dramatically, the pandemic put a spotlight on the limits of international supply chains and the importance of manufacturing ventilators, personal protection equipment and diagnostic-testing materials closer to home.

Bringing manufacturing back to the U.S. could help fill gaps, enable quality control and maintain a more robust domestic inventory. For example, quality remains a concern with some health-care products made in China as evidenced by concerns over COVID-19 testing kits exported by the country. The post-pandemic era could accelerate the repatriation of manufacturing for both medical components and active pharmaceutical ingredients, reducing U.S. dependence on drugs made in India and China, two of the largest global manufacturers.

The report further suggests that the debate around dependency on non-U.S. manufacturers for drug supplies will continue post-COVID-19, accelerating measures to increase federal oversight, while pushing efforts to source pharmaceutical ingredients domestically. This could drive up the price of generic drugs, with distributors passing the additional cost onto pharmacies or plan sponsors/payors.

“In the post-COVID-19 era, we expect to see an acceleration of the repatriation of manufacturing for both medical components and drug APIs, as well as a rethinking of just-in-time inventory throughout the supply chain," Goldwasser said. “Longer-term implications could include margin pressure on supply chain participants, such as drug retailers and distributors."

For more Morgan Stanley Research on health care and the implications of COVID-19, ask your Morgan Stanley representative or Financial Advisor for the full report, “The Future Is Here: The Shape of Healthcare Services Post COVID-19" (Apr 20, 2020). Plus, more Ideas from Morgan Stanley's thought leaders.