Expectations for lower interest rates to spur healthcare investment in 2024

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Interest rates are expected to fall in 2024, changing the healthcare investment landscape moving into the new year, according to Bret Schiller, head of Healthcare for Corporate Client Banking & Specialized Industries at J.P. Morgan. 

"We think that rate cuts will start by the second, third quarter," Schiller said.

In mid-December the Federal Reserve said it expected to cut interest rates three times this year, according to The Wall Street Journal.

This opens up opportunities as compared to the start of 2023, when Moody's predicted that interest expense would rise 20% for most low-rated healthcare companies. 

As interest rates go up, valuations tend to go down. 

High interest rates were just one challenge for hospitals in 2023. Another was the high cost of labor, with that factor also showing signs of improving by the end of 2023.

As interest rates rose to bring down inflation, service organizations to healthcare, which include IT companies, have put off going public or have seen sales activity dry up, according to Schiller. Products may have been warehoused. 

"Eventually, they have to transact," Schiller said. 

Debt is expensive. As money becomes cheaper, the market will open up for organizations that have been holding back on raising money or selling a service or product.

"We've seen people getting ready for sales and to hit capital markets," Schiller said. "Literally they're waiting for the first Fed cut."

Avoiding a recession is also looking more promising, which is translating to better stats on the consumer and retail side. Balancing this is talk about layoffs.

Schiller spent 16 years on the healthcare investment banking side and joined J.P. Morgan as COVID-19 was named a pandemic. His group focuses on companies with $500 million and more in revenue.

So far, 2024 as a presidential election year is having a "benign" effect on investment, he said. 

"Neither party has been beating much of the drum, except for insulin and drugs," he said. There's been no big calls as in previous elections to abolish Obamacare.

"It's exciting for me," Schiller said of heading into the new year. This past year, he said, "has been very slow from a capital perspective, from an M&A perspective." 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org