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Digital Health Opportunities for Private Equity Investors

Digital innovations tend to be exciting investment opportunities in most markets. Healthcare is no exception. While the digital health market is highly competitive and occasionally complicated, it’s also a large and dynamic market full of opportunities for private equity investors. If a private equity investor can navigate the balkanized market - along with the venture capitalists and startups that feed this particular market - then digital health is one of the strongest targets for investment in 2019.

When examining the digital health market, private equity investors should focus their efforts into one of two broad categories: digital transaction players and consumer engagement technology players.

Digital Health Private Equity

Digital Transaction Players

Electronic Health Records

Healthcare end markets, like health systems, health plans, and the government, are slow to adopt new technology. Complicated regulations, large bureaucracies, and limited incentive to innovate work together to support the status quo. However, while these organizations might be slower to adopt innovation than other markets, they will eventually adapt. Electronic health records (EHRs) provide an example of a technological innovation well established in healthcare end markets. EHRs digitize documentation of records and workflows with the goal of improving billing, documentation and clinical elements of healthcare.

Supported by Meaningful Use and HITECH legislative mandates, organizations like Epic, Cerner, and Siemens built big businesses digitizing health record information for major players like Cleveland Clinic and Johns Hopkins.

Plan and Payer Infrastructures

Improved health plan and payer infrastructures are another popular target for private equity investment, for good reason. The healthcare market is increasingly willing to rely on digital solutions to streamline the payment process, and healthcare consumers continue to embrace digital health portals and communication tools. Private equity investors can expect organizations built around improving plan and payer infrastructure to present excellent investment opportunities. As in the EHR market, major players adopted technology from innovative organizations (TriZetto, Medecision) - leading to significant returns for private equity investors.

Clearinghouses and Transactions

Healthcare clearinghouses only exist to function as middlemen between the healthcare provider and insurance payers - ensuring that claims are error-free and in the correct format. It’s clear that technology aimed at improving the speed and accuracy of the claims scrubbing process will speed up the claims process, improve cash flow for healthcare providers, and keep overall healthcare costs down. These are not insignificant benefits, and private equity investors are targeting technologies that promise to change the clearinghouse process for the better as a result. Organizations like Change Healthcare, Availity, and Surescripts are established players with the likelihood of continued growth.

Consumer Engagement Technology Players

Consumer Focused

Existing tech giants, including Amazon, Apple, and Google, are all steadily working towards claiming their own pieces of the healthcare market. And they aren’t just testing the waters. Their inroads into healthcare are well-established and built around providing an improved consumer experience. From newly-HIPAA-approved Alexa technology to Apple watches complete with personal ECGs to Google Cloud-based health records, the theme in Silicon Valley is taking control of the healthcare market by creating a user-friendly healthcare experience. Consumer-focused healthcare technology is, and will continue to be, a top target for private equity investors.

Health Focused

While organizations like Amazon and Apple base their healthcare efforts around their confidence in appealing to consumer experience, other organizations are improving the consumer experience by offering existing healthcare systems better ways to connect and communicate with their patients. Healthcare-focused customer-relationship management tools, courtesy of Tea Leaves Health and Salesforce, promise to improve patient engagement and improve the healthcare system’s bottom line. As major healthcare systems react to the challenges coming from new entrants, they will look for solutions in the form of their own innovative technology - making health-focused consumer engagement technology very promising investment targets.

Regardless of the specific investment target, the best investment strategy is tailored to risk-tolerance and a market-specific approach. Digital health is a good, albeit expensive, market that presents huge opportunities for growth. Investors will find a wide range of ways to get involved in digital health, but need to keep the existing state of infrastructure in mind throughout the process. In a market as competitive, fast-moving, and potentially lucrative as digital health, enjoying quick access to industry-expert advice can make all the difference to a private equity investor.

At Bancroft Group, we will match you with an experienced industry insider to help you navigate your healthcare investments. Contact us to discuss how we can help make your next investment a success.