2024 Predictions: Unveiling the future of healthcare mergers and acquisitions

In the present day, a story of two markets are seen in healthcare mergers and acquisition: the current (as mirrored within the data about declining dealmaking) and the long run (mirrored within the more and more optimistic outlook by dealmakers).

Whereas deal information can fluctuate in line with how it’s outlined and who’s reporting, it has declined considerably throughout the board because the high-water mark in late 2021 and early 2022, with a significant fall-off within the second quarter of 2023 and once more within the third quarter of 2023.

M&A exercise in digital well being skilled a 44% decline within the third quarter of 2023, hitting a three-year low. The steep decline started within the second quarter of 2022, and within the first quarter of 2023, with solely 56 exits seen in digital well being within the first, then 36 within the second quarter, and solely 20 within the third quarter. Nonetheless, a promising outlook is rising that subsequent 12 months will convey a significant upswing.

Because the HLTH convention in Las Vegas in October, whispers of optimism are being heard and inexperienced shoots are sprouting, which could be attributed to a number of components:

• Shrinking valuations: Healthcare corporations are experiencing lowering valuations, which may make them extra engaging targets for acquisition. This is likely to be on account of numerous components, comparable to slower progress, modifications in market multiples, regulatory modifications or shifts in investor sentiment. Decrease valuations could be a magnet for patrons beforehand deterred by the sky-high costs prevalent in particular healthcare segments. This shift in valuation can open alternatives for strategic acquisitions and expansions. It is a reminder of the cyclical nature of M&A exercise, with alternatives rising as market situations evolve.

• Divestitures of non-core property: Corporations within the healthcare sector could look to divest non-core property. Strategic strikes may make them leaner and extra targeted on their major companies, doubtlessly making them extra interesting to acquirers.

• Altering dynamics: As healthcare corporations adapt to evolving {industry} dynamics, elevated M&A exercise is anticipated. This might contain corporations restructuring, merging or buying others to higher place themselves within the altering healthcare panorama.

• New gamers:  If the current previous is a sign, anticipate extra nontraditional gamers to enter the well being care market, from “massive tech” corporations like Amazon to technology-focused enterprise capital corporations like General Catalyst, who mentioned publicly on the final day of the HLTH convention that it intends to buy a health care system, an unprecedented transfer for a VC agency.

A resurgence in healthcare M&A may occur in early 2024. The potential for M&A offers to extend within the first half of 2024 is contingent on the Federal Reserve’s determination to chop rates of interest, adopted by impacts to the worldwide financial system, geopolitical conflicts and regulatory hurdles. As soon as there’s stability within the outlook, CEOs and company boards ought to really feel safer to reengage in dealmaking. Whether or not it surges or occurs in suits and begins is anybody’s guess. A rise in stock-for-stock transactions is predicted, permitting patrons to provide upside to sellers.

These predictions mirror the dynamic nature of the healthcare {industry} and the way numerous components can affect M&A exercise. Nonetheless, it is essential to notice that these are forecasts and precise developments within the healthcare M&A panorama could fluctuate primarily based on real-world occasions and market situations. Let’s delve into a number of pivotal components influencing the choices of healthcare M&A patrons within the upcoming 12 months.

Prioritizing value-based care

The healthcare sector’s ongoing transition towards value-based care is steadily gaining traction. This concentrated effort to supply top-tier, cost-efficient healthcare companies generates enthusiasm for digital well being corporations able to enabling this transformation. Consequently, these corporations are poised to be extremely sought-after acquisition prospects.

Within the fast-evolving M&A panorama, patrons within the upcoming 12 months are set to prioritize a strategic shift towards value-based care. With the healthcare {industry} present process important transformations, M&A exercise is now not solely about increasing market share or consolidating assets; it is about enhancing the standard of care delivered to sufferers.

The adoption of value-based care fashions ensures that healthcare organizations give attention to the outcomes and total well being of their affected person populations somewhat than simply the quantity of companies offered. As M&A patrons more and more search to align with these rules, a surge in partnerships that facilitate the sharing of information and applied sciences aimed toward bettering affected person experiences and outcomes could be anticipated. This shift displays a dedication to a extra patient-centric strategy in healthcare, in the end paving the way in which for a brighter, extra built-in future within the {industry}.

