A Real Economy publication

Health care industry outlook

Feb 23, 2024

Key takeaways

Health care organizations will need to raise and refinance capital to meet operational challenges.

Last year’s robust hospital and health systems M&A numbers signal that hospitals are eager for growth.

Labor expenses are growing for rural hospitals.

Health care trend #1: Private credit

The private credit market has seen substantial growth, attracting attention from investors, with business development companies (BDCs) leading the charge in issuing private loans to small and medium-sized enterprises, particularly in the health care sector. Health care organizations are expected to increasingly rely on private credit for capital raising and refinancing, given the sector's attractiveness to lenders and the substantial amount of debt maturing soon. Private credit will also be utilized for refinancing old debt with higher rates and funding new mergers and acquisitions, with optimism surrounding deal-making in 2024 despite regulatory and liability challenges unique to the health care industry.


Health care trend #2: M&A activity

In 2023, hospital and health system mergers and acquisitions surged by 27%, a trend likely to continue into 2024 as organizations seek growth. Alongside traditional M&A, health systems are turning to joint ventures to diversify revenue streams and expand services, capitalizing on flexibility and fewer regulatory hurdles. Strategic partnerships, including outpatient ventures and digital care models, are anticipated to address evolving patient demands and margin challenges. Amid these shifts, supply chain resilience becomes paramount, with organizations focusing on strategic transformation to drive down costs and enhance efficiency in the evolving health care landscape.


Health care trend #3: Rural hospitals

Rural hospitals faced financial challenges in 2022 due to depleted CARES Act funding, with closures leaving communities without vital health care services. Labor shortages persist, but hospitals are implementing incentive programs and partnerships with educational institutions to attract and retain staff. Some hospitals are exploring the rural emergency hospital (REH) designation, although its limitations and impact on reimbursement vary, prompting consideration of alternative options like rural health clinics and network alliances.

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