Healthcare, private equity and technology

There is no doubt healthcare is an attractive market for private equity (PE) investments. According to a recent report by Bain & Company, North America posted strong healthcare private equity activity despite the challenges of the pandemic and lockdowns. Healthcare providers remained the most active sector, with 74 deals in 2020 compared with 96 in 2019, largely on the strength of continued, favorable underlying trends: An aging population and the rising incidence of chronic disease expands the need for healthcare.

While there are pros and cons to this, as with all things in life, the impact of a PE investment can be significant for a healthcare organization. Not just the bottom line, or providing the capital to acquire new revenue streams, but also when it comes to the ability to add or upgrading technology. This is especially true for an organizations’ s accounting and finance capabilities. As discussed in CohnReznick’s, “Healthcare Investment Report: A watershed moment for healthcare services“, COVID-19 caused an increase in the cost to do business, including the need to invest in technology. While Healthcare has been changing at a rapid pace for the last decade plus, the pandemic accelerated the pace of change and the metrics that matter to each organization.

On one hand, healthcare financial leaders need to understand key metrics like profitability or cost per- patient, location, caregiver, referral source, specialty, etc. are now common. This requires the ability to integrate information from disparate sources, bringing the financial, clinical, operational, and regulatory data to understand the true health of the business. On the other hand, these leaders also need the ability to incorporate new revenue streams (healthcare-as-a-service, memberships, etc.) and payment models (per-member-per-month, direct to employer, value-based contracts, etc.).

As described in the CohnReznick report, “Thinking about it from the provider perspective, COVID-19 has brought attention to where healthcare financial operations were weak…the pandemic is also changing how providers are delivering care and how payment models are adapting. Both of those changes are forcing providers to not look at their situations as “business as usual.” The more successful provider will be one that is nimble and strategic.” An infusion of capital, expertise and technology from a PE investment can further both these activities.

Although the investment of PE dollars in healthcare can be found across the ambulatory, acute and post-acute markets, much of we have seen at Sage Intact has been in provider practice, dental, veterinary, and physical therapy. Coming on in the last several months has been PE investment in behavioral care/mental health. And, while telehealth has become a regular part of many of the organizations we work with, telehealth-only organizations have been entering the market at a rapid pace-most notably in mental/behavioral health.

PE will continue to play an expanding role in healthcare, and using that investment is on way to be successful in a rapidly changing environment.