In this episode of William Blair Thinking Presents, equity research analyst Ryan Daniels dives deep into the healthcare team’s Quarterly Healthcare Mosaic report, which focuses on “food as medicine,” an emerging area in addressing social determinants of health. During the episode, Ryan analyzes the market and regulatory-driven trends driving growth in the food-as-medicine movement across the United States, details the types of food-as-medicine interventions in the market today, explains why food-as-medicine is vital to comprehensive care delivery, and discusses how care providers and payers of all types are embracing the movement at scale.

Podcast Transcript

[00:00:08] Chris Thonis: Welcome to William Blair Thinking Presents, a new podcast series at aims to provide in-depth expertise from our award-winning equity research and capital advisory teams on today's financial and economic landscape. I'm Chris Thonis, head of Equities marketing and media relations, and I'm delighted to be your host.

[00:00:24] On today's episode of William Blair Thinking Presents we welcome analyst Ryan Daniels, CFA, partner, and group head of the healthcare technology and services sector. Ryan and his team publish a Healthcare Mosaic report every quarter to help audiences understand a far-reaching topic of interest in the healthcare space.

Ultimately, what they do is they provide a variety of data points and analyses to offer a more complete picture of what it means for the broader healthcare marketplace. So, the latest report, this is the 29th in the quarterly series, dives deep into food-as-medicine. It's an emerging area in addressing social determinants of health.

The report itself analyzes the market and regulatory-driven trends, driving growth in the movement across the United States, as well as the types of food-as-medicine interventions in the market today, why food-as-medicine is vital to comprehensive care delivery, and how payers and care providers are embracing the movement at scale.

With that, Ryan, I appreciate you joining us. Do you mind just jumping in a little bit with a brief overview of what this new quarterly report is all about and what continues to inspire you and the team to dig so deeply into food as medicine as a movement?

[00:01:35] Ryan Daniels: Sure. Chris, first off, thank you for having me today to discuss the topic.

Let me actually begin by stepping back a bit. As you mentioned, we publish our Healthcare Mosaic reports every quarter. We've been doing so for nearly eight years now, and in the past, we've looked at areas like integrating behavioral health into mainstream healthcare delivery, the development of advanced primary care models, and things like the pending healthcare staffing crisis.

Our goal here is really to dig into these trends and analyze a lot of data and offer proprietary analysis before they become obvious to our audience and that's why we refer to them as Mosaic reports because we're often putting together a lot of disparate but related data points to develop a thesis and really prepare reports and educate our readers on a truly emerging topic of interest.

And what we do as a team is constantly listen to industry leaders, we're reading trade publications, and we're looking for common themes that we think could become much larger topics in the future based on the volume and cadence of mentions we are seeing on that topic.

[00:02:40]So, it could be more regulatory discussion about pending changes, it could be leaders starting to invest in certain programs, new research coming out, private equity funds flowing into the space, or just really a myriad data points that lead us to the topic each quarter. So, to your root question for this report, the genesis was really back in 2019.

[00:03:00] We wrote an industry note at that point called Food for Thought: Food is Medicine is a dominant theme at a leading industry conference. This was in January of 2019. We listened to about five large healthcare system leaders and CEOs who were talking and they all of a sudden were talking about food-as-medicine as kind of a key to enhancing health equity and addressing social determinants of health in their markets and how they were seeing really early returns on these programs with improved health outcomes.

[00:03:32] So, things like lower ED rates. Ever since then, in January of 2019, we wrote about it, have had it in the back of our minds, and have been tracking this space. Then, in late 2022, we really started to see a ton of discussion. So, as I mentioned before, we look for increasing volume or cadence, and we saw a lot of discussion about the food-as-medicine sector. And that was from payors offering it as a medical benefit. State Medicaid programs were allowing managed care entities under waiver programs called Section 1115 waivers to offer it. Even the government started to push it post-covid as key to health equity and improving a social determinant of health. We thought, hey, this is the perfect time to start tying all this data together and to help our readers identify why this could be a big potential emerging investment opportunity in the next few years. That's what led to the production of the report.

