By Chad Beste and Vin Phan
Following the COVID-19 pandemic, many U.S. healthcare providers are emerging in a weakened state financially. As pandemic-related federal grants and subsidies sunset, what strategies must providers take to ensure they’re financially secure going forward? Some options include M&A, partnerships and even restructuring for those hit hardest., However, M&A and partnerships not only offer a chance to be financially healthy, but they also present healthcare providers with an opportunity to accelerate and scale digital transformation plans, including telehealth capabilities.
COVID-19, Challenges and Opportunities Within the U.S. Healthcare System
COVID-19 presented a new risk that organizations hadn’t considered before. While the pandemic is now under control, future variants or new zoological diseases could present a risk that providers are unprepared for. Some organizations may evaluate their risk and conclude they need to consolidate to be better prepared for future challenges. According to BDO’s 2021 Healthcare CFO survey, 28% of healthcare CFOs are considering a merger in 2021, 24% are considering a joint venture, 20% are considering selling to another organization and 17% are considering acquiring another organization.
The pandemic also forced healthcare providers to adopt telehealth overnight as in many cases, patients could no longer come in for a doctor’s visit or therapy session. Payers like Medicare and insurance companies also significantly loosened the rules for telemedicine during the pandemic. And while some of these payments will remain, it’s likely new regulations around patient data, privacy and guidelines around how and when to use telehealth will be put in place. According to BDO’s 2021 Healthcare Digital Transformation Survey, 75% of healthcare organizations reported they were investing in telemedicine to improve the patient experience in 2020—that’s up from just 42% in 2019. Many of these organizations are looking to find the right vendor to improve their capabilities, but some may be interested in acquiring or partnering with a telehealth start up.
How Consolidation Could Help Drive Digital Transformation
The pandemic forced many healthcare organizations to see the need for telehealth, and many are now looking to enhance their current capabilities. The timing for this self-identified “need” couldn’t be better as there are a substantial number of private equity related groups that have raised massive amounts that now need to be invested. Additionally, the increased “supply” of money is actually greater than the “demand” for funds which is leading toward escalating valuations, which in turn draws additional interest thereby creating an ideal environment for organizations to help drive their digital strategies in 2021 and beyond.
Beyond telemedicine, consolidation can also help healthcare organizations develop their data analytics maturity and AI capabilities. Healthcare organizations are lagging when it comes to data analytics, as currently, only 24% of organizations use advanced analytics. While some healthcare organizations are still uncertain about how data analytics can drive success, in the coming years, we’re likely to see more interest in consolidation and partnerships to advance data analytics, across both the clinical and financial side of organizations.
Finally, AI has garnered significant interest from the healthcare industry in recent years. While current AI opportunities are more centered in revenue cycle optimization, the long-term benefit will be how AI transforms clinical care and patient outcomes. As the technology continues to demonstrate its ability to transform care, growing interest and a necessity to adopt will propel consolidation in order to deploy AI at scale.
Now Is the Time to Partner or Pursue M&A
With telemedicine, AI and data analytics poised to transform healthcare in the coming years, now is the time for healthcare organizations to look for the right partner, acquisition, or buyer to help them advance and scale their digital transformation. With vast amounts of cash available at PE firms, buyers are eager. And as the pandemic subsides organizations will need to reduce risk, so they’re prepared for future events, while also advancing and scaling telehealth, as patients, payers and regulators look to use this care model to reduce costs and improve patient outcomes.
Chad Beste is Principal, Healthcare Advisory, and Vin Phan is Partner, Healthcare Transaction Advisory Services, BDO USA LLP.
Contact:
Alfredo Cepero, Managing Partner
305-420-8006 / acepero@bdo.com
Angelo Pirozzi, Partner
646-520-2870 / apirozzi@bdo.com
