Bass, Berry & Sims and Deloitte welcomed nearly 75 healthcare investors and executives to the 2022 Health Care Investors Conference on November 9 at the Nashville headquarters of Bass, Berry & Sims. Angela Humphreys, Chair of the Healthcare Practice Group and Co-Chair of the Healthcare Private Equity Team at Bass, Berry & Sims, and Philip Pfrang, Global Managing Partner of Deloitte’s Health Care & Life Sciences Practice, led the panel discussions.

After two years of virtual conferences because of the COVID-19 pandemic, Angela said in her opening remarks that she was delighted to have attendees gathering in person again.

Climate for Healthcare Investing

Climbing interest rates, a tight labor supply and supply chain bottlenecks are all factors that are slowing dealmaking, according to a panel on private equity (PE) investment in healthcare. Still, the slowdown from 2021’s turbocharged deal flow leaves plenty of opportunities. Read an overview of Q3 deals published by Bass, Berry & Sims here.

Panelists said they have sharpened their focus on the operational skill of provider management teams in areas such as controlling labor spending, improving revenue cycle management and building a culture that helps recruit and retain scarce talent.

Deal structures also are adjusting to the investment climate. Buyers are pursuing more joint ventures with physician sellers to improve incentive alignment. PE buyers are extending their holding periods to allow more time for a profitable exit. Some PE investors are making deals work by investing alongside strategic buyers, which have a lower cost of capital in this environment.

Panelists highlighted sectors that are on their radar for opportunities in 2023:

  • Healthcare IT outsourcing.
  • Pharmaceutical services, especially companies assisting cell- and gene-oriented discovery or manufacturing.
  • Rural healthcare because the disruption in serving these geographies provides significant opportunities for new entrants.

Digital Health Outlook

This panel emphasized that investors should view “digital health” as just “health.” Investors must analyze how a digital health company fits into a hybrid delivery system that blends in-person and virtual care with digital tools that enable patients to navigate their care with appropriate nudges. Increasingly, panelists said, digital health companies must deliver improvements in both clinical and financial outcomes, not just one or the other.

Some promising areas that panelists identified include:

  • Digital tools providers use to better manage care and bend the cost curve, such as software integrated into electronic health records (EHR) to help physicians steer patients to lower-cost medicines.
  • Provider companies that apply technology better than competitors, for example, a behavioral provider company that improves delivery by integrating its practices on a single EHR platform.
  • A high-quality, focused technology company that can expand into a broader platform with new solutions built on its strong foundation.

Washington Update

In 2023, regulations will begin to shape how the Inflation Reduction Act’s (IRA) authorizing Medicare to negotiate some drug prices will work in practice. While most of the attention on the effects of this change has been on the impact on outpatient (Part D) drug prices, the law also will affect drugs used during inpatient stays (Medicare Part B) and drugs procured through the 340B program as well. (Read a summary of the IRA’s impact as analyzed by three Bass, Berry & Sims attorneys here.)

Another area to watch highlighted during the conference is the increasing scrutiny of Medicare Advantage plans by federal regulators and lawmakers. Members of Congress from both parties are expressing concern about the growth of Medicare Advantage.

On the legislative side, healthcare providers must watch negotiations over increasing the federal debt ceiling. If there is no agreement to raise it, lawmakers may look to Medicare reimbursements to avoid hitting the debt ceiling.

Over the long term, healthcare investors should consider the sustainability of healthcare spending as a proportion of the federal budget. Price transparency is one path to helping patients and physicians make choices that bend the cost curve. Regulations requiring price transparency from providers and insurers are still in their early days, and the impacts of these disclosures remain to be seen.

Final Thoughts

Bass, Berry & Sims and Deloitte look forward to hosting next year’s 13th annual Health Care Investors Conference. They expect another busy year for healthcare M&A in 2023, kicked off by the J.P. Morgan Healthcare Conference in San Francisco on January 9-11, 2023.