The Journey

Transforming the Patient-Provider Experience

Written, edited and curated by Loyale founder Dan Peterson, The Journey explores ideas and innovation to enrich the patient-provider relationship

Private Equity Investments and the Drive for Innovation in Healthcare

Posted by Kevin Fleming, Chief Executive Officer on Sep 4, 2019 2:59:12 PM

Deep pockets, industry expertise, meticulous research and the quest for investment gains make Private Equity a powerful force for growth and innovation in healthcare. Healthcare providers can learn a lot about the future of the industry - and their place in it - by studying Private Equity investment trends.

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According to a recent Bureau of Labor Standards survey, 4 out of 5 of the fastest growing industry sectors through 2026 are healthcare related sectors as compared to other industry sectors in the U.S. economy. In other words, healthcare is hot.


Healthcare represents and will continue to represent the largest single industry in the United States for many years. In 2017, health care spending in America hit $3.5 trillion and the Center for Medicare and Medicaid Services projects that this amount will increase to $6 trillion by 2027.


Despite healthcare’s magnitude and influence, it has traditionally lagged in the adoption of technology. But that is rapidly changing as investors see enticing opportunities for return-on-investment in an industry that’s ripe for innovation. High on these investors’ lists are digital health and other digitally enabled technologies affecting diagnosis, treatment and patient services.


As many healthcare organizations are non-profit entities, investments in expensive technology have been challenging for them due to lack of capital. However, other sources of investment capital have emerged; ready to invest in new healthcare technology-based companies to help for-profit and nonprofit healthcare providers. One of the largest and most active of these investors has been Private Equity (PE).


The Role of Private Equity


Private Equity differs significantly from investments in publicly traded companies because it limits participation to institutions and wealthy, accredited individual investors who have a high risk tolerance and can dedicate substantial sums of money for extended time periods in the expectation of earning sizable financial returns.


Because of PE’s disciplined approach to investing, it can often be a reliable predictor for the future of an industry, particularly as it relates to innovation that will gain near-term, market wide traction. This approach generally entails the following characteristics:

  • A solid business thesis based on real market research and expertise - Examples include the variety of ongoing rollups where investment capital is funding the acquisition of multiple providers in the Ambulatory Surgical Center space, Anesthesiology, Oncology , Dental and other sub verticals.
  • The ability to bring platform-based operational leverage – Examples include the above mentioned rollups, where technologies are being deployed to transition member operations to high performance, homogenous operating models.
  • A focus on technology-based innovation, such as in the areas of digital patient financial engagement upgrades, telemedicine and ambulatory treatment. Areas which are already displacing high-cost acute care.
  • Longer Investment time horizons of 4 to 5 years or longer, focused on near/intermediate innovations with mainstream adoption potential.
  • An expectation for strong investment returns - Targeting 20+% per year CAGR on average with upper quartile investments pegged at 4X or more return on invested capital.


Currently, there are at least 734 Private Equity groups actively investing in the U.S. healthcare industry. In 2018, private equity firms have made significant acquisitions in 700 private companies in the digital health space where technology solutions are applied to improve the efficiency of health services, reduce costs, manage patient records, improve treatments and/or accelerate healthcare provider revenue and cash flow.


PE investments in healthcare are global in scope and cover every imaginable operational, administrative and clinical discipline. In the U.S., billions have been invested in healthcare over the last year, reflecting an industry in desperate need for innovation. Some of the more noteworthy deals include:


This trend of private equity acquiring healthcare platform companies is only accelerating. According to Ernst & Young's 2018 Global Capital Confidence Barometer, fifty-two percent of executives are on the hunt for acquisitions in the next year. EY’s global vice chair of Transaction Advisory Services, Steve Krouskos, said that, “The private equity deal activity increase we saw in 2017 looks to be accelerating. Interestingly, while we can anticipate intense competition, we may also see more collaboration as private equity investors club together with corporates to do deals.” In other words, PE is partnering with corporations to fund some companies’ strategic acquisitions. This is particularly true when these acquisitions hold the potential for significant earnings growth.


Leveraging High Tech to Deliver High Touch


According to a recent analysis by Accenture, “Healthcare organizations have begun to realize that healthcare should be organized around the patient, not the enterprise”. The analysis also states that “Currently fragmented ecosystem participants should figure out how to work together to meet rising expectations. Historically - independent entities such as hospitals and doctors, focused on the functions within their control. Now, ecosystem players realize that they are in many ways dependent on those who provide services before and after they do, independent of physical location. Collaboration can improve loyalty and market share at a time when there is increasing pressure to drive down the cost of care.”


With so much opportunity in the largest and fastest growing segment of our economy, it is no wonder that private equity is investing such large amounts in the convergence of technology and healthcare services. One exceptionally promising area is Patient Financial Services.


Patient Financial Services


Digital Patient Financial Services involve technologies that enable patient engagement; financial services such as billing, financing of patient co-pays and deductibles; patient price transparency and interaction between the provider and patient.


For the provider, Patient Financial Services offers a solution to address several acute operating challenges:

• $85 billion in uncompensated care

• 49% of patient responsibility written off as bad debt

• $1.2 trillion deemed wasteful spending in healthcare

• 80% of newly insured patients are deemed “high risk” to not pay

• Only 10% of provider revenue collected at or before time of service

• 92% of consumers want to know payment responsibility prior to a visit

• Up to 25% Denial Charge Rate of charges by insurers


HCA Healthcare offers one example of a strategic technology investment to improve every dimension of the patient’s financial experience. Loyale Healthcare’s Patient Financial Manager (PFM) was chosen as the Patient Financial Engagement platform for all of HCA’s hospitals and physician practices because the PFM platform was ideally suited to HCA’s long-term strategies to transform patients’ experiences, enable enterprise-wide consistency and efficiency and improve financial performance.


An analysis of many of the most successful PE deals over the last year reveals five key attributes among the companies attracting investment:

1. They are next-generation financial technology platforms that can deliver comprehensive enterprise payment solutions.

2. They offer a purpose-built platform asset which can meet interoperability requirements and integrate with other technology systems.

3. They have developed technology that redefines patient financial engagement for providers seeking to execute a holistic patient experience strategy.

4. They optimize workflows to improve operational efficiency, patient and staff satisfaction and financial outcomes.

5. Their solutions support the entire enterprise with scalable, adaptable platforms with open architecture that adapt to variabilities in setting, technology and policy while ensuring users, both internal and external, receive a stable, consistent, superior experience.


As summarized by Accenture, “digital breakthroughs are enabling healthcare enterprises to improve labor productivity, clinical outcomes and human experiences. This unprecedented era of technology innovation is allowing clinicians and service workers to broadly apply their knowledge, freeing up more face time to spend delivering a human touch. And, as technology affords greater opportunities for self-management, it’s empowering people to consume healthcare on their own terms. It is no longer about what technology can do for people, it’s what people can do with technology.”


At Loyale, we think that's a future to get excited about.

Topics: healthcare consumerism, Healthcare Technology, Patient Financial Engagement, Private Equity

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