In a blog entry written over the summer, I expressed the view that the next 5-10 years will present tremendous transactional opportunities in the life sciences/health care industry. Nothing has happened to dampen that view. In fact, President Obama’s reelection, which means that the Patient Protection and Affordable Care Act is here to stay and will be fully implemented over the next few years, and our ongoing deficit reduction concerns, mandate that efficiency, cost control and strategic ways to provide better quality healthcare will be at center stage. So let’s focus in on some investment opportunities that may be interesting.
For those willing to tackle regulatory and reimbursement hurdles, there should be many opportunities in the provider world. This could take the form of hospital mergers and consolidations, spin-off of various medical and lab services that have been provided at hospitals and physician practice acquisitions by hospitals or other service companies. With the pressure to reduce costs, and incentives (or penalties) being established to encourage providers to meet standards of quality and efficiency, the old way of doing things – multiple providers providing the same services – simply cannot survive. And if we move to providers being paid on a capitation basis, as is likely to be the case over time, only the most efficient and effective providers will survive.
Investments in healthcare technology is also an area to focus on. As with the technology investments of the past, timing (or acceptance in the marketplace) will be an important consideration. But it appears that the opportunities are ripening in this space. It has been reported that venture financings globally in digital health have increased almost 500% in the last three years. The key drivers to lower cost and more effective healthcare include the gathering, analyzing and sharing of more healthcare information quickly and broadly to facilitate preventative medical steps and overall quality treatment with less error. As data technology and analysis improves, becomes less expensive and is mandated or otherwise widely accepted, companies in this industry will be very attractive.
While adopting new practice and business paradigms is not easy, takes time and poses cultural issues, I would bet on the long term health of those institutions and companies that start moving in that direction. And this should present robust opportunities for strategic and financial investors.©2014 Drinker Biddle & Reath LLP. All Rights Reserved