For Health Services Companies, It’s Not a Left Turn, but Pedal to the Metal
Back in January, my partner Lauren McConville and I got on an airplane…
…flew to San Francisco and spent the better part of a week in meeting rooms, cafés and restaurants with tens of thousands of healthcare industry insiders clamoring about the annual J.P. Morgan Conference. All with no masks.
While there, we asked those we met with to identify one offensive and one defensive move health systems and providers should make in 2020 – based, of course, on the headwinds in the industry.
The answers, summarized in a blog, generally fit into four themes: taking cost out of the system, focusing on the consumer experience, forging smart partnerships upstream and down and scale, scale, scale.”
What’s strange is that, despite the visceral reaction you probably had to the idea of sitting on an airplane and hanging out indoors with thousands of other vectors, er, people, not much else has changed. Consider…
- Taking the cost out of healthcare? An already unsustainable cost structure has spiraled and providers lost billions in a matter of weeks.
- Giving people easier ways to receive medical care? Like when they’re stuck at home but need a consult?
- Joining forces to develop economies of scale? Survival may now depend on it.
- Forging smart partnerships to reach underserved populations in new ways? COVID-19 just widened the gap when it comes to health disparities.
So many of the trends the industry was talking about in early 2020 not only hold true today but have become more urgent. When it comes to health services companies and the private funding often backing them, that fact validates the work that’s been done and points to the shape of deals and partnerships in the future.
Julian Harris, MD, MBA, is a partner in the healthcare practice at Deerfield Healthcare Management. In a recent interview with us about healthcare M&A he said, “There are a number of trends already underway that have been accelerated. The transition of care to the home and the adoption of telehealth are two examples in the health services realm.”
Meanwhile, Bob Kocher, MD, a partner at Venrock, echoes that thinking. “COVID accelerates all of the same themes that we’ve been thinking about for years, which is healthcare has to become more tech enabled, more virtual and home-based and more affordable,” he said on a recent episode of A Healthy Dose podcast.
Kocher also pointed out that risk-based models are a notable winner in our pandemic world. “If you’re managing risk, you’ve never done better because so many elective procedures have gone away,” he observed. “If you’re paid per member per month, your revenue didn’t go down when volumes went down.” We’ve heard the same from leaders of prominent health systems. More risk (done the right way) will lead to greater success and sustainability.
In other words, the entire investment thesis of the private equity and venture capital world – and some traditional providers – has now been pressure-tested and validated. The word we’re hearing is that more money will be flowing into those three areas: virtual care, operational efficiency and risk-based services. Partnerships and deals will take shape around the ability to create a bigger footprint more efficiently. Deals will revolve around technology, reducing the need for brick-and-mortar facilities to serve as healthcare’s front door and streamlining the management of physical facilities that are needed.
If PE and health services have been working for years to crack the door on tech-enabled services and new delivery models, it’s been kicked wide open by the pandemic. Which means, for investors, it’s a moment to hit the accelerator, not switch on the turn signal.