Impact Investing in Preventative Healthcare
A brief on Canadian healthcare and the opportunities for impact investing.
3 minute read
Healthcare costs are rising in Canada due to increasing hospital and physician costs along with long-term health conditions. Impact investors can play a role in reducing the prevalence of chronic conditions by focusing capital allocation on preventive health practices. It has become evident that the financial burden on the healthcare system can be lessened if the population becomes healthier, and if long-term conditions such as diabetes, cancer, and cardiovascular diseases become less prevalent. In our research we dive deeper into the main factors that drive healthcare costs and highlight programs that can link private capital and positive health outcomes together.
Healthcare Cost Drivers
Health expenditure as a proportion of Canada’s GDP is trending upwards. Hospitals, drugs and physician compensation collectively make up an estimated 67% of public health expenditure, which constitutes 70% of total health spending. Diving deeper, our report identifies five driving forces for the rising costs:
1. Demographics and long-term conditions
2. Health-sector price inflation
3. Drugs
4. Technology
5. Increased utilization
Behavioural patterns have a larger impact as determinants of early deaths than genetic predispositions, making a strong case for increased preventative healthcare measures.
Human Behaviour and Preventive Healthcare
There is strong evidence to support human behavior as a determinant for human health. As seen in the graph, behavioral patterns have the highest impact as determinants on early deaths in the USA, which is higher than genetic predispositions. Preventative measures such as a healthy diet and exercise can significantly lower the risk of long-term conditions including, cardiovascular disease, cancer, chronic respiratory disease and diabetes. In Canada, the Public Health Agency estimates that chronic diseases cost Canadians $190 billion annually. These costs could potentially be lowered through investment in preventive measures.
What role can impact investing play?
While the need for preventive healthcare measures is obvious, there are currently some serious gaps in funding for these measures. In 2013, Canada spent only 5.1% of total health expenditure on public health activities that promote healthy lifestyles and prevention of long-term conditions. Therefore, our research explores 3 ways through which impact capital can fill those gaps.
1) Social Impact Bonds (SIBs)
Healthcare SIBs are a good fit for prevention of long-term conditions (LTCs). LTCs like asthma, diabetes, coronary heart problems, breathing problems, muscular skeletal problems, and depression are well suited for the SIB model due to several reasons, including a clear economic case and financial return on investment: The current usage of health resources by LTC patients is very high. Healthcare SIBs focus on providing better organized patient care for those with chronic illnesses, thereby leading to reductions in significant expenditure in health services.
2) Health Credit Markets
In essence, Health Credit Markets are a modified version of the Social Impact Bond in which the financial risk is shifted towards the Program Partner (or service provider), and the investment is structured as a donation. If they cannot achieve specified outcomes, they do not receive any payments. If partial results are achieved, they will then receive a partial payment. On the other hand, the investor/ donor will receive the tax deduction and have the opportunity to shift the unsuccessful and unused credits towards other Program Partners.
3) Private Partnerships
Some healthcare providers and insurance companies in the US have started to offer coverage for preventive healthcare interventions. In response to increasing cases of musculoskeletal and neuromuscular pain, Beaumont Health established an Integrative Medicine (IM) department in 2004, offering services ranging from yoga therapy and acupuncture to psychology sessions and nutritional consults. This project has yielded increased savings and improvement in employee well-being after adopting an IM model.
19.7%
Reduction in costs reported by Beaumont related to musculoskeletal conditions
$1M USD
Amount saved by Beaumont as a result of changing their policy to include massage and acupuncture sessions in their insurance coverage
Our Insights
An increase in preventive healthcare investments can reduce financial burdens in the healthcare sector.
Preventive practices, such as Integrative Medicine, are underfunded in the space.
There is an opportunity for impact investors to fill these gaps.
Our report provides an in-depth analysis of the cost drivers and ways these solutions can be implemented with further case studies. The report and executive summary can be accessed at the top of this page.