Bass, Berry & Sims, Deloitte and Harris Williams proudly co-hosted the 14th annual Health Care Investors Conference (HCIC) on October 9 as an associated event of the Nashville Healthcare Sessions conference.
The firm welcomed approximately 200 investors, company leaders, professionals serving entrepreneurial healthcare, and others to the HCIC at the Country Music Hall of Fame in downtown Nashville.
Keynote: Curing U.S. Healthcare
Paul Kusserow, chairman of the board of Amedisys, kicked off the afternoon with a realistic overview of the healthcare industry as a whole and a preview of the upcoming release of his new book, “The Coming Healthcare Revolution: 10 Forces That Will Cure America’s Health Care Crisis,” co-authored with David W. Johnson, CEO and founder of 4sight Health. With Medicare and Medicaid facing bankruptcy in the next 10 years and troubling demographic shifts creating new pressures on the U.S. healthcare system, changes need to be made sooner rather than later.
Paul highlighted the gradual expansion of value-based care but pushed for a more rapid shift as the primary way to combat these systemic issues, including:
- Whole Health: The current fee–for-service model is outdated. Focusing on and incentivizing better outcomes rather than services will result in better care and, ultimately, more financial benefits for providers and patients.
- Care Migration: Most health systems are modeled based on generating referrals to their hospitals. With recent but gradual changes, most services are moving away from the traditional hospital setting, which could serve to alleviate administrative bloat and increase patient access. Additionally, the types of people providing care should be expanded such as expanding home care to include compensated family members as service providers.
- Redesigning Reimbursement: Payors create value within the industry but have been slow to roll out value-based care models. Reimbursement should emphasize primary care and its central role in maintaining patient health.
- Greater Consolidation: The value-based world ultimately will be accomplished through greater consolidation and the increased coordination it brings. Efficiency should be incentivized and not discouraged as it is under the current model.
Private Equity: Managing Bullish Expectations
After a choppy start to 2024, many analysts have predicted a strong rebound in healthcare M&A activity in Q4 and 2025. Our private equity panel discussed anticipated M&A activity for the remainder of this year and into 2025. Although the key ingredients for a rebound are there – a need to deploy capital and increasingly favorable credit markets – panelists suggested that it may be time to adjust expectations. Heightened regulatory risk, valuation gaps and other general headwinds may stand in the way of a return to the lofty pace set in 2021, but given the ever-increasing demand for healthcare services, investment in the sector will remain strong.
Echoing the sentiments of the keynote presentation, panelists noted that investment likely will flow toward opportunities to maximize efficiency and data utilization to keep up with the shift to value-based care.
Panelists emphasized the following subsectors:
- Behavioral Health: In the face of regulatory tailwinds and increased demand coming out of the COVID-19 pandemic, behavioral health likely will see increased investment. The subsector is still highly fragmented and presents coordination opportunities with existing care platforms.
- Pharma Services: A primary target of private equity investing likely will be pharma services. These companies have exceptional capacity to coordinate and conduct business across the spectrum of healthcare.
- Health Information Technology: In keeping with 2024, deal activity in this subsector is expected to remain high as investors and providers look to maximize data to produce better outcomes. In addition, companies that can assist with regulatory compliance will see an uptick in value.
- Physician Practice Management Sector: Although the level of activity in 2021 likely will remain an outlier, activity in this sector will continue. However, practices featuring strong provider cultures and the ability to recruit will remain high-priority targets. Greater investment likely will flow to the primary care subsector, especially for practices demonstrating strong value-based care programs. Otherwise, the market likely will settle into a new normal as it maintains its steady pace.
Panelists included Vasundhara Bhargava (Patient Square Capital), Rajat Duggal (FFL Partners), Mike Lehman (Waud Capital Partners) and Justin Saks (Gryphon Investors). Angela Humphreys, chair of the Bass, Berry & Sims Healthcare Group and co-chair of the HCIC, served as moderator.
