Institutional investors — private equity firms, hedge funds and venture capitalists — have quietly injected funds into the healthcare industry over the past five years to drive change, and interest in the sector will continue to grow over the next five years, according to a report from McKinsey & Company.
Here are five key takeaways from the report:
1. Investor activity has accelerated. The number of healthcare services deals among institutional investors nearly doubled from 2012 to 2017. McKinsey & Co. counted 225 deals in 2012 and 510 in 2017, reflecting a compound annual growth rate of 18 percent.
2. Investor interest will continue to grow. Healthcare spending is projected to increase 6 percent a year through 2025. As the ranks of senior Americans grow and the incidence of chronic disease continues to rise, McKinsey & Co. expects demand to remain favorable in the healthcare sector. Meanwhile, the fragmentation of providers in the healthcare industry means there is plenty of opportunity for investment.
3. Several key areas are ripe for investment. McKinsey & Co. notes several key areas that will be likely targets for investment:
- Consumer-driven healthcare services like outpatient behavioral health
- Alternative sites of care like retail care, telehealth and home care
- Medical management like clinical decision support tools
- Technology-based payment solutions, especially those with a focus on providing clarity before the patient encounter
4. Investors will reshape the healthcare industry. Potential changes include transforming healthcare into a service industry, making chronic disease management more digital, increasing automation, shifting post-acute care into the home, moving lower acuity elective services out of hospitals and enhancing focus on revenue cycle management.
5. Hospitals should plan their response. "The question is not ifinstitutional investments will continue, but rather wherethe money will be invested and what it will influence," the report reads. Hospitals need to prepare for this environment by becoming investors themselves, partnering with investors or waiting to acquire business models after they are scaled, according to McKinsey & Co. It is also critical to prepare some sort of defense as the flow of investments is likely to further reduce the volume of care provided in hospitals and therefore reduce health system negotiating power.
Read the full report here.
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