Cost reductions, improved care are driving health care M&A
Health care investors see opportunity in employers' quest to reduce costs.
“The quality and accuracy of the AI model solely depends upon the quality and volume of data used to train it,” CIO writes. “As with heavily regulated industries, concerns over digitization, sharing, and security of confidential and personal data are a challenge. Any growth in the application of AI needs to come from within the medical groups and institutions and done in collaboration with the insurance providers, and also relevant government entities.”
With AI and ML, health systems can more accurately diagnosis and better predict the correct care, as well as streamline internal processes, according to Capgemini’s report, “Top 10 Trends in Health Insurance 2019.”
Improving both the front and back side of the house is paramount to health systems. Indeed, improving operational effectiveness is the eighth top critical challenge for health systems, according to the HealthCare Executive Group. For the group’s members, that means implementing lean quality programs, process efficiency (with new core business models), robotics automation, revenue cycle management, the real-time/near-time point of sales transactions, etc.
The search for improved care and reduced costs drove health-care buyout activity in 2020. Bain & Company analyzed buyout trends as part of its “2021 Global Healthcare Private Equity and M&A Report.” Researchers said three themes stood out.
1. Direct-to-employer offerings to improve patient outcomes and reduce costs.
Care management companies, focused on offerings for self-insured employers and patients, sparked enthusiasm among investors. These firms partner with employers and offer the dual value proposition of providing benefits to employees while lowering health expenses.
On the pharmacy side, employers also turn to pharmacy benefit managers and related service providers to improve patient outcomes and lower their prescription costs. PBM-related service companies — firms that provide technology or consultative services to employers or other pharmacy intermediaries on managing PBM services — have garnered interest from investors because of their technology and clinical advisory support.
2. IT capabilities designed to reduce payer cost positions.
Payers are increasingly looking to leverage the mass of data that they generate and to improve upon older, often siloed, legacy technology infrastructure. One goal is to better use their data to make operations more efficient. Several deals from 2020 support the flow of payer data among various health-care stakeholders, ultimately enabling better decisions and outcomes.
Other deals focus on core payer operations and on improving existing baseline tech and infrastructure. Administrative systems support business activities such as claims processing and policy administration. These digital offerings provide shorter plan configuration lead times, lower administrative costs, higher interoperability and greater visibility into incoming claims through strong data management.
3. Private equity investor interest in Medicare Advantage plans has grown alongside increasing enrollment.
As consumer interest in these plans grows, so has competition, and the need for plans to differentiate themselves in the MA market has become apparent. As a result, sponsors have shown interest in supplemental benefits that support patient health and can help create such differentiation. Food services were the most active supplemental benefit for investments during 2020, although others are expected to spark activity in the future.
“Over the next year, we expect investors to keep hunting for assets focused on cost reduction and care improvement, as the most successful companies in the sector have been able to demonstrate a measurable ROI for patients and employers,” the study concluded.
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