Private equity healthcare themes of 2022 and beyond

Population health management

Private equity (PE) funds have shown increased interest in population health management platforms, which use analytics, patient engagement, and health and care insights to understand a population’s health needs. The TAM opportunity in related software is approximately USD 20bn in the US as one of the fastest-growing segments within healthcare IT, a former director at Cerner Corp (Oracle Cerner) said. The specialist cited three components of a successful solution: strategy and design, network management, and contracting and optimisation of data insights.

We also heard that large electronic medical record (EMR) platforms do not pose a serious competitive threat to population health vendors, as they focus on their core businesses and their data analytics capabilities are less precise. The expert also said they are seeing more provider consolidation and believe there is room for consolidation on the vendor side too. They believe it is a “great space for private companies, private equity companies to look at. They can roll up two or three of these.” And there are “a few shiny spots in the competitive landscape”, which, if combined, could “dominate the market very quickly”.

Patient engagement software

COVID-19 was a major digital transformation catalyst in healthcare, with patients becoming more digitally savvy and healthcare professionals investing more in supporting patients throughout their care journey. In an Interview on patient engagement software, a former SVP at PatientPoint Inc told us that being able to mine patient data and make it actionable across the healthcare journey is key for software vendors. The new frontier, we heard, is enhancing patient care after discharge, with physiotherapy one such area. Global TAM is estimated to reach USD 40bn by 2028, according to our Interview. Personalisation is also in high demand from patients, but to capture that business, practices will need to adopt cutting-edge digital platforms.

Players in the space are looking to build end-to-end solutions spanning pre-patient engagement and post-discharge care. “The key thing is change and we’re going to see more of it over the next year,” the expert said. Although there has already been a period of industry consolidation since the start of COVID-19, the specialist believes there is an opportunity for more.

Revenue cycle management

Another area of healthcare on the radar of PE investors is revenue cycle management (RCM). Trends in US RCM include staff shortages, provider consolidation (lacking expertise in legacy systems), margin pressure and increasing costs of collecting receivables. “There’s increased interest that we’re starting to see in BACS services offerings, as well as coding services, and that probably ties back to staffing issues in general,” a former executive at nThrive Revenue Systems LLC (FinThrive Revenue Systems LLC) said. “We’re also seeing some impact from EMR conversions, and that brings the revenue cycle into play from an opportunity and a risk perspective.” A competitive threat, for example, is RCM players losing share to EMR systems that are building out their own RCM capabilities.

Dental and radiology are particularly attractive RCM software niches because they require a solution that can run a large number of claims with relatively low cash value. Primary drivers shaping the RCM landscape are macroeconomic impacts on innovation, labour challenges, and an increasingly global workforce, the expert said. “If I had to pick one thing, I think globalisation of the workforce is going to be key.”

Provider value-based care

Healthcare providers are increasingly looking for solutions to help them manage the transition from fee-for-service to value- based care models – the latter of which is a delivery framework that incentivises providers to focus on the quality of services rendered and lowering the cost of care. In the provider value-based care technology space, a former director at Privia Health Group Inc sees around 15-20% annual growth for some of the larger names over the next 3-5 years as the market becomes increasingly saturated.

The specialist said they have seen payers shifting businesses to ambulatory surgical centres and believes there is low-hanging fruit for both payers and providers. “There’s a gradual awakening around the fact that a lot of these procedures that are performed in a hospital setting could be performed elsewhere.” The expert also referred to traction in home healthcare models, where they said “significant dollars” are being invested.

India’s hospital sector

We also heard the Indian hospital sector is “booming”. Among the insights from an associate at an India-based integrated healthcare services provider is that a mature hospital can be expected to generate an EBITDA margin of approximately 25%, but there could be margin pressure in the medium term. We heard that inflation is impacting CAPEX, for which build cost per square foot has increased by 27% and medical equipment inflation is running at 8-10%.

Construction costs are not expected to ease in the short term and with 90% of the industry still “unorganised”, the rationale for consolidation is strong. M&A in Indian healthcare is “the next big thing” that could see smaller hospital chains or standalone hospitals acquired by the large operators or PE firms. Several forces are disrupting or could disrupt the sector, with the expert noting that the regulatory environment is “not at all stable”. A cap on drug prices, for example, would have a “major impact” on profitability.

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