Top Trends in Healthcare for 2023

What's on the horizon for 2023?

Over recent years, we have considered top trends in healthcare for each prospective new year. With another year almost over, let’s consider what’s on the horizon for 2023.

Some of the 2022 trends still exist. Let’s explore the updated issues as we view them.

Private Equity Influences

Private wealth funds actively pursue equity deals with healthcare entities – practices, surgery and imaging centers, and other industry consortiums. While some of the capital is less available, much is still available. The EBITDA multiples are stagnant, maybe even slightly lower than in 2021 and 2022, when peak valuations were likely realized. Still, good opportunities for well-managed, high-quality, productive healthcare entities abound, and we expect that to continue in 2023.

On a broader scale, the effects of the COVID-19 pandemic, inflationary trends, cost increases, and stagnant payer reimbursement point to continued stress on private equity (PE) transactions. We will continue to consider the landscape and finalize many deals, but a decrease in PE interest in healthcare may result in 2023.

Notwithstanding these obstacles, PE firms continue to specialize in specific areas such as orthopedics, neurosurgery, cardiac services, ophthalmology, and dermatology (including related, mostly non-hospital-based specialties).

Consolidating Transactional Activity Continues

With PE considered, there are still ongoing success stories relative to healthcare providers’ financial performance and overall economic standing. Continued consolidation through transactional activity fuels the consolidation engine among providers, payers, and (again) PE investors. Mergers of medical groups, hospital-physician medical group affiliation, and, indeed, PE venture capitalists’ investments and partnering are yet another year further in maturing with no signs of ebbing.

Will this trend continue in 2023?

Yes, undoubtedly. There are still large appetites for consolidation, creating significant sources of capital to grow and expand as our healthcare system continues to thrive, providing high-quality and patient-focused healthcare services.

While the government will continue to be involved in oversight and regulatory requirements of such transactions, its involvement has not stopped these efforts. Careful consideration of structures will continue to be required; as such, experienced advisors and legal counsel are essential.

With these things considered, the apex of such transactions may have, in fact, been reached. But we still anticipate 2023 to be an active year with all varieties of transactional activity between healthcare providers and investors. The values may not be as compelling, contributing to fewer deals. But the opportunities to improve overall economic performance post-transaction will still contribute to their consummation. Still, most providers do not need to feel pressured to do anything as they will continue to function successfully. Wise and savvy leadership will be needed even more to determine the best affiliation transactional model and the economic, structural, and governance terms.

Governmental Influences

The log jams continue in most state governments, especially at the federal level. These may inhibit healthcare transactional activity and other developmental areas. For example, the Biden administration has taken an especially aggressive stance toward enforcing anti-trust regulations. This may stymy aggregation deals or at least create challenges toward their being completed as originally structured. Tax and healthcare (e.g., Stark, anti-kickback statutes) regulations still exist, requiring careful scrutiny and adherence.

Bending the Cost Curve

On the not-so-encouraging front are the ever-growing and expanding inflationary trends and overall cost of operating practices and other healthcare entities. Costs have increased and, for perhaps the first time, are, in many instances, growing faster than revenue. More signals of cost and overhead increases are apparent and not going down. To avert this, many healthcare valuations are stagnant, if not decreasing.

Bending the cost curve will become the prominent measure of 2023 and transactional activity plus ongoing performance measurement, ultimately placing physician compensation at risk.

What Ever Happened to Value-Based Reimbursement?

For many years, we have spoken about the impending paradigm shift to quality incentives and less emphasis and reimbursement on volume. Certainly, some portion of the reimbursement pie is attributable to value, but the payers and providers both seem to give it lip service. It is definitely valid and appropriate, but we project no more influence of such on our healthcare delivery system in 2023. Likely we will continue down our merry fee-for-service way!

Healthcare Delivery Models

The shift to outpatient services has been in progress for several years and is now the norm, as clearly appropriate. They are generally safe, and the outcomes are successful. Patients much prefer them. So, no let-up is expected, especially as technological advancements continue to drive the way for improvements in care delivery.

But other forms of care delivery will continue as well. Telemedicine hit a peak with COVID and quickly digressed when the pandemic lessened. Yet, it still is accepted as a viable care option, much more so than in pre-COVID days. But other forms of non-contact-with-the-patient care will continue to evolve and grow. Remote patient monitoring and implanting assessment devices are being introduced wherein the patient is not required to have as many in-person doctor visits as were previously part of the treatment plan. Clearly, we are in the digital age of communication, and its influence on healthcare delivery shows no signs of lessening.

Next Steps

So, while many of our 2023 top trends are similar to the recent past, we see more definition and clarity in many areas. We remain in a dynamic state. Who knows what lies ahead for our healthcare industry and further developments? No one knows for sure – there are no crystal balls. But for certain, we are privileged to be along for the ride!

  • Read the details of our healthcare trends in 2022
  • Focus on bending the cost curve
  • Stay current with technology
  • Remain nimble, flexible, and vigilant
  • “Walk the walk, so you can talk the talk”

Fasten your safety belts and batten down the hatches! Let’s get ready for another fun ride in 2023!

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