Impact Investing in Preventive Healthcare

This paper provides a landscape overview of the healthcare system in Canada, and outlines a role for impact investors.

Healthcare costs are rising in Canada. There are five general factors that drive healthcare costs in Canada, listed below. The core drivers of healthcare costs are: (1) health sector expenditures (hospitals and physician costs) and (2) the prevalence of long-term conditions.

  1. Demographics and long-term conditions: Although older seniors (aged 80 or older) incur the most health care costs, survey data do not show a strong correlation between age and utilization. Rather, researchers have found a strong relationship between having multiple chronic diseases and higher utilization of healthcare resources. In short, this means the more individuals experience chronic, long-term diseases, the more Canada will have to spend on healthcare in the future.

  2. Health-sector price inflation: Hospital and physician costs are a driver of health-sector inflation. As a result, there is increasing interest in exploring whether other health professionals (nurses, pharmacists) can substitute for the services physicians provide.

  3. Drugs: Spending on drugs to treat relatively common conditions (hypertension, high cholesterol, heart burn, depression) have decreased, while spending on less common but more serious conditions have increased. It is expected that drugs treating serious diseases will continue to be a major driver in pharmaceutical spending.

  4. Technology: Technology in healthcare refers to products such as medical devices and equipment, surgical improvements, information and communications technology, and prescription drugs. Technologies that are aimed at prevention of diseases will trigger greater cost reductions than technologies that merely treat symptoms.

  5. Increased Utilization: The slight decrease in available beds, coupled with a slight increase in average length of stay and amount of resources consumed by patients, has led to an increase in hospital care utilization.

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. Impact investors can play a role in reducing the prevalence of long-term, chronic conditions by focusing capital allocation on preventive health practices. We highlight three programs that can link private capital and positive health outcomes together.

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.

Health Credit Markets: In essence, Health Credit Markets is 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.

Private Sector 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 to acupuncture. This project has yielded have seen positive health outcomes and financial returns.


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