With turmoil in the jobs market, the data last week from the Labor Department recording only 266k net new jobs in April, meaningfully below whisper estimates of at least one million new jobs for the month, was followed by numerous accounts of what might have caused such a miss. Was it due to overly generous unemployment benefits? Fears of infection? Lack of childcare with so many schools still closed? Around the distant edges of the healthcare economy, we may also be seeing the impact of robotic process automation – arguably, the next “new new thing.”
What a paradox: since March 2020 BC (before Covid) the number of new job openings across the economy has increased 34% according to iCIMS, a recruiting platform, and yet as of mid-April, there were 16.9 million Americans receiving jobless benefits. At its peak in June 2020, this registered a staggering 32.4 million of an estimated 160 million working Americans. It is estimated that total employment has declined by 8.2 million people. Over 4.2 million people are considered “long-term unemployed” (more than 27 weeks), while 2.6 million people are unable to work as they are caring for someone who is ill or ill themselves. With the labor force participation rate now at 61.7%, the effective average hourly income was $30.17 in April with 35 hours worked on average each week. To put this in context, the federal unemployment benefits equate to approximately $15 per hour and are set to expire in September.
Data: FRED; Chart: Axios Visuals
As usual, the situation in the healthcare industry is more complicated. The great promise of healthcare technology is to both reduce clinical and administrative costs while improving outcomes, and yet the U.S. has one of the most expensive healthcare systems (17.7% of GDP in 2020) and in recent years has shown declining life expectancies (life expectancy at birth in 1H20 was 77.8 years, down from 78.8 years in 2019). In early 2020, total employment in the healthcare sector was approximately 16.5 million which dropped dramatically to nearly 14.9 million according to Bureau of Labor Statistics data. The declines were unevenly felt across the various specialties with nursing homes and other residential care facilities showing declines of 15-20% in employment and no meaningful recovery. After equally dramatic declines at outpatient care centers and medical laboratories, those sub-sectors now have higher levels of employment when compared to early 2020.
Overall, there are approximately 16 million healthcare jobs today. There was a 4k job loss in April, which masked the 19.5k decline of nursing home jobs last month. Tragically, the nursing home sector saw nearly 2k Covid-related deaths among its employees, to say nothing of the more than 132k Covid deaths of nursing home residents. Overall, nursing homes experienced a 204k reduction in total employment since early 2020. While hospitals saw nearly 6k of job losses in April, one bright spot was the 21k increase in ambulatory care jobs. Interestingly, a recent American Medical Association study found that in 2020 nearly 40% of all physicians were employed by hospitals which was a meaningful increase from 29% in 2012; 40% were in private practice, down from 60% in 2012. Perhaps not surprisingly, nearly 75% of all residents surveyed by Merritt Hawkins preferred to work in an urban setting.
Clearly, the pandemic is the fundamental contributor to the significant job losses over the past year, but there is an expectation that the automation of certain tasks will begin to redefine and likely reduce the number of future healthcare jobs. The ability to streamline certain operations to both reduce costs and errors are the promise of robotic process automation (RPA). The use of RPA puts enterprises on the path to more robust intelligent processes. RPA software deploys bots to handle rules-based activities that tend to be repetitive and labor intensive. These solutions are implemented on top of existing operating systems, allowing for relatively easier deployments, while not creating parallel workflow processes.
Getting a precise handle on the size of the RPA market is tricky but there is clear consensus that this software category is poised for exceptional growth. A recent Morgan Stanley analysis of 94 occupations estimates that 40% of all American workers hold jobs in positions that are 70% likely to be automated. Allied Market Research has the RPA industry at $1.6 billion in 2019, increasing to $19.5 billion by 2027. Forrester Research believes that the RPA industry will reach $2.9 billion in size this year.
And this sector is now squarely on the venture capital industry’s radar. Crunchbase identified over $1.0 billion in funding in 2018, declining to $920 million in 2019 and approximately $300 million in 2020. The activity in 2021 has been frenetic, punctuated by the $750 million Series F financing of UiPath earlier this year. A partial selection of recent RPA companies tracked by CB Insights is highlighted below (and does not even reflect Flare Capital’s own Cohere Health).
McKinsey identified $180 billion in opportunities in healthcare finance and operations to reduce costs through automation. Some of the most dramatic opportunities involve electronic benefit verification (EBV), prior authorization, and claim status inquiries. For instance, according to the 2019 CAQH Index report, there were nearly 10.3 billion EBVs annually, of which 16% are done manually, costing approximately $10 per manual verification. Similarly, of the 112 million prior authorizations, 87% of which are manually adjudicated at $14 per, the opportunity to remove significant operating costs via RPA is dramatic. It is thought that 30% of the 5.8 billion claim status update inquires are handled manually at a cost of $10 per inquiry. And on and on….
Notably, the BBC recently published a study that found 745k people literally died in 2016 from working long hours. If tedious mind-numbing jobs contributed to that tragedy, hopefully RPA can help address that issue as well.
My thanks to my colleague, Parth Desai, who is spending a lot of time with RPA companies seeking to dramatically change the operating costs of healthcare entities.