An increase in distant affected person monitoring

Within the coming 12 months, M&A patrons within the healthcare sector are anticipated to indicate a eager curiosity within the surging pattern of distant affected person monitoring. RPM permits healthcare suppliers to observe sufferers’ well being information remotely utilizing wearable gadgets or different sensors. RPM is gaining recognition because it permits healthcare suppliers to detect and handle potential well being points at an early stage, resulting in enhanced affected person outcomes.

This expertise, harnessed by way of wearable gadgets and sensors, has revolutionized the healthcare panorama by enabling suppliers to constantly monitor sufferers’ well being information remotely. Consequently, it facilitates early drawback identification and considerably enhances affected person outcomes, making RPM options more and more engaging to potential traders.

Based on healthcare specialists and {industry} experiences, this rising demand for RPM-driven options underscores the rising significance of preventive and proactive healthcare, in the end reshaping the M&A panorama within the healthcare sector.

RPM is a lined service beneath Medicare, Medicare Benefit, most industrial well being plans and plenty of state Medicaid applications. Different distant monitoring companies, comparable to distant therapeutic monitoring, power care administration, transitional care administration, behavioral well being integration, principal care administration, and power ache administration, are additionally usually lined.

Beginning in January 2024, Medicare will broaden distant monitoring reimbursement to Federally Certified Well being Facilities and Rural Well being Clinics (which beforehand weren’t licensed to obtain separate fee for distant monitoring). Digital well being corporations that develop and promote RMP options will probably be in excessive demand from patrons within the near-term horizon.  

Psychological well being takes middle stage

The highlight on psychological well being is rising, and digital well being corporations with options to handle this concern are garnering consideration. Teletherapy platforms, psychological well being apps, and instruments for psychological well being administration are more likely to appeal to important curiosity from patrons.

In recent times, there has been a shift in the way in which society perceives and prioritizes psychological well being. This cultural transformation has positioned psychological well being on the forefront of public discourse. It’s influencing particular person well-being and shaping the panorama of the healthcare {industry} and the digital well being sector. This shift creates a receptive atmosphere for digital well being corporations to develop modern approaches to handle psychological well being challenges.

For instance, teletherapy platforms and psychological well being apps have emerged as a pivotal part of psychological well being care. The comfort, accessibility, and affordability of teletherapy platforms have made psychological well being companies more available to individuals. They not solely provide a bridge to care for individuals who could face geographical or logistical limitations, but additionally attraction to the broader inhabitants in search of handy and discreet psychological well being help.

Many psychological well being apps have entered the market, catering to numerous features of psychological wellbeing. These apps provide a variety of options, from temper monitoring and self-help assets to meditation and stress administration instruments. They empower individuals to take control of their mental health and supply a customized strategy to self-care. Many apps incorporate synthetic intelligence and machine studying to tailor their content material and proposals to particular person consumer wants.

Reimbursement has additionally continued to broaden for telemental well being companies, notably following the Public Well being Emergency. Starting in January 2024, marriage and household therapists and psychological well being counselors are eligible to be paid by Medicare for telehealth-based remedy. And new funds transcend simply remedy and counseling into different social components. For instance, Medicare will now pay for digital well being and well-being teaching companies, in addition to threat assessments of evidence-based social determinants of well being.

Because the impression of psychological well being continues to develop, traders and healthcare organizations more and more acknowledge the potential of digital well being corporations on this area. Enterprise capital corporations are pouring cash into modern psychological well being startups, and established healthcare suppliers are in search of partnerships and acquisitions to combine these applied sciences into their companies. The digital psychological well being sector is attracting important curiosity and funding, reflecting the idea in its potential to revolutionize how psychological well being care is delivered.

Becoming a member of the AI revolution

Synthetic intelligence is revolutionizing the digital well being panorama and serving to create modern options. These embrace AI-powered diagnostics, drug discovery platforms, and digital assistants. Corporations growing AI-driven well being tech are targets for these trying to stay forward in healthcare’s digital transformation.

A rise in M&A exercise inside the digital well being sector might be coming as corporations on the forefront of AI integration change into coveted targets for strategic patrons aiming to keep up their aggressive edge within the ever-evolving healthcare panorama.