Women’s Health at the Forefront
The women’s health panel highlighted women’s health as an underserved area for innovation, making it a prime opportunity for investment. Areas of interest for investment highlighted by the panelists included fertility, obstetrics/maternal health, post-partum health, and aging health. With growing demand and a shortage of clinicians, companies that are able to create solutions to address these issues present an attractive opportunity for investors.
Additional opportunity exists in the aging health space, and companies that are able to create solutions to improve care in this area and address the lack of significant research in topics such as osteoporosis, menopause, and others, will be prime targets.
Panelists also noted the importance of building out a broader continuum of care in the women’s health space as an opportunity to create value. The women’s health space is very fragmented, with significant opportunities to provide better integrated care across subspecialties. Consolidation of smaller disparate businesses in this subsector into larger platforms that can serve a broader area of needs remains likely.
Although opportunities for investment in the space are vast, panelists noted there is an educational gap. Many investors interested in women’s health and sources of funding have been women. Despite this gap, the quality of women’s healthcare has substantial room for improvement, and companies and investors that are able to create solutions and showcase increased quality of care will be winners.
Panelists included Whitney Hanson (Kohlberg & Company) and Pryia Patel (Bone Health Technologies). Andy Dixon (Harris Williams) served as moderator.
Value-Based Care – Aledade Leading the Way
As previously noted, the need to shift toward value-based care models was a central theme of the conference. Jessica Somers, CFO of Aledade, Inc., drove home this point during her company spotlight. Aledade has found great success in value-based care through primary care. Jessica discussed why Aledade’s value-based care model works, emphasizing that the company is highly aligned with those they serve. Jessica explained that Aledade does not make money until the practices it partners with make money, building trust in Aledade among its network of providers.
Another factor driving results is Aledade’s technology-first approach. Jessica discussed Aledade’s ability to analyze 10 years’ worth of data to provide specific insights for each of the providers in its network, which is pushed out in the form of daily insights for the providers. This technology has allowed Aledade to achieve shared savings for 98% of its physician practice accountable care organizations compared to the national average of 56%.
Impact of the 2024 Presidential Election
Given the tight presidential race, Anne Phelps, Principal, US Health Care Regulatory Leader of Deloitte & Touche LLP provided a timely discussion on the overall temperature and outlook ahead of the 2024 presidential election.
Although there are a significant amount of bipartisan issues in healthcare, Democrats and Republicans remain divided on several issues – Affordable Care Act (ACA) tax credits, Medicaid policy, and the 340B Program. Surprisingly, healthcare is not at the top of the political agenda for either Donald Trump or Kamala Harris. Despite these candidates not entering into the usual coverage or any other major healthcare debate, the candidate who wins will have significant fiscal issues related to healthcare to deal with.
For example, temporary enhancements to tax credits, which have reduced ACA marketplace enrollees’ premiums and previously have been extended over time, are set to expire in 2025. Democrats would like to reinstate these enhancements permanently, which would require billions of dollars. Meanwhile, Republicans think this would be too expensive. Anne noted that major parts of the ACA and the Inflation Reduction Act were passed by Congress through budget reconciliation. Following the election, if either political party is able to control the presidency, House and Senate, budget reconciliation could serve as a vehicle for that party to enact its policies.
With respect to a question on the increased regulatory headwinds facing private equity investment, Anne also emphasized the need for private equity, hospitals, and other players in the healthcare space to get better at “telling the story” of the benefits of private equity investment in healthcare to get ahead of the negative narrative.
Conclusion
The central theme of the 2024 conference was certainly the need to accelerate the shift toward outcome-based models of healthcare. Although provider-based investment will remain steady, private equity will likely focus on companies that can expand efficiency through care coordination, data and ancillary services.
While 2025 should see an uptick in investment activity relative to 2023 and 2024, it may be time to adjust expectations as we settle back into a new or “renewed” normal level of activity.
Bass, Berry & Sims, Deloitte and Harris Williams thanks everyone who attended this year’s HCIC conference. We look forward to celebrating our 15th anniversary of HCIC and hosting the event again next year.
