In the post-pandemic era, rising inflation has significantly raised input costs within the healthcare sector. It is worth noting that in 2022, healthcare inflation meaningfully outpaced consumer price increases, a situation that was unusual in the past. According to a report from the American Hospital Association, supply costs per patient increased by 18.5%, medical supply costs per patient surged by 32.0%, and median drug costs per patient rose by 31.6% between 2021 and 2022. As a result, providers are grappling with narrow operating profit margins, strained by the pressures of mounting inflation and staffing shortages.
To boost their razor-thin operating profit margins, healthcare providers are increasingly turning to technology to enhance efficiency – both for front office and back office operations. The growing shortage of clinicians and rising wage inflation is driving the demand for platforms that enhance productivity and automate labor intensive tasks. Additionally, changing patient expectations for care delivery are pushing providers to adopt aggressive digital strategies, such as remote-based prehabilitation before a major surgery for example.
In an effort to streamline front office operations, healthcare providers are turning to platforms to digitize the patient intake process and improve revenue efficiency. A startup, SeemlessMD, is helping providers adapt to changing patient demands by helping patients prepare for surgery and recover faster. Patients access digital care plans and are guided via reminders, helping track progress prior to surgeries, leading to patient benefits such as $8,100 saved per patient, and 72% reduced readmission. Moreover, an increasing number of healthcare providers are exploring the integration of BNPL payment alternatives for their customers. EyeBuyDirect has collaborated with Afterpay to enable the purchase of prescription and non-prescription eyewear, while WellNow Urgent Care patients can use Sezzle to finance medical bills.
Concurrently, healthcare providers are exploring investments in platforms that can automate labor-intensive administration tasks in the back office such as RCM, procurement, and data management. In response to the growing demand, leading RCM vendors are pursuing M&A, as evident from R1 RCM’s two acquisitions since Jan ’21 (CloudMed for $4.0 billion and VisitPay for $305.4 million). Similarly, as providers look to streamline patient data management, continued adoption of EHR systems and related point solutions remains a key driving factor in the growth of the digital health market. In June 2022, Oracle acquired Cerner Corp for a $30 billion acquisitionto expand into healthcare and scale up its cloud business in the hospital and health system market.
Recently, Generative AI has been employed to automate repetitive tasks in both front office operations (patient engagement, documentation, care decision-making) as well as back office operations (prior authorization, coding, RCM). Disruptors such as Suki are leveraging the technology to simplify note-taking, clinical documentation and streamline coding. The voice assistant’s ambient mode provides a new way to help with documentation, coding and information retrieval and is capable of reducing documentation time per note by as much as 72% in family medicine.
M&A trends since 2021 suggest that private equity firms have been increasingly drawn to the provider-focused digital healthcare market. Notable recent examples include Thoma Bravo’s acquisition of NextGen for $1.9 billion in Sep ’23 and TPG’s purchase of Nextech for $1.4 billion in Jul’23. In 2022, Microsoft bought Nuance for $19.8 billion, doubling its healthcare TAM to ~$500 billion, an acquisition to build industry-specific cloud strategy with vertically optimized AI.
As we head into 2024, analysts predict healthcare providers are to accelerate investments in key growth areas such as EHR point solutions, RCM, Generative AI in healthcare, and healthcare cybersecurity. Andrey Ostrovsky, former CMO of US Medicaid Program noted “hospitals need a financial ROI from innovations within one year and not the prior 2-3 years”, signaling healthcare tech companies may need to focus on near term practicality to win customers. In essence, opportunities exist for provider focused health tech companies to land and expand as providers continue to seek solutions to solve operational efficiencies in light of narrowing margins.
About ComCap
ComCap is a global technology Investment Bank focusing on vertical software, including Patient and Provider focused Digital Health solutions. Our Digital Health coverage leads Lawrence Pier and Uren Dhanani have completed notable transactions throughout their careers such as multiple acquisitions for DaVita, Aetna’s acquisition of Coventry Health Care, IPO of Radius, and Inmar Intelligence’s strategic partnerships with Protenus and PurpleLab. ComCap’s Managing Partner and Founder Aron Bohlig has over twenty years of experience executing IPOs, cross-border mergers, divestitures and acquisitions as well as a wide variety of public and private debt and equity financings.
About Uren Dhanani
Uren Dhanani is Vice President at ComCap LLC. Uren has over nine years of experience in financial services, investing and as an entrepreneur. Previously, Uren was an investment associate at Pivot Point Capital where he led investments into technology-focused small and mid-cap public companies. Uren was responsible for sourcing investment targets, building investment theses and conducting in-depth due diligence. Uren started his career at UBS Investment Bank in the healthcare group, advising companies within sellside and buyside M&A, IPOs and follow-on offerings.
Uren Dhanani
Uren Dhanani is Vice President at ComCap LLC. Uren has over nine years of experience in financial services, investing and as an entrepreneur. Previously, Uren was an investment associate at Pivot Point Capital where he led investments into technology-focused small and mid-cap public companies. Uren was responsible for sourcing investment targets, building investment theses and conducting in-depth due diligence. Uren started his career at UBS Investment Bank in the healthcare group, advising companies within sellside and buyside M&A, IPOs and follow-on offerings.
