Episode Details

Morgan Stanley Research and Investment Management analysts discuss how AI can keep costs down for the industry and give patients a more personalized experience.

----- Transcript -----

Craig Hettenbach: Welcome to Thoughts on the Market. I'm Craig Hettenbach, Morgan Stanley's U.S. Healthcare Technology and Providers analyst.

Today I'm here with my colleague Steve Rodgers from Morgan Stanley Capital Partners to talk about a growing and underappreciated segment of healthcare – the behind-the-scenes technology that is transforming the sector to keep costs down and improve patient care.

It's Monday, December 9th at 9am in New York.

In 2022, the size of the U.S. healthcare sector was [$]4.5 trillion and is projected to grow to [$]6.8 trillion in 2030, accounting for 20 per cent of overall U.S. GDP. We know that the U.S. population is aging, and we expect to see 71 million U.S. citizens age 65 and over by 2030. That puts ever growing demand on health care systems. 

So, Steve, you and your colleagues in investment management have been looking lately at key macro trends driving change in the healthcare sector.

What are these drivers and how do they work together?

Steve Rodgers: When we look at the health care landscape, we really think about four major macro trends. The first is cost containment. And this is just this simple idea that costs are escalating at an unsustainable rate. The second is demographics; we also know that things like obesity is increasing the prevalence of chronic conditions and increasing the overall utilization of the healthcare system. And so, we're looking at ways to invest behind that macro trend.

We've also identified something called consumerism. And consumerism stems from the reality that today, patients are taking more of a financial responsibility in their healthcare. And with that comes more decision making. So, the old days – where the patient received healthcare services, but the payer paid, and there was really no link between the two – have moved on.

We call it the retailization of health care. Waiting in the office for your appointment for 30 minutes used to be a standard. Today, that's unacceptable because these patients will move to the next provider who's providing them a better retail experience.

The final macro driver we call enabling technology. Health care has lagged many other industry segments in the use of technology as a source of efficiency. I like to give the example of chemotherapy treatments, right? Technology would produce a new chemotherapy treatment, and while that's great for patient care and outcomes. It actually could lead to increased costs to the system because it was an added route that people would go down.

Now there's technology which allows a provider to say, “Start with this one because of your genetic makeup.” And not only will you have a better outcome more quickly, but it will be less cost to the system. We're also seeing that kind of efficiency happen on the administrative side of healthcare as well.

The way we think about these macro trends and how they work together is really thinking about demand versus supply. So, we see demand drivers coming from demographics and consumerism. We see supply drivers coming from cost containment and really enabling technology has impacts on both demand and supply.

Craig Hettenbach: Let's focus more specifically on just how digitization and cost containment dovetail. When people talk about the impact of AI and ML on healthcare, typically the focus is on things like big pharma, medical equipment, and hospitals. But there's actually a whole intricate infrastructure that helps healthcare run.

Can you talk about these behind-the-scenes businesses and why investment managers are so interested in the opportunities they offer?

Steve Rodgers: Yeah,