[00:04:25] Chris T: So, you jumped in pretty well there. I don't know if we necessarily have to dive in exactly to what food-as-medicine is, but I think it would be helpful to better understand how the market categorizes such interventions like food-as-medicine. I know that through the report you specify three. Do you mind just walking through each of those?

[00:04:43] Ryan D: I think that's actually a great question to set the foundation for discussion, Chris. So there, as you mentioned, are three widely seen food-as-medicine programs. The first, probably dominant, is medically tailored meals.

The second is medically tailored groceries. The third is produce prescriptions. So medically tailored meals are what the industry refers to as MTMs are probably the most common, and I would say they're certainly the most clinically robust. These are meals prepared by registered dietician nutritionists and they address a person's specific dietary needs based on their medical condition, based on allergies, medical history, and what medications they're taking. So, these are sophisticated diets. You know, they're often provided by payors for things like post-discharge to help a patient on a short-term basis to avoid readmission to a hospital after an acute condition or they could be offered to patients with chronic conditions. So, say somebody has CHF or chronic kidney disease, there's a lot of evidence to show that having them on healthier diets can prevent a lot of acute exacerbation of conditions and need for medical care.

[00:05:54] So that's number one. The second is medically tailored groceries and those aren't fully prepared meals like medically tailored meals, but they're things like meal kits that an individual might get to prepare their own meals, or they could even be things like grocery vouchers. You could go to a grocery store and purchase healthy meals to prepare at home.

[00:06:15] Then the final one I mentioned is produce prescriptions. Those are typically food vouchers or things like a restricted debit card where a consumer can go to a grocery store or even a farmer's market and buy fresh produce. This is a benefit that's oftentimes used for individuals that may be in health food deserts or they can't afford these types of foods. Think of a Medicaid participant who otherwise might never get fresh produce, fresh vegetables, or fresh fruit. You want them to have access to that either as a benefit for your health plan or just to improve their health. You would give them access to this.

So those are really the three main types of programs that we see the payer sponsoring in the marketplace today.

[00:06:59] Chris T: Two quick questions on that. You mentioned prepared meal kits. Who does the preparation? That would be the registered dieticians? These are companies that do this that you can pick up grocery stores. What does that look like generally?

[00:07:11] Ryan D: Those are a little bit more flexible. So, the medically tailored meals are the ones where the dietician or nutritionist is really preparing it. That's going to be very specific. So, you know, think of someone, I'll give you an example like a congestive heart failure patient.

[00:07:26] You don't want that patient having a lot of sodium. So you, as an insurance company, might run analytics on a Medicaid population. You might identify certain patients that you're paying for coverage that have CHF. They might be in food deserts, so the risk is that they're eating a lot of fast food. They're eating a lot of canned food. The problem with canned soup and fast food is they're very high in sodium. If that's all they have access to, they're going to be eating it. They're going to have issues with CHF and end up in a hospital. By providing a healthy meal that's prepared and sent to them, you're going to be able to help avoid that.

[00:08:01] So those are kind of the more tailored meals that we see in the marketplace. The other two categories, I should step back and say you also might prepare that for somebody who can't do it on their own, they might have issues with the activity of daily living. So, they need a fresh meal delivered to them that they can just heat in the microwave.

[00:08:17] The other two categories are a little bit, again, more open for the consumer to go out and purchase meals, but it would be restricted. So it might be, you know, just healthy fruits, healthy vegetables, healthy proteins that are good for a specific condition, and you could buy those on your debit card and then go home and prepare them on your own.

[00:08:39] Chris T: You said restricted debit card. So restricted meaning you would be unable to buy anything beyond this, or at least be compensated for the money spent?

