Despite a challenging macroeconomic deal environment in 2023, the U.S. healthcare services private equity (PE) landscape appears to be rebounding in 2024. The outlook is bright for PE investment in targeted subsectors of healthcare services.
L.E.K. Consulting’s North America Healthcare Private Equity practice recorded a double-digit growth rate despite a 17% drop in PE deal volume from 2022 to 2023 (see Figure 1).
This article looks back at the top 10 hot topics of our PE activity in 2023 (see Figure 2) while also unveiling five particularly promising healthcare services subsectors poised for strategic PE investment for 2024 (see Figure 3).
Let’s unpack opportunities in 2024 for the informed investor.
1. Physician practice management (PPM) stands strong
PPMs, especially in the dental space, still have significant runway for both organic and inorganic growth. Today, only 25%-28% of U.S. dental offices are affiliated with dental support organizations (DSOs), and recent momentum favors consolidation and growth. DSOs benefit from economies of scale and optimized operations, and a fleet of high-performing DSOs is expected to be actionable in the coming year.
Veterinary care offers similar opportunities, and we expect to see a “silver tsunami” phenomenon in the coming years as the sector braces for an upturn in demand — primarily driven by the aging of pets adopted during 2020-22.
Emerging areas such as behavioral health and medical spas continue to grow, fostered by attractive supply/demand dynamics. Skilled nursing facilities (SNFs) and assisted living facilities are also witnessing occupancy rebounds, and platforms specializing in ear, nose and throat care are adapting to cater to an aging demographic with innovative care delivery models.
2. The evolution of health plan distribution
The landscape of health plan distribution is equally dynamic. Despite the headwinds associated with v28, we expect Medicare Advantage (MA) growth to remain steady as carriers invest in expanded geographic coverage and continue to invest in growth within an increasingly competitive environment.
Both brokers focused on MA and those that specialize in distributing individual and family plans are experiencing strong growth, as MA penetration has exceeded 50% and the Affordable Care Act market has reached over 21 million enrollees in 2024. Brokers that have invested in proprietary lead sources and have trusted relationships with carriers are well positioned in the market.
3. Payer services: An alcove for cost containment
Ever-escalating medical and pharmacy costs continue to place pressure on employer margins, heralding an increased focus on cost containment for self-insured employers. Third-party administrators are continuing to win share from traditional health insurers and are doing so through more innovative deployment of provider networks, use of cost containment solutions, navigation and care management solutions that when effectively combined help provide meaningful return on investment.
4. Infusion of innovation in pharmacy services
As the cost associated with specialty drugs continues to soar, payers are actively diverting patients into less-costly care settings like home or ambulatory infusion centers. The in-home and ambulatory infusion markets are enjoying double-digit growth rates and heightened patient satisfaction at a favorable cost to payers. This sector promises to be active in 2024 as a number of fast-growing platforms are expected to come to market.
5. Software elevation: PMS and RCM
Central to any well-functioning practice, the sophistication of practice management solutions continues to chart an upward trajectory. Specialty-specific tools are focusing on functionalities extending beyond traditional use cases to include patient interactions and analytics.
Revenue cycle management (RCM) solutions respond to increasing complexities and costs in healthcare provision. Demand escalates for specialized, best-in-breed RCM tools, particularly for anesthesiology, orthopedic care and third-party claims, as well as home health and SNF settings.
Forward-looking insights
As the healthcare investment ecosystem evolves, so does the playbook for successful engagement. 2024 requires a strategic lens, one that sees value beyond conventional wisdom, focusing on subsectors where consolidated operations, technological advancement and innovative service models are shaping the future of healthcare.
The commitment to deep industry analysis that we bring to our partners remains resolute, as evidenced by sustained growth amid a contracting market. The sectors underlined here not only signify resilient investment pockets but also hubs for transformative healthcare service delivery — a golden opportunity for private equity practitioners and healthcare investors aiming to develop a legacy of impact and returns.
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