With a keynote speech by Tenet Vice Chair Keith Pitts, and three panel discussions lead by investor representatives from Thomas Lee Partners, Riverside Partners, Nautic, and Welch Carson as well as provider and payer speakers from Aetna, Kindred, Mass General and others, a full house in Boston was treated to the major investment themes resonating in Board rooms and investment committees across the United States at the second annual Health Care Investors Summit co-sponsored by Foley & Lardner LLP and Deloitte on September 30, 2014.

Keith Pitts gave a comprehensive and engaging review of the process of vertical integration occurring within both provider and payer sectors citing several recent examples of acquisitive parent firms reaching vertically to control the consumer and the insured dollar including Davita and Optum’s recent acquisitions. Viewing healthcare systems as investors with a view toward a reimbursement system based on a total cost of care were themes Mr. Pitts introduced as emerging trends– while the still consolidating hospital sector prepares for the next wave of reimbursement change ignited by the Affordable Care Act.

The PE panel resoundingly emphasized the plethora of investment opportunities in health care, to some extent challenged by

  1. Valuations in some sectors such as HCIT and
  2. The evolution of reimbursement methodologies away from fee for service to bundled, episodic of population health management.

All speakers saw opportunities in “tool” type companies that facilitate care coordination, care underwriting or care and patient communication—firms that take costs out of the system while enhancing outcomes. Provider targets were also attractive provided they have a view to the market that embraces technology, innovative care management and evolving niche sectors including Medicaid managed care, episodic or bundled payment arrangers, telemedicine and related m-health technologies. Obstacles included better visibility on national regulatory and reimbursement schemes for certain sector especially telemedicine and related remote technologies. Firms that engage the consumer either directly or indirectly in his or her own care were also a thematic focus of all on the PE panel.

The Post-Acute Care panel resonated many of the same themes of vertical integration, care coordination and technology enabled platforms to enhance care and reduce cost. Three data point stand out as predicting robust investment opportunities in the post-acute care space:

  1. Increasing percentage of acute care discharges occur to post acute given reduced lengths of stay in acute care (40% per a recent Deloitte study);
  2. The U.S. population over 65 grew at a rate of 15% between 2000 and 2010; and
  3. Per Medpac reports, post-acute margins are materially higher than acute care margins.

Post-acute providers will become the logical partners for acute systems not themselves apable of investing in post-acute care, both to participate in better margins and to reduce cost of care and readmissions. Many PE-backed care management firms are now targeting this space. As payment paradigms shift to ACO’s, bundled pay, population health management and other risk sharing  joint ventures or affiliations, firms that understand how to manage risk, coordinate care and form alliances vertically will be the long term winners. The vertical consolidation now taking place in post-acute care at the higher levels (e.g Kindred/Gentiva) as well as PE investment of private capital towards post-acute care firms targeting care management, all indicate a robust and opportunistic market in post-acute care.