The trend: Healthcare private equity (PE) firms and other backers are homing in on value-based care (VBC) companies as key investment targets, according to Bain & Company’s Global Healthcare Private Equity and M&A Report 2023.
To control spending, providers and payers are collaborating on VBC initiatives in which physicians are financially incentivized to deliver low-cost, quality care versus a higher volume of care services.
The pandemic catalyst: Providers who only got compensated under a traditional fee-for-service (FFS) payment model suffered revenue losses due to abrupt reductions in patient visits. Investors quickly realized that providers would want greater financial protection against future FFS downturns.
Who’s getting the most dollars? Billions of dollars are pouring into Medicare Advantage-focused primary care players—MA is built on VBC principles.
Companies that help providers transition to VBC are also garnering interest from investors.
Yes, but: Shifting to VBC is costly, requires considerable change management, and short-term gains may not be realized. That’s why VBC growth has been slow and steady—many stakeholders don’t have the risk appetite for it.
Key stat: Value-based payment arrangements will capture 15%-20% of market share from traditional FFS providers in primary care by 2030, per Bain’s analysis.
Our take: VBC providers and enablers are viewed as opportunistic investment targets because of their unrealized potential. Healthcare PE firms likely think they can get in at the ground floor, provide the necessary upfront investments, and help VBC practices profit by controlling costs. Patience will be critical—achieving financial success in VBC models will never happen overnight.
This article originally appeared in Insider Intelligence's Digital Health Briefing—a daily recap of top stories reshaping the healthcare industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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