The healthcare landscape is evolving. Notably, the M&A in the sector is experiencing a dynamic transformation marked by emerging trends, technological advancements, and strategic shifts. Traditionally characterized by its complexity and intricacies, healthcare is witnessing a surge in transformative partnerships and consolidations.
One notable trend is the increasing integration of technology. From innovative treatment modalities to data-driven decision-making, technology is not only enhancing patient care but is also becoming a key determinant in identifying viable investments.
The intersection of healthcare and technology presents myriad opportunities for growth and innovation. Below are the key trends we believe will shape the industry in the coming year.
Artificial Intelligence (AI) and Machine Learning (ML) are increasingly prevalent across various healthcare domains, including drug discovery, workflow enhancement, and diagnostic support. While there continues to be more talk than demonstrated value at this point, there is excitement and some progress. It’s crucial to discern between genuine opportunities and mere hype. Despite the potential, the healthcare AI sector faces regulatory challenges and limited proven use cases, indicating that significant AI-driven changes in care delivery might still be some distance away.
Success stories in primary care, both in-office and home-based, particularly in managing Medicare Advantage, underscore the importance of technology in driving cost efficiencies. Data platforms, crucial for VBC success, are expected to see increased interest, particularly those enhancing data aggregation, interoperability, and predictive capabilities. However, there are three areas of opportunity: 1) a need to reemphasize VBC in other managed care and commercial care populations beyond Medicate Advantage, 2) an understanding of what strategics will do with purchased assets in this space, and 3) the consolidation of emergent platforms to reach geographic and membership scale.
The rising enrollment in Medicare Advantage programs is anticipated to continue fueling growth and interest in this sector. However, specialty care within VBC remains largely experimental and on a smaller scale.
The M&A landscape is expected to see a gradual increase in activity throughout the year. High-quality assets in all categories, especially in HCIT, are moving quickly at strong valuations. However, the variability in pipeline quality suggests a cautious approach. Technology-enabled services that have developed unique or market-leading platforms are particularly attractive.
Provider services are experiencing a slower growth rate, but certain areas, especially those demonstrating success in risk-bearing payment models, remain attractive. The integration of technology and contemplation of SaaS models by provider services companies are trends to watch, as they aim to maximize revenues and operational efficiency. A prime example of this trend is the notable Virgin Pulse and Health Comp deal in 2023. This merger uniquely combined a wellness company with a Third-Party Administrator (TPA), creating a synergistic relationship between employer and payer customers, all focused on reducing employee healthcare costs. Such innovative mergers highlight the evolving landscape in provider services, where technology and strategic partnerships are key to growth and differentiation.
The acquisition of successful payer services groups by large payers has created opportunities for new entities to fill the gap. Growth in Medicare Advantage and the need for specialized outsourcing services in areas like enrollment, eligibility, and risk adjustment are driving interest in this sector. The potential for technology optimization in these services is significant, especially for those using legacy or MVP-like technologies. Payment integrity continues to evolve with new data technologies AI and growing expectations of payer and ASO/employer group clients.
The sector is rapidly evolving, with new drugs, therapies, and devices all finding quicker and easier access to specific conditions and specific populations. A lot of focus in this sector is on connecting products, tests, and therapies with patients and helping them access their benefits to utilize them. There is continued growth of elaborate Hub services, and pharmacies and pharmacy supply chains themselves are increasingly valuable to those accessing both rare and high-cost drugs, with a growing need for more efficient, advanced technologies. The digital advancement of CROs and clinical trials continues, as modern SaaS solutions bring new ideas to the business architecture.
Providers are considering selling data to trial providers and pharma companies. Key industry moves include Eli Lilly's direct sale initiative and CVS's pricing transparency efforts, signaling a shift towards cost control and transparency. This is critical as industry watchdogs suggest potential government intervention if costs aren't managed effectively. Additionally, the rise of emerging biotech offers new opportunities for healthcare innovation. Possibly the best use case for AI to date is improvement of quality within longitudinal datasets and combining synthetic datasets.