Bass, Berry & Sims and Deloitte welcomed approximately 75 healthcare investors and executives to the 2022 Health Care Investors Conference on November 9 at Bass, Berry & Sims’ Nashville headquarters. Angela Humphreys, President of the Healthcare Practice Group and Co-President of the Healthcare Private Equity Team at Bass, Berry & Sims, and Philip Pfrang, Global Managing Partner of Deloitte’s Health Care and Life Sciences Practice, led the panel discussion.
After two years of virtual conferences due to the COVID-19 pandemic, Angela said in her opening remarks that she was glad to have attendees gathering again.
Climate for Healthcare Investing
Rising interest rates, a tight labor supply and supply chain bottlenecks are all factors slowing dealmaking, according to a panel on private equity (PE) investment in healthcare. Still, the downturn leaves plenty of opportunities to turbocharge 2021’s deal flow. Read an overview of deals for the third quarter published by Bass, Berry & Sims here.
Panelists said they have focused their efforts on improving the operational skills of provider management teams in areas such as controlling labor expenses, improving revenue cycle management, and building a culture that helps recruit and retain scarce talent.
Deal structures are also keeping pace with the investment climate. Physicians are pursuing more joint ventures with vendors to improve buyer incentive alignment. PE buyers are increasing their holding period to give more time for profitable exits. Some PE investors are striking deals by investing with strategic buyers, who have lower cost of capital in this environment.
The panellists highlighted the areas that are on their radar for opportunities in 2023:
- Healthcare IT Outsourcing.
- Pharmaceutical services, especially companies assisting in cell- and gene-oriented discovery or manufacture.
- Rural healthcare as disruption to service these geographic areas provides significant opportunities for new entrants.
Digital Health Outlook
This panel stressed that investors should view “digital health” as “health”. Investors should analyze how a digital health company fits into a hybrid delivery system that blends in-person and virtual care with digital tools that enable patients to navigate their care with the appropriate nudges. Increasingly, the panelists said, digital health companies must improve both clinical and financial outcomes, not just one or the other.
Some promising areas identified by the panelists include:
- Digital tools providers use to better manage care and bend the cost curve, such as software integrated into electronic health records (EHRs), help physicians steer patients to lower-cost drugs.
- Provider companies that implement technology better than competitors, for example, a behavioral provider company that improves delivery by integrating its practices on a single EHR platform.
- A high-quality, focused technology company that can expand into a broad platform with innovative solutions built on its strong foundation.
In 2023, regulations will begin to shape how the Inflation Reduction Act (IRA), which authorizes Medicare to negotiate the prices of certain drugs, will work in practice. While most of the focus on the effects of this change has been on outpatient (Part D) drug prices, the law also affects drugs used during an inpatient stay (Medicare Part B) and drugs purchased through the 340b program. Will do (Read a summary of the IRA’s impact here, analyzed by three attorneys from Bass, Berry & Sims.)
Another area to watch highlighted during the conference is the increasing scrutiny of Medicare Advantage plans by federal regulators and lawmakers. Members of Congress from both parties are expressing concern about the growth of Medicare Advantage.
On the legislative side, talks on increasing the federal loan limit to healthcare providers should be watched. If no agreement is reached to increase it, lawmakers could look to Medicare reimbursement to avoid hitting the debt limit.
Over the long term, healthcare investors should consider the sustainability of healthcare spending as a proportion of the federal budget. Price transparency is one way to help patients and physicians make choices that bend the cost curve. Regulations requiring price transparency from providers and insurers are still in their early days, and the effects of these disclosures are still to be seen.
Bass, Berry & Sims and Deloitte look forward to hosting 13 next yearth Annual Health Care Investor Conference. They anticipate another busy year for healthcare M&A in 2023, kicked off by the JP Morgan Healthcare Conference in San Francisco on January 9-11, 2023.