Investors still fired up about HIT despite valuation worries
- The numerous and growing possibilities of health IT continue to excite healthcare investors, with more than a third naming it their top priority in 2019, according to a new KPMG-Leavitt Partners survey.
- Care management is a close second at 31%, followed by home health services (23%), retail medical groups (22%) and primary care physician medical groups (21%) rounding out the top five funding subsectors.
- Enthusiasm for health IT persists despite concerns about valuation overvalued. Nearly two-thirds (64%) of respondents believe health IT firms are overvalued, but 62% also think the subsector will grow faster than the overall healthcare/life sciences market.
Meanwhile, more than four in 10 respondents believe the healthcare market is experiencing a "moderate bubble," and 9% think the bubble could burst.
HIT investment shows no signs of easing up. Third-quarter funding for digital health soared to $3.3 billion across 93 deals, according to a Rock Health report. The quarter's activity pushed 2018 funding to $6.8 billion, ahead of last year's $5.7 billion year-end total.
Among the top deals were precision medicine startup Tempus, mobile dialysis clinic Onset Medical and AI- and cloud-enabled ultrasound system Butterfly Network — three of six megadeals that reeled in more than $100 million.
Demand is also growing for home care and care management solutions, fueled by the move to value-based care and population health management. Providers and payers are looking for lower-cost options to care for the elderly and those with chronic diseases. Last December, Humana, along with private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe, snapped up home health and hospice giant Kindred for $4.1 billion. Smart technologies that enable people to age in their homes and remotely connect to medical care teams will continue to attract investment dollars.
That funding for retail clinics is high also jibes with recent healthcare trends. According to a recent study in JAMA Internal Medicine, more patients are sidestepping the emergency room to treat low-acuity conditions, opting instead for lower-cost urgent care centers and retail clinics. The study, which analyzed data from Aetna between 2008 and 2015, found the biggest spike in volume at retail clinics, which grew 214% over the period.
"Deals are largely being driven by the need for savings, economies of scale, and improving cash flow or accretive earnings per share," Carole Streicher, KPMG's deal advisory leader for healthcare and life sciences, said in a statement. "Secondarily, there is a bit of a defensive posture motivating investments as health care organizations contend with competition and reimbursement models connected to quality and efficiency, as well as the entrance of tech firms investing in the sector."
Along with health IT, home health services and care management tools are also expected to outpace overall healthcare/life sciences market growth in the coming year.