A Real Economy publication

Health care industry outlook

May 21, 2024

Key takeaways

Health care providers must understand the risks of added reliance on technology.

Health care deal volume in the first quarter was the lowest since the second quarter of 2020.

Health care organizations must address the patient journey while also navigating financial challenges.

Health care trend #1: Cybersecurity

Health care organizations are investing in advanced technologies like cloud-based infrastructures, EMR systems, ERP platforms, and AI to meet rising patient demand. This trend is expected to grow, especially in cloud services, as shown by the revenue growth of major cloud providers. However, expanding digital infrastructure increases cybersecurity risks, exemplified by the recent Change Healthcare cyberattack, which caused significant operational disruptions. Regulatory bodies are responding with stricter cybersecurity regulations. To mitigate risks, health care organizations should enhance business continuity planning, improve cyber insurance standards, ensure third-party risk management transparency, and assess vendor safeguards for sensitive data.

Health care trend #2: Deal making

In Q1, health care services deal volume dropped to its lowest since mid-2020 due to high interest rates and industry pressures like reimbursement, labor costs, and regulatory scrutiny. Rising debt costs and labor costs outpacing reimbursement growth continue to squeeze margins and hinder dealmaking. Increasing regulatory scrutiny adds further challenges, with more states requiring transaction notifications and approvals. Investors are shifting to "health care lite" sectors such as practice management technology and suppliers. Over 75% of recent health care investments and 30% of deal volume are in these areas. Private equity firms have raised $78 billion in new buyout funds and have $123 billion in dry powder, with more funds expected in 2024, focusing on health care lite sectors to mitigate risks.

Health care trend #3: Technologies

AI revolutionizes health care by processing medical data for accurate diagnosis, prediction, and treatment. It streamlines patient engagement, reducing wait times and improving satisfaction. The AI health care market is projected to reach $187 billion by 2030, transforming medical operations with predictive analytics for proactive care. To address workforce shortages, organizations should invest in AI strategies like virtual consultations and ongoing training. This not only bridges the labor gap but also attracts skilled providers, fostering organizational growth. Continuous investment in capabilities and a patient-centric culture is crucial for streamlined processes and effective care integration.

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