Article - October 20, 2022
Employer Health: Rising Interest in an Increasingly Relevant Subsector
Recently, senior bankers from the Harris Williams Healthcare and Life Sciences Group attended the Self-Insurance Institute of America’s National Conference. This year’s event saw increased attendance from private equity, underscoring rising investor interest in the sector and its value-creation opportunities.
“This year, attendance at SIIA among the private equity community was over five times higher compared to 2021, as investors view this as a resilient, high-growth sector during an uncertain market,” says Owens.
As investors navigate volatile market conditions and concerns over a possible recession, the employer health market stands out as an attractive area for investment. Rising inflation and labor market challenges are creating tailwinds for solution providers that help employers lower their healthcare spending and offer attractive benefits packages for their employees.
Approximately 60% of employers in the U.S. self-insure.1 Doing so enables them to better manage plan design and add cost containment and care management solutions, resulting in greater savings compared to a fully insured plan. Rising healthcare costs have also led to innovative structures enabling smaller employers to self-insure. For example, captives allow smaller employers to band together and create a risk profile similar to a large employer, which, combined with stop loss insurance, can eliminate risks typically associated with self-insurance and enable smaller plan sponsors to enjoy cost savings.
A range of companies serve this growing market of self-insured companies, including third-party administrators (TPAs), cost containment companies, specialty benefit managers, and direct-to-employer providers. There are significant M&A investment opportunities across each of these subsectors.
Third-Party Administrators
TPAs help self-insured employers administer benefits and deliver more value-added services either directly or through partnerships.
“As self-insuring accelerates for larger organizations and becomes more common for small to medium-sized companies, demand for third-party administrators will also rise to process health claims for their benefit plans,” says Clark.
Cost Containment Solutions
Cost containment technology and services providers help employers lower their costs through a diverse range of solutions.
“This subsector includes reference-based pricing and payment integrity businesses that control out-of-network spending and reduce fraud and abuse. Another key category is care navigation solutions, which guide members to the right care pathways,” explains Owens.
Specialty Benefit Managers
Costly and complex areas of healthcare, such as renal care, oncology, surgery, fertility, and behavioral health, have created opportunities for specialty benefit managers. These companies can drive better access to care at a lower cost by creating a high-performing network and combining care coordination and care management solutions. “Beyond establishing efficiencies and related cost savings, specialty benefit managers can also help companies attract and retain talent,” Owens points out. “For example, employers that provide access to quality fertility, telehealth, and surgery care can build higher-value relationships with their employees.” Read More: Specialty Benefit Managers
Direct-to-Employer Care
Direct healthcare providers operate primary care clinics and pharmacies at or near employers’ worksites, making it easier for employees to access high-quality care and get prescriptions filled. Porter says that these clinics have been particularly beneficial in attracting younger talent and creating additional employee satisfaction. “By providing more convenient access to care, employees are also likelier to use these services, leading to earlier detection of potential health concerns and lowering long-term treatment costs for the employer,” he adds. Read More: Direct-to-Employer Care
Amid economic uncertainty, employers will be increasingly driven to self-insure to take more control over their healthcare costs and plan designs. And with healthcare costs continuing to climb, a host of innovative businesses have emerged to help employers better manage those expenses while improving employee wellness and satisfaction.
There’s plenty of white space in the sector, with nearly 40% of employers still on fully insured plans and those that already self-insure continually seeking value-added capabilities to improve plan design, manage costs, and deliver better care for members.1 It’s a counter-cyclical space with recession-resistant qualities and several high-value ways for investors to get involved.
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Conclusion
Driven by strong demographic tailwinds, the healthcare and life sciences industry combines fast-paced innovation with steadily growing demand, offering investors a wide array of opportunities. With deep industry knowledge, our Healthcare & Life Sciences Group helps investors and high-growth companies turn their goals into reality through M&A. Our global clients rely on our trusted advice to uncover opportunities in the healthcare market and unlock value in their businesses. We partner with clients across key sectors, including providers, payors and payor services, outsourced pharmaceutical services, outsourced provider services, medical products and devices, healthcare IT, and more.