Experts see big jump in 2015 healthcare investments

All healthcare subsectors -- services, IT, medical devices and life sciences -- are benefiting from open equity and demand for products and services.

Peter Reikes, vice chairman at Stifel, has worked in healthcare investment banking for 30 years, but says the current market is about as “open and robust” as he’s ever seen.

“The market is in exceptional shape right now,” he said.

All healthcare subsectors – services, IT, medical devices and life sciences – are benefitting from open equity and demand for products and services.

The spot he predicts to have the biggest boom in 2015 is life sciences, particularly biotech and specialty pharmaceuticals. This is based on the fact that 2014 was a “high water mark” in terms of IPO activity. Last year saw the highest number of IPOs in biotech and life sciences since 1978, he said.

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There wasn’t one company or technology that was a “window opener” for the sector, either. Instead, Reikes attributes the sectors’ growth to its general maturity. Businesses in healthcare are getting better at managing money, risk, clinical trials and regulatory hurdles. This has helped more drugs get through the approval process more quickly.

The whole healthcare market seems now to be driven by what Reikes dubs “micromarkets” that are characterized by briefer and more muted ups and downs, as we’ve seen over the past 15 months. The downturns, which will come, should be short-lived, he said, “Unless we see a repeat of 2008 and the broad financial disruption that ensued.”

Assuming the world holds together, here are some of the other areas experts predict will see a boom in 2015.

Mergers and affiliations

Mergers and acquisitions have been an industry trend for a couple of years and PJ Camp, principal and co-founder of Hammond Hanlon Camp LLC, expects this to continue in 2015.

One new movement in this area is affiliations between independent hospitals, health systems and, even more recently, post-acute care providers.

Readmission penalties have required hospitals to work better with post-acute care providers. In some instances, they are merging and affiliating to have even more control.

“Before reform, hospitals were incentivized the opposite way. If a patient’s recovery didn’t go well, and they had to return to the hospital, it meant more income for the hospital,” Camp said. “The ACA has flipped that around.”

Real estate

There are other areas of care that hospitals are taking on as well, Camp said. Hospitals are developing buildings that will expand services like dialysis, imaging and infusions in order to broader their patient services and reduce inpatient care.

“New, larger mega clinics are the types of buildings in the community designed to do this,” he said. “They are designed to be well-suited for patients’ needs under the ACA and … a visitor is diagnosed and treated in one facility.”

What Camp calls “glorified gyms” are another movement into real estate by providers. Workout facilities that include a clinical, rehabilitation or health improvement component are also popping up around the country. Wellness is the motivation for these facilities, as people become more responsible for an increasing amount of their healthcare costs.

Price transparency

The increase in individual patients’ out-of-pocket responsibility has also created a market for price transparency. Camp said the next couple of years should see increasing movement in this realm.

The consumer market may be in its nascent phase, but Castlight’s IPO this spring – valuing the company at $3 billion – illustrated the sector’s potential.

“There has been a lot of investment in that space,” said Raymond Falci, managing director of Cain Brothers & Co. LLC. “We are seeing accelerating momentum with businesses that can help the consumer better manage his or her access to the healthcare system.”

Falci expects this sector to “come into its own” in 2015.

Patient engagement

Reaching the patient will also go beyond providing price transparency in 2015. Patient engagement is a trend that burgeoned in 2014 and should have continued forward motion next year.

As physicians are held accountable for patient care and take on greater risk, they will be investing in ways to touch patients as they leave their offices. Payers are also looking for ways to more effectively deliver care and they will have to get closer to patients to do it, Falci said.

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Billions were invested in patient engagement technologies in 2014 and Falci said that should continue in 2015. There should be movement in areas like personal health trackers and call centers, points where nurses can reach out to patients after discharge to help prevent readmissions.

Here comes ICD-10

One change that could spur dramatic spending in the market in 2015 is the transition to ICD-10.

Outsourcing companies both domestically and offshore have built up teams of trained coders in anticipation of the deadline, and they should see demand accelerate mid-2015 to the compliance date of October 1.

[Also: Social media momentum continues around ICD-10 deadline]

“I’m comparing this to what the large Y2K phenomenon was feared to be,” Falci said. “There are a lot of service providers in technology and outsourcing that are going to see meaningful opportunities due to this.”

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