Every year, starting in November, the crystal balls come out and the prognostications begin. What will the new year bring? Who or what will make out better and who or what will not? We talked with Gary Herschman, a member of Epstein Becker Green’s Healthcare and Life Sciences practice, about the healthcare sectors he and his firm are watching in 2020. Here are their predictions for 2020.

Health Care M&A: What do you see as the biggest themes in the healthcare industry this year? There are a lot of moving parts, from the discovery of new drugs to the shifting attention to post-acute care.

Gary Herschman: We see three key “drivers” of health industry transformation that are already underway. First, there’s the national imperative of reducing the cost of health care, via disease prevention and detection, and providing more efficient care in ambulatory and retail settings.

Second, technologies which enhance disease prevention, detection and cost-effective treatment have made extraordinary advances. For example, artificial intelligence (AI)-driven diagnosis and treatment, virtual care, electronic medical record (EMR) systems, medical devices, gene therapy, and precision medicine.

Finally, inevitably, there’s the reality of the aging baby-boomer population, with tens of millions of Americans entering into their 70s and 80s.

HCM&A: That’s a wide-ranging list. How do you see those factors impacting healthcare, and how should investors be looking through those lenses? Let’s start with eHealth, or healthcare information technology (HIT).

GH: Investors are buzzing over a vast array of HIT companies and new technologies because they are helping health care providers to detect and treat diseases earlier and to deliver safe, quality care at a lower cost.

For example, interoperable EMR systems, along with AI and data analytic technologies, are improving diagnostics and early detection, enhancing the speed of research, development and clinical trials, and guiding more effective treatments.

Another growth area is virtual care, or telemedicine, platforms that provide easy, at-home (or wherever) access to care and treatment in this now-consumer-driven healthcare economy. A corollary to that consumer-driven marketplace is mobile apps and IT-connected medical devices that help prevent and detect illnesses, and then guide care for individuals managing chronic diseases.

Also, cybersecurity is becoming more critical than ever to protect our health information and technology-dependent healthcare delivery system.

HCM&A: You mentioned medical devices and precision medicine. Where do you see opportunities in that sector?

GH: There’s a lot of potential in medical technology. New scientific discoveries are being developed rapidly, all of it geared to effectively treating health care conditions with an eye towards lower costs. By that I mean gene therapies based on research of the human genome; precision (personalized) medical treatments; and new biological drugs.

HCM&A: One of the hottest sectors for the last three years, at least, has been Physician Medical Groups. Do you see that trend continuing through 2020?

GH: Yes, absolutely. There are a lot of players throughout the healthcare industry, but it’s the physicians who truly are the “quarterbacks” in controlling healthcare costs, and their roles in this regard are buttressed significantly by many essential tools, including advanced EMR, data analytics, and other infrastructure, all of which require the substantial capital and the management capabilities of larger organizations.

This dynamic is skyrocketing the demand for physicians and specialty practices. As a result, there is extensive competition to acquire medical practices among large national health care companies, both public and private, dozens of private equity platforms,

large hospital and health care systems, and also health plans, including HMOs, Medicare Advantage (MA) plans, and clinically integrated independent physician associations.

HCM&A: What about consolidation among hospitals and health systems? We’re seeing the predictions on the rise of regional health systems coming true.

GH: Hospital systems, both nonprofit and for-profit, will get even bigger—both regionally and nationally. They have to keep growing in order to increase their available capital and generate economies of scale in connection with their hundreds of millions of dollars of investments in advanced EMR, data analytics, virtual care, urgent care locations, physicians, clinical integration, population health, social determinant initiatives, cutting-edge technologies, and other strategic, scaled corporate infrastructure.

HCM&A: You mentioned the baby boomers, who are expected to be a boon to the senior housing and long-term care markets. What are your predictions in this area?

GH: With the aging baby-boomer demographic, there is increasing demand for all components along the continuum of long-term care services, and this has resulted in a sustained spike in investment in this sector.  We’re seeing the focus shift from super-expensive skilled nursing facilities to providing care in either the patient’s home, via home health agencies, or in the least costly care setting, such as adult day care, outpatient therapy, and assisted living. 

HCM&A: With those services come reimbursement issues. The Centers for Medicare and Medicaid Services gave Medicare Advantage (MA) plans a generous increase (about 2.5%) in reimbursement this year, but it doesn’t look as generous for 2021, maybe only 1%. How should investors be looking at the managed care sector?

GH: As the number of Medicare enrollees skyrockets and the Medicare program continues to pivot to “accountable” models of care — that is, bundled payments and other risk-based initiatives, more and more Medicare beneficiaries are participating in MA plans.

Increased MA plan enrollment is also being driven by regulatory changes governing benefit design that now allow MA plans to provide enhanced benefits to insureds, including prescriptions, eye care, dental, health clubs, transportation and much more. MA plans—which receive risk-based reimbursement—will utilize advanced technologies to assist in controlling the cost of their enrollees’ care (through, for example, prevention initiatives and “connected” chronic care management).

HCM&A: The Behavioral Health Care sector has been very busy for the past few years, first with mental health facilities and substance abuse treatment. Now we’re seeing a lot of investment in autism spectrum disorders, particularly targeting companies that use applied behavior analysis.

GH:  Yes, this is another hot and growing area for investment because there has been increasing awareness of, and funding for, the treatment of the entire range of behavioral health services, including patients within the autism spectrum, with mental health illnesses like depression and anxiety, as well as substance use disorders and other addiction disorders.