Health care services are poised to lead the services recovery for the next two years, according to analysis from the UCLA Anderson School of Management. Not only will providers benefit from the return of pre-pandemic volumes, but the increasing likelihood of an endemic virus may present new ways for providers to serve their patients and communities.
The United States is now administering more than 2 million vaccine doses per day on average, and President Biden has stated there will be enough vaccine doses for every adult American by the end of May. As more Americans get inoculated, we will return to, and eventually exceed, pre-pandemic levels of consumption, which includes health care services. The chart below shows UCLA’s analysis, which suggests that health care revenues in the fourth quarter this year will exceed revenues of the fourth quarter in 2019, which is one to four quarters earlier than other services sectors.
Indeed, United Healthcare, the largest employer of physicians in the U.S. is forecasting 10% to 15% growth in volumes as social distancing requirements are lifted and people feel comfortable receiving health care.
Much like other industries, such as bars and restaurants, health care volumes will return as people feel more confident venturing out into public. Health care volumes are also tied to the labor market since coverage is often determined by employment. As jobs return and incomes increase, particularly for the lower quintiles of income earners, health care volumes will rebound. This will provide individuals and families with better commercial insurance coverage and more ability to pay for their care.
Growth in health care volumes may also benefit from future COVID-19 testing and vaccination volumes. The World Health Organization has stated COVID-19 will likely become another endemic virus, like influenza. This would almost certainly require annual vaccinations and potentially regular testing as part of a necessary public health response. This could prompt health care providers beleaguered by a year of lockdowns, widespread hospitalizations and rapid changes to provide added care models such as expanded telehealth or shifting care to the home.
This is also an opportunity for private equity to expand and scale outpatient services. Urgent care is a likely distribution channel for many such services, and we could also see home health expand. The patients served by home health agencies are often at higher risk for severe cases of COVID-19.
This further development may attract even more investment from private equity into health care services, which has already had a busy six months. The chart below shows deal count and capital invested by private equity into health care services over the past five years. The first quarter is already the busiest such quarter in terms of capital invested since 2017 and we still have over three weeks left.
Source: Pitchbook, RSM US
Some of this increase can be attributed to deals that were delayed by COVID-19 over the summer. Pent-up demand for health care deals is largely what drove the incredible volume of deals in the fourth quarter last year. But there is a longer-term opportunity for investors to participate in the expanded response to an endemic COVID-19 reality and changing care delivery models.
The takeaway
Vaccinations, improving risk tolerances and the public health response to an endemic COVID-19 will provide robust growth in health care services over the next two years, and perhaps beyond. Not only does this represent an opportunity for private equity investors to participate in growth, but it also provides an opportunity for established health care