Furthermore, in October 2023, the White Home introduced an government order for forthcoming laws on AI, already publishing an preliminary structure of what these laws will comprise. The announcement was properly acquired within the AI group, not just for its thoughtfulness, however as a result of regulation lends legitimacy to new applied sciences.

Supplied the regulation isn’t overburdensome, it should guarantee transparency and accountability in new AI digital well being instruments, thereby producing confidence in the long run customers of these instruments (e.g., clinicians, sufferers). Concurrently, it should generate confidence in traders that the AI instruments might be sustainable, scalable and precious.

Quickly, mergers and acquisitions inside the digital well being sphere might be pushed by the escalating significance of AI-powered options. Established healthcare corporations, expertise giants and pharmaceutical corporations are more likely to actively take part on this acquisition spree, in search of to enhance their portfolios with modern AI-driven capabilities.

This pattern could lengthen to cross-industry acquisitions as corporations from numerous sectors acknowledge the profound impression AI can have on healthcare. As such, digital well being enterprises harnessing AI’s potential are poised to be extremely sought-after property, with their experience and expertise changing into important parts of broader healthcare methods.

Entry of nontraditional gamers

Nontraditional gamers, comparable to tech giants and personal fairness corporations, more and more assert their presence within the digital well being {industry}. These nontraditional gamers are making substantial investments within the sector, which is anticipated to catalyze a surge in M&A actions. Their major goal is to amass corporations boasting cutting-edge expertise and promising excessive progress prospects, which underlines the dynamic evolution of the digital well being panorama and the various vary of stakeholders now collaborating in it.

Tech giants are already important gamers within the well being tech enviornment, and we might be intently watching to see in the event that they additional make investments on this sector as it’s seen as a gateway to broaden their attain into contemporary markets and unlock new income streams.

Startup-centric offers

One can anticipate extra offers involving startups within the subsequent 12 months. Startups are innovation hubs, providing established gamers entry to new applied sciences and markets with excessive potential. Healthcare corporations powered by expertise are teaming up with conventional healthcare suppliers for extra environment friendly and efficient care supply. Some examples are collaborations between telehealth corporations and hospitals or wearables corporations becoming a member of forces with insurers.

Digital care M&A

The recognition of digital care is on the rise, resulting in a rise in M&A exercise. That is pushed by the comfort, cost-effectiveness and enhanced accessibility it affords. Digital care might be pivotal within the well being tech panorama within the coming 12 months.

For 3 years throughout COVID Public Well being Emergency, the healthcare {industry} operated beneath a slew of particular waivers permitting telemedicine companies to flourish and scale in previously-disallowed methods. These embrace distant supervision of clinicians, medical exams and prescribing with out an in-person examination, nationwide distributed staffing fashions, virtual-only medical teams and a proliferation of consumer-focused retail medication.

Whereas these waivers have been initially short-term, the federal authorities has prolonged a few of them by way of the tip of 2024. Different waivers have already been or are anticipated to be made everlasting (e.g., enlargement of Medicare protection for telehealth, DEA particular registration for telemedicine prescribing, flexibilities on geographic location of supervising medical doctors). Most of those flexibilities are anticipated to stay, which is able to permit digital care corporations to proceed their progress.

Furthermore, billions of {dollars} have been raised and invested in digital care corporations within the final 5 years. That capital has been deployed, however not absolutely spent by these corporations. In the course of the subsequent couple of years, these well-funded corporations will both flourish with product-market match or be targets for acqui-hire, incorporating their applied sciences and concepts through M&A into the surviving cohort of digital care suppliers. Both approach, it should end in alternatives for deal-work, funding, and in the end improved well being expertise and care entry.

The dynamics of M&A exercise within the healthcare sector are certainly intriguing. The current decline in deal numbers is likely to be a short lived part, but it surely’s essential to notice that such developments usually sign an imminent shift. Because the {industry} adapts to altering conditions, will probably be attention-grabbing to see how these developments unfold and impression the healthcare panorama.

The healthcare {industry} stands on the cusp of transformation, the place adaptation to evolving developments turns into the important thing to success. Strategic patrons are anticipated to be notably lively as they search to enhance their present portfolios and broaden their choices on this dynamic and ever-evolving sector. Rising from COVID, the healthcare {industry} has undergone basic change, reworked by telemedicine and digital well being. There isn’t any going again, and M&A might be a vital issue within the subsequent steps of this journey.