[00:08:50] Ryan D: You wouldn't be able to go in with that restricted debit card and buy candy, canned soup, and a pack of cigarettes. It wouldn't allow you to do that. So, the grocery stores are actually in partnership with a lot of these plans to develop these types of initiatives.

[00:09:03] Chris T: Throughout the report, you repeatedly call out the regulatory and market-driven factors that are driving growth in the food-as-medicine movement. I would love to know what the early key developments in this area that appear to be promoting this trend. I know you call out everything from increased flexibility from Medicaid and I think you mentioned section 1115 waivers. What are those additional developments? I know there are a few others.

[00:09:29] Ryan D: Yeah. There are several that are pushing the market forward, and it's a pretty loaded question as there's a lot going on and it also varies depending on who the ultimate insurer payer for care is. So you almost have to break it down a little bit. One would be, a big one, is Medicare Advantage or MA. For our listeners who may be less familiar with that, when an individual turns 65, they can either go into a traditional fee-for-service Medicare, where they see a doctor, and that doctor just bills the government every time that they visit, or they can enter, a Medicare Advantage plan. The Medicare Advantage plans are typically sponsored by the bigger commercial insurers.

[00:10:03 The interesting thing is that Medicare Advantage typically offers markedly more benefits than fee-for-service Medicare. So, a Medicare Advantage plan can offer dental, they can offer vision, they offer fitness programs like Silver Sneakers, and they can also offer things like healthy meals. So, Medicare Advantage is about 50% of the overall Medicare population today and they're really starting to offer it for a number of reasons.

[00:10:31] One is another ancillary benefit to get the seniors to pick Medicare Advantage over fee-for-service, and then second, they may offer it to at-risk patients for post-discharge programs or to chronic patients as a preventive medicine against disease progression. An example here would be, again, a heart failure patient.

[00:10:52] Keeping them off those high sodium foods I talked about to prevent an acute care event, like a heart attack and trip to the ED. That's kind of one area and I think it's interesting, we outlined this in the report, so I don't know the exact data, but I do know that nutritional benefits and medically tailored meals were the two fastest-growing ancillary benefits offered by MA plans in 2022.

[00:11:14] And part of the reason for that is things like vision and dental and fitness memberships are now ubiquitous. So pretty much every plan offers that. It's not unique from a competitive standpoint to say, “Hey, our plan offers a gym membership,” and so does every other plan. But offering food and nutritional benefits has become more novel.

[00:11:30] So, it's also kind of a competitive tactic to get people to sign up for the plan, and that's Medicare advantage. Medicaid has used this a lot and Medicaid has typically used it, I would say, as a post-discharge solution. So again, a lot of Medicaid patients, because to qualify for Medicaid, you have to be low income, indigent.

[00:11:50] They might not have access to healthy food either because they can't afford it or because of the markets in which they live. So, this is a great clinical tool for the managed Medicaid plans to get a waiver. The state says, yes, we will allow you, even though this isn't quote-unquote a healthcare service, we will give you a waiver to provide this because we believe that if you do provide this, it will improve care, and lower the cost of care.

[00:12:16] So, we're getting a little technical, but as you said, it's a Section 1115 waiver, and it's often called ILS or in lieu of services. So, if you provide these healthy meals, it would actually prevent the need for other services that might be higher acuity, more expensive, and lower quality for the patient. So, the thesis again, would be if you can provide a patient with a healthy meal, they're not going to have to go into the hospital.

[00:12:42] So in lieu of the hospital service, you provide a healthy meal. These waivers have been getting approved across the entire United States, and that's driven a ton of growth in the market as well. And then the third thing, and I'll do three and four to try to make it quick, the third thing is at-risk providers.

[00:12:58] So, we're seeing more and more of these entities that go out and take on total care and quality risk. It could be a big healthcare system. It could be some of these emerging public companies or private companies that bear this risk. And again, given that they bear the cost and quality risk for the patient, they are also integrating these types of programs in and providing them as part of their solution set.

[00:13:20] And then lastly, and this is probably the smallest area, direct to consumer. That's small because the customer acquisition cost can be very high and you probably have never seen a medically tailored meal commercial on tv. I've never seen one. I don't think they're out there. I've never seen them in print.

[00:13:36] Chris T: Don't believe I have.

[00:13:37] Ryan D: Yeah. It's just too unique of a market. Even the big DTC meal vendors have had a lot of difficulty. Several of them have gone bankrupt over the last few years. Meal costs are high. Transport costs are high. That's a tough market. But what we do see here, is something like the Medicare Advantage plan.

[00:13:53] So if the MA plan provides this for your mom for let's say two weeks after she had a heart attack post-discharge and she really loved it. She said, “This is great.” You liked it. It's a good benefit. You may want to continue that for him/her so you don't have to worry about her. She's single. She's a widow at home alone.

[00:14:12] You're worried about her maintaining her diet after an acute event. You might therefore say, well, I'm going to continue to buy this for my mom. So there's a little bit of a DTC element that's starting to percolate as well in the market, but it's really more the Medicare Advantage and Medicaid markets that are driving this.

[00:14:27] Chris T: So, you've called this area…food-As-medicine….a largely untapped opportunity. In the report you used the words “magnitude” and “sizeable” at one point. Culd you just dig into that a little bit? I know your team did an analysis for this sub-sector, and if I'm correct, you found that this is potentially an astounding $276 billion opportunity. Could you dig into that a little bit more?

[00:14:52] Ryan D: Yeah. It's always a challenge doing a Total Addressable Market, or TAM analysis, because those are just laden with myriad assumptions. You have to assume a lot. Let me explain what we did and then some thoughts around it.

[00:15:05] So we just looked at the average price paid per meal. We did a lot of digging into what different managed care companies, what states, what different payors actually pay, and it turned out that the average is about $7.50 cents per meal. Then what we did is we assumed that the average customer would get two meals per day, so kind of a lunch and dinner meal, which was also the typical cadence that we see provided.

[00:15:30] And then the next big assumption was duration. $7.50 times two times a day. How many days do they get that? So, we really did a sensitivity analysis saying it could be anywhere from as short as you know, two weeks to as much as a year. Again, based on what we're seeing in the market. So that was step number one.

[00:15:49] Step number two, and this is where it got a little bit more complex and required some digging, is we looked at age cohorts and we actually looked at disease prevalence data in each of those cohorts to try to identify how many people would benefit from this. So, an example here would be taking the 65 and older cohort overlaying the incidents of CHF, or congestive heart failure and that gives us a number of potential patients that qualify. Then, based on that number of CHF patients and other disease conditions that would be specific for medically tailored meals like chronic kidney disease would be another example, we could take all of that and build up a market model.

[00:16:32] So, at the high end, if we assume 52 weeks, that's where we came into that $276 billion that you mentioned. That would kind of be the ultimate opportunity if all of these patients with these medical conditions got it for 52 weeks. Now that's unrealistic. It's never going to get there. But even if we hone it to say, okay, let's just assume they only get 12 weeks, it's still $64 billion.

[00:16:54] And so the punchline for us when we do these total addressable market analysis is not we're trying to pitch someone on a $276 billion investment opportunity or a $64 billion, even if we're off by tenfold. If it's $6 billion, that's a huge opportunity because it's untapped. And you know, we think there's only one really sizable player in this market today and that player is probably only 10% of that $6 billion TAM.

[00:17:21] So, it just shows you what a big opportunity is.

[00:17:23] Chris T: Yeah. So there's a lot of opportunity.

[00:17:25] Ryan D: Absolutely. Ton of greenfield. And again, we went through earlier, just a ton of momentum for it. I think there's a lot of opportunity for this industry to continue to grow and expand over time.

[00:17:36] Chris T: That’s a perfect segue to the next question, which, you know, how exactly does food as medicine become more widely adopted? You know, what else is, is needed to promote its expansion? Obviously, the opportunity is there. But again, how does it become more widely adopted?

