Growth-Stage Healthcare Companies Find Challenge, Opportunity in Today’s Market Headwinds

There’s no denying that recent market conditions have been challenging, and the situation may linger if the forecasts of a recession hold true. While turbulent economic conditions may create difficulties for smaller businesses, they can also provide creative options and opportunities for those that are nimble enough to innovate and adapt.

This summer, TT Capital Partners surveyed nearly 30 leaders from our portfolio companies to gauge how they’re feeling about the state of the market and industry. Though a relatively small sample size, the responses were remarkably consistent and provide a glimpse of the sentiments among growth-stage healthcare services and technology companies. A summary of the survey findings follows.

Not surprisingly, inflation is a common concern; more than 80% of survey respondents said they are worried about inflation as news about a possible recession looms. However, more than 80% said that recent supply chain disruptions have not had much of an impact on their business.

The “Great Resignation” has affected a wide swath of industries, and healthcare isn’t immune
A more pressing concern among our portfolio company leaders is the tightening of the labor market. A full 82% of survey respondents said the Great Resignation and recent labor shortages have impacted their business either somewhat negatively or very negatively.

Some businesses have dealt with real business ramifications as a result. “We have had to limit our service capacity due to staffing reductions,” said one respondent. “We are spending much more on talent acquisition, use of search firms, and use of contract labor.”

Many growth-stage healthcare companies have adapted by adding new workplace flexibility to help address labor challenges. One respondent noted, “We, like so many, are accepting the new hybrid world where work-from-home and unlimited PTO — as long as the job gets done — is almost required to attract talent.”

It’s also key to retaining talent, as one company leader noted: “We have implemented highly flexible policies that exhibit our trust in our employees to balance their personal lives with their work objectives. These include flexible PTO, flexible hours, and flexible site of work. In 2021, we provided additional long weekend days, and made the week between Christmas and New Year’s Day a company holiday.”

Interestingly, the largest percentage of respondents indicated that the tight labor market in healthcare had only a somewhat negative impact on their business, and some see new business opportunities in the labor shortage. Healthcare remains fragmented and inefficient, and in a tight labor market, businesses need to simplify and streamline operations. That can drive growth for smaller companies that offer innovative and disruptive healthcare solutions, as many of our portfolio companies do.

Digitization of healthcare viewed as an opportunity
Another example of opportunity is the continued digital transformation of healthcare. Nearly two-thirds of our survey respondents (64%) said they see it as a big opportunity for their business.

Some recognize the transformation as a chance for healthcare to leverage digital advances that other industry sectors have. “The healthcare industry desperately needs to apply the same levels of data interoperability, data science, remote solutions, and connected solutions that have already revolutionized other industries,” one respondent said. “Then there is the application of AI to drug discovery and personalized care — the next 10 years will be an incredible period for healthcare entrepreneurs and innovators!”

Others pointed out that it will take time and thoughtful investment to truly transform the healthcare industry: “It’s happening, it’s inevitable, but we have a lot of work to do to make sure the digitization of healthcare is funded appropriately and based on the value it creates.”

Where has healthcare advanced—and where hasn’t it?
We also asked our portfolio company leaders where the healthcare industry has advanced most significantly. They cited care delivery (67%) and the use of data and analytics (50%) as the two areas where the industry has made the most progress over the past two years. On the flip side, respondents cited interoperability (8%) and improved outcomes (8%) as the areas that have made the least progress.

“Remote care delivery got ‘legit’ during the pandemic,” observed one respondent. “And the fact that healthcare equity has gained attention, and even become a focused objective for so many leaders, is a critically important and welcome development.”

Meanwhile, value-based care didn’t fare particularly well. Less than 20% of respondents cited it as an area of progress in recent years, and respondents gave it middling to below-average marks. When asked what letter grade they would give the industry on value-based care adoption, 64% gave it a C, while the remaining 36% gave it a D. Said one leader, “We are still figuring out how to make it as much about care transformation as it is about payment model design.”

Missed opportunities for growth-stage healthcare companies, but hope for the future
Finally, we asked leaders to chime in on some of the most significant missed opportunities in healthcare over the past decade, and responses included some of the usual suspects, including Managed Medicare for All, system interoperability, and the relatively slow adoption of new innovations.

Respondents were also asked what excites them most about the future of healthcare, and their responses shed some light on the optimism they feel about the industry. They cited the increased integration of medical and behavioral healthcare, emerging technologies that support personalized care, and early-stage cancer testing that will eventually allow for more timely interventions—and ultimately save lives.

At this a unique time in the industry’s history, our portfolio company leaders told us there are plenty of reasons to be optimistic. One respondent summed it up well: “There is so much opportunity for healthcare entrepreneurs and intrapreneurs to make a difference. Aging demographics, data science and AI, understanding and hacking the human genome, highly personalized healthcare — this is the best time to be in this industry.”