- HHS is floating the idea of creating a workgroup of private healthcare companies to advise the federal department on healthcare innovation and investment, according to a new Request for Information (RFI) notice.
The federal department is considering bringing together healthcare-focused innovation companies, start-up incubators and accelerators, investment professionals, private equity firms, and venture capital firms to discuss healthcare investment and innovation.
The workgroup would “facilitate constructive, high-level dialogue between HHS leadership and those focused on innovating and investing in the healthcare industry,” the notice stated.
“[T]he Department envisions the workgroup as a forum to hear the individual perspectives of attendees and foster new and innovative approaches to tackle the complicated challenges facing the healthcare industry,” HHS Deputy Secretary Eric D. Hargan explained in the notice.
The healthcare industry is going through a period of heavy investment and consolidation as providers, payers, health IT companies, and other stakeholders aim to innovate and improve care value. In 2017, the industry saw 967 healthcare merger and acquisition deals across all sectors of the field, PricewaterhouseCoopers (PwC) recently reported.
The value of those investments also spiked in 2017. Increasing by almost 146 percent to reach a total of $175.2 billion.
Healthcare-focused private equity, venture capital, and professional investment companies play a major role in these deals. The IK Healthcare Investment group announced the acquisition of IKang Healthcare Group for $1.6 billion, marking one of the largest healthcare merger and acquisition deals in the first quarter of 2018, PwC found.
Other notable recent deals involving private healthcare companies included an unnamed investor acquiring 20 skilled nursing facilities from Sabra Health Care REIT for $103.3 million and Canada-based Hillcore Group acquiring three retirement communities from Atlantic Retirement Living Group for $55.3 million.
EHR company athenahealth is also being courted by hedge fund Elliott Management. The hedge fun organization made a $7 billion offer to acquire the EHR vendor.
Private equity and venture capital firms, as well as professional investment groups, may be becoming key players in the healthcare investment space because intense consolidation has left healthcare stakeholders with fewer attractive targets.
A recent West Munroe survey of healthcare market practitioners found that high healthcare company valuations are a top financial barrier to making acquisitions. Acquirers explained that there were not enough targets for acquisition in their price range, especially around or below $100 million.
“This may explain the growing phenomenon of private equity buyers, in particular, going upmarket to make purchases, as well as joining forces with other PE firms, or even strategic acquirers, to gain access to a new range of targets,” the report stated.
These private investors are looking to acquire health IT companies and provider organizations to bolster their technology offerings and adapt to value-based care, the West Munroe survey found. Particularly, buyers said they were using merger and acquisition deals to gain access to technology and disrupt the competition.
Value-based care was also the greatest regulatory issue impacting their approach to deal-making. Acquirers are seeking organizations that have value-based care capabilities.
But professional investors are not the only groups looking to disrupt and innovate the healthcare industry. Healthcare disruption has become a popular buzzword in the field after companies like JP Morgan, Amazon, and Berkshire Hathaway announced collaborations that aim to advance value-based care and healthcare innovation.
Cigna also recently acquired pharmacy benefit manager Express Scripts Holding Company for $67 billion to improve consumer value, improve care coordination, and create long-term financial opportunities.
As private companies continue to forge new partnerships in the name of healthcare innovation, HHS is seeking information on how a public-private dialogue can foster investment and innovation.
The federal department is specifically calling on stakeholders to comment on “how to structure a workgroup, or other form of interaction between the Department and such participants in the healthcare industry, in order to best support communication and understanding between these parties that will spur investment, increase competition, accelerate innovation, and allow capital investment in the healthcare sector to have a more significant impact on the health and wellbeing of Americans.”
“HHS also seeks comment more broadly on opportunities for increased engagement and dialogue between HHS and those focused on innovating and investing in the healthcare industry,” the notice stated.
Stakeholders are now welcome to submit comments on the RFI.