Huge Growth Potential in Femtech and Maternal Services
The industry around solutions for maternity, whether it’s consumer technology to monitor pregnancies or solutions that pair providers with employers, is still nascent. But according to Dr. Eric Dy, Cofounder and CEO of Bloomlife, the opportunities are massive. He shares more in the following Q&A, which features a few select excerpts from our broader discussion.
What’s the general market size for femtech geared toward maternal health?
It’s hard to pinpoint a specific market size. It’s still a developing market. In the U.S. there are about 4 million births per year, and we spend more than $100 billion on pregnancy and childbirth — the most of all the industrialized nations, and we get some of the worst outcomes. About 1 in 10 babies are born preterm in the United States. These babies typically end up in the neonatal intensive care unit and are massive cost drivers for health plans.
In the United States, about 12% of women are considered clinically high risk. That number is growing due to several factors, such as advanced maternal age and more chronic disease. A lot of social determinants of health are driving that as well. The challenge is that while we have this increasing rate of high-risk pregnancies, we have a shortage of care providers. About 50% of the counties in the U.S. lack basic obstetric services, and more and more doctors, even if they are OB/GYNs, are dropping the obstetric side of their business.
Within the maternity care bundle, doctors are paid a fixed amount. It’s usually about $5,000 to $7,000 over the course of the pregnancy. Most costs, about 70%, in pregnancy are realized in the third trimester, around labor, delivery, and postpartum care. So, anything that can help manage some of those costs are big opportunities.
What are the primary operating models, the pricing economics of those models, and the larger cost drivers or areas of risk and vulnerability?
Low-risk prenatal care is paid for out of a bundle. That bundle includes all prenatal care visits, delivery of the baby, and the first six to eight weeks postpartum. Some things fall outside that bundle: ultrasounds, nonstress tests, and all the genetic testing, which are paid for on a fee basis. One hurdle is that prenatal and postpartum depression are big issues that are poorly screened for and poorly managed today. While generally covered by a number of commercial payers, most still do not cover the breadth of care needed to effectively treat or manage prenatal and postpartum depression.
The economics of obstetrics is interesting. For many health systems, obstetrics is a loss leader. What drives it ultimately is the payer mix. If there’s a higher prevalence of commercial payers, then it might be slightly profitable. With a high percentage of Medicaid patients, providers are losing money.
In terms of the biggest cost drivers and areas of risk or vulnerability, payers carry a lot of the burden of cost within all of health care, and the biggest one that everyone is concerned about is preterm birth — the NICU is usually one of the top cost centers in a hospital. The hard part for payers is that it’s difficult to predict who’s going to deliver preterm. So, in any given year, if there’s a rash of preterm births, two or three babies who cost a million dollars might throw an entire health plan and financials out of whack.
The other big cost driver within payers is unnecessary intervention, specifically around C-sections. In the U.S., the C-section rate is north of 30%. The World Health Organization recommends a rate closer to 15%. These labor and deliveries and the postpartum care tend to be more than twice as expensive as a vaginal birth and often run into a lot more complications. There was a stat I read in Harvard Business Review that if C-section rates are reduced by 1%, it would save employers $100 million per year. A huge amount of costs are realized related to labor, delivery, intrapartum care, so if there are ways to better manage those, a fair amount of costs could be pulled out of the system.
What’s the outlook for growth broadly and what has been primarily driving that?
Women’s health at large has become an increased focus for investors due to the unmet needs of women, especially as it relates to maternal care. Expect to see more dollars being deployed and more companies being formed that are working on various aspects of maternity care. Some companies are focusing on the care coordination aspect, with some intended to be tools to help care providers better support care navigation for the patient. There’s tech for remote patient monitoring and dedicated wearables to monitor pregnancies. Other companies are focusing on the service side of things.
The companies that will find the biggest success will find ways not just to screen for risk, but pair with the right intervention to mitigate that risk. Interventions are often one of the biggest impediments within obstetric care because care providers often don’t have good ways of managing risk or preventing things, and therefore don’t address it at all. That mindset is changing within the clinical community, that even if they can’t do anything about it, they need to fully assess the risk and communicate it to the patient.
What I expect to happen is that most of these companies will remain independent for the next three or four years, and after that we’ll start to see some consolidation, especially once more data and evidence demonstrating the impact that these could have is available. It’s ultimately the aggregation of these different solutions that starts to transform how care is delivered.
Has COVID-19 impacted key players or trends in this industry?
What we’ve seen is much like other areas of health care. There’s an acceleration of trends that have been predicted for some time, and the biggest one is this transition to virtual care. As providers and health systems have looked to minimize doctor-patient exposure to COVID, they have increasingly shifted toward delivering much of the prenatal care experience remotely. They figured out how to rejigger the schedule of prenatal care to minimize the amount of time a patient might need to come in. In a pre-COVID world, UC San Francisco was doing somewhere between 3% and 5% of its prenatal care appointments virtually. Now it’s north of 50%. That’s a significant shift, especially for a community of typically conservative health care providers. We’re seeing providers are increasingly comfortable with letting patients manage more things on their own. In some cases, patients prefer this model of care.
Reimbursement parity has been a big enabler of this delivery of care. There’s a big question over what happens post-COVID. It’s important to highlight, though, with respect to some of the reimbursement aspects, that obstetric care has for some time been paid for out of a bundle. So, if a patient has a low-risk pregnancy, the doctor and the clinical team receive a fixed amount of money for delivering prenatal care. Maternal-fetal medicine specialists fall outside the bundle, so for those, this reimbursement parity has been very important. But whether the payers require some element of shifting back toward some in-person care in a post-COVID world is a big question that people are still grappling with.
What are the biggest opportunities for M&A or investment in this space within the short term, as well as the long term?
In the short term, we’ll see more attempts to package provider groups — obstetric care, prenatal care, with more holistic services wrapped around. For the prenatal space, think about different models, such as midwife-led care with potential oversight by an OB or MSN. The data’s strong and compelling for the value of using midwives versus obstetricians. A midwife, on average in the U.S., costs about $100,000 to $125,000 a year, where an OB might cost $250,000. It’s possible for a midwife to spend twice the amount of time with a patient than an OB would, and that additional time gives a provider a greater chance to support education, think more holistically about risk, and build trust.
There’ll be some selective acquisitions or mergers with technology vendors to enable digital health and virtual care. As these solutions start to prove the ability to impact not just outcomes, but cost, I expect we’ll see direct contracting with payers or employers.
The big opportunity is to figure out how to change the economics around obstetrics to make it more profitable. A lot of systems spend a lot of money and don’t get great results.
About Eric Dy
Dr. Eric Dy is Cofounder and Chief Executive Officer of Bloomlife, a women’s health company solving the most significant yet underserved global challenges today in maternal health. Eric has a background in bioengineering and biomedical engineering (PhD, UCLA). While leading business development for IMEC, Europe’s leading advanced research institute, he successfully leveraged his multidisciplinary technical knowledge to build strategic partnerships across sectors including next-gen sequencing, remote patient monitoring, specialty imagers, and mixed-signal chip design. In four years of business development at IMEC, he established 17 new partnerships and more than $25 million in revenue. Eric has been published in dozens of peer-reviewed publications and has been awarded five patents.
This article is adapted from the Sept. 22, 2020, GLG teleconference “Growth Potential in Femtech and Maternal Services: Private Equity Investing.” If you would like access to this teleconference or would like to speak with Dr. Eric Dy, or any of our more than 700,000 experts, contact us.
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