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‘Hottest areas’ for healthcare investments


Sterling Partners’ Dan Hosler identifies the subsectors for healthcare investing that can help reduce costs and improve quality.

Healthcare mergers and acquisitions (M&A) are at an all-time high and show no sign of slowing down. According to a recent Bain report, 2015 was a very strong year and for the second year in a row, corporate M&A deal value was more than double the previous decade’s annual average.   

Within the healthcare private equity landscape specifically, hospital mergers are moving faster than ever. Larkin Community Hospital in Florida, St. Elizabeth and LifePoint Health are just a few of the healthcare systems that brokered deals in 2016 and purchased other systems.

Eventually, these systems will need help managing assets across geographies and different systems, and will look to third-party sources to manage non-core competencies and operations while they focus on regulatory compliance, core services and patients.

The following are examples of “hot” areas of investments for hospitals that deliver great clinical outcomes while reducing costs.

Technology-enabled services

Technology and the Internet revolutionized the healthcare industry. Healthcare professionals are no longer chained to their desks; computing power allows for real-time updates on patients, scheduling, reports, etc.

As a result, technology has rapidly permeated into healthcare investments. Technology-enabled services allow healthcare systems to solve real business problems that address actual patient pain points.

Challenges health systems currently face that are being overcome with the help of technology include:  

  • Scheduling patient visits: Healthcare professionals can see in real time what’s available and coordinate scheduling, including sending updates via text or however the patient prefers.

  • Telehealth delivery: Coupled with geo-locating services, investments that bring health into rural or underserved areas continue to rise. This service also cuts down on fraud and abuse and provides better documentation.  

  • Rapid growth due to acquisitions: Virtualization technology results in stronger economies of scale. This includes integration of the cloud as it relates to hospital reporting and complying with clinical guidelines.

Next: Outsourcing services


Outsourcing services

With the tremendous pressures facing hospital administrators, it is more critical than ever for leadership to completely understand their hospital system’s core competencies to ensure efficiencies.

With the onset of the Hospital Inpatient Quality Reporting Program by CMS in 2003, to the most recent passage of quality reporting requirements for long-term acute care facilities, quality measures continue unabated and are a subset of the market that’s attractive for investment considering the demand.

Companies like Q-Centrix allow hospitals to outsource non-core competencies so they can focus on improving patient and safety outcomes. Specifically, these companies help partners regain control of their quality metrics through core measures, abstraction and review services.

Multi-site options

This area is driven directly by consumerism in healthcare. Consumers want more convenience and access. For example, they want the ability to stop and get their blood drawn after picking up the kids from school.

As systems adapt to ensure quality-based outcomes to help take costs out of the system, hospitals will work to transfer services to acute care and post-acute facilities (urgent care clinics, outpatient surgery centers and the like) in order to save money and offer more convenience to consumers.

“Cold” areas for healthcare investments

While healthcare M&A shows no sign of slowing down, there are a number of areas in which private equity is steering clear. This includes business models driven by out of network payments, biotechnology and pharmaceutical companies due to the rising costs of prescriptions and market volatility.

Dan Hosler is a principal in Sterling Partners’ Chicago Office. Dan joined Sterling in 2006 and oversees a number of Sterling’s healthcare portfolio companies including Kids Care Dental, and Q-Centrix.

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