[00:17:48] Ryan D: You know, a lot of it's just continued momentum around all the things that we've spoken about already. It's more MA plans offering it. As I mentioned earlier, it's kind of the fastest-growing ancillary benefit, but it's still widely underpenetrated. It's probably only 10-15% of plans, so more of those plans adopting it, and more states providing waivers.

[00:18:07] It's also a market that we see fast followers. If five large states do this with waivers, managed care plans see success in offering this both from attracting beneficiaries and lowering costs. They're going to push it in other states. The government's been very vocal about health equity and social determinants of health lately and this is one of those priorities. They've actually mentioned food-as-medicine and healthy meals and getting this to more beneficiaries so there's more momentum there.

[00:18:34] And then you know more of the DTC marketing to seniors. It's a market that's just gaining momentum and success will beget future success. Now all that's stated, I will say one thing maybe to more directly answer your question, ROI, return on investment. In healthcare, I've been doing this for 22 years now at William Blair, you have to be able to show financial returns.

[00:18:57] So, if there is a return on investment for this, I think you'll continue to see more growth. Meaning, if a Medicare Advantage plan offers this as a benefit and attracts more members, and that's therefore profitable for customer acquisition, they're going to continue to roll it out. If a Medicaid plan launches it for post-discharge, they could do a like-for-like cohort analysis.

[00:19:20] This is very easy. To dig into this a little bit deeper, you could do it for a very defined timeframe. You could say, okay, we are going to look at CHF patients in Medicaid. We are going to give it just for two weeks so it's a defined expense period. And we are going to look at the patients we give this to versus a very similar cohort of patients that we didn't give it to and we're going to compare readmission rates for the patients that had medically tailored meals versus those that didn't. Then we're going to see what the cost difference was, and then we'll add in the cost of the medically tailored meals.

[00:19:54] And if there's a return on that for us, we're going to offer it and if it doesn't save us money on a relative basis, we're not going to offer it. So, you know, there's an important attribute of doing these studies with partners. You know, this large vendor that I mentioned, I'm sure they're working with all these managed Medicaid companies to run these types of pilots to validate the success of the program and improving care and lowering cost.

[00:20:17] And as they get more and more data, clearly those plans are going to want to roll it out and get those 1115 waivers and push it. So again, that's the kind of data that I think needs to go on the market as well.

[00:20:30] Chris T: Ryan, I have to say your passion for this particular area is palpable. It's always really interesting to hear you dive into detail like this so I cannot thank you enough for joining us. Before I let you go, is there anything that we didn't mention worth noting that you want to make sure is out there?

[00:20:48] Ryan D: I think we hit most of the highlights. I would, however, encourage the audience to take a look at our full report. It outlines a lot of the players in the space that we think could be pretty material long-term winners. You know, it ranges from grocery chains that are investing in the space to these MTM home delivery meal providers that are starting to scale where we see really one clear scale vendor and winner.

[00:21:10] You can even imagine a large e-retailer that now also owns a premium grocery chain and recently acquired an advanced primary care provider. So, I could see them moving into it in the future. I don't want to leave everyone hanging, but I'll throw that out as a bit of a teaser. Maybe it gets some people to download the report and read through it.

[00:21:28] There's a lot more data. It's a 40-page report with a lot more detail. I would encourage everyone to take a look at it.

[00:21:35] Chris T: All right. I appreciate it, Ryan. Let's do this again soon. Thanks again for joining and goodbye everybody.

[00:21:40] Ryan D: Thanks so much, Chris. I’d love to do it again and we do these each quarter, so keep an eye out for our next one.

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[00:22:26] This content is for informational and educational purposes only, and not intended as investment advice or recommendation to buy or sell. Any security investment advice and recommendations can be provided only after careful consideration of an investor's objectives, guidelines and restrictions. The views and opinions expressed are those of the speakers and are subject to change over time as market and other factors evolve.