Healthcare can be messy. It’s messy like a house in the midst of a clean-up: messier before it gets cleaner; big piles become many smaller piles, scattered and disorganized; and your family can’t find anything amidst the chaos. Sound familiar? Maybe a little bit like navigating the healthcare system? Those fragmented piles all over the kitchen table are like the healthcare system: each critical, but useless in their siloed parts.
Over the last 15 years, the startup scene has surged. The sheer number of companies has lead to fragmentation, decision fatigue, and inefficiencies across the continuum. It’s a crowded market. But as startups mature, they become appealing acquisitions and the market reaches a kind of symbiosis.
The market today is bustling with merger & acquisition activity, especially within the healthcare sector. Quarterly report headlines cite unicorn statuses and more and more non-healthcare giants staking their claim. Amazon acquired PillPack, for example. Best Buy purchased GreatCall. CVS acquired Aetna, and Roche acquired Flatiron Health.
For Physical Therapy, M&A activity has remained slower, but remarkably more stable at 2.8% annually between 2013-2018 within the $30B industry. Drayer Physical Therapy found themselves in a merger; New Harbor Capital sold its shares in PT Solutions to Lindsey Goldberg; New Harbor Capital invested in FYZICAL; Alliance PT created just that, an alliance of disparate PT groups; Internet Brands acquired WebMD for $2.8B.
Among the action, there are some key drivers shaping this high-demand market.
1. Add-on Deals
Add-on deals became the investment of choice starting in 2017. In line with the consolidation market trend, analysts report a decline in new platform investments in favor of incorporating their smaller-scale competitors into their existing product offerings. It speaks to their confidence in the market, plus, the large number of small-to-midsize practices means that investors have their pick of the litter.
2. Transition to Value-based Care
Value-based care is outcome-driven with strong incentives in place to heal the underlying causes of pain, rather than slap patients with a prescription and send them on their way. And in contrast to surgical solutions, Physical Therapy is low cost and high reward. Value-based care also relies on the natural efficiency within collaborations, which speaks to the confident pace of mergers, acquisitions, and investment.
3. The Opioid Epidemic
Speaking of prescriptions, opioids are having a come-to-jesus moment. Once regarded as a very convenient pain reliever, the addictive properties are crippling the country. The narcotic was to blame for 200 deaths each day in 2017. Today, injured patients are taking their recovery into their own hands by opting out of pharmacological solutions and opting into safer treatments like physical therapy.
4. The Culture of Wellness
The culture of wellness – farm to table eating, activity tracking, green juices after yoga, ultra-marathons for the middle aged – is driven by consumers, consumers who expect their lifestyle values to translate into their healthcare choices. Clean living is a huge market, growing to $4.2T in 2017, and when injuries occur, they are likewise opting for non-pharma treatments such as physical therapy.
5. Aging Baby Boomers
The boomers are aging. In fact, the population of people over age 65 today (46 million) is predicted to double by 2060. They are also working longer and need to stay healthy and nimble while doing so. This population accounts for 34% of PT patients, which will only increase as we near 2060. If ever there was a time for robust physical therapy support and options, it is now.
All in all, the market is behaving in a classic supply and demand model. On the demand side, the empowered consumer has choice, expects efficiency, and they live longer which makes Physical Therapy very appealing. And on the supply side, investors are retrofitting their consolidation approach into the value-based care model, thus creating an efficient system for consumers to operate within. All signs point to a cleaner, more organized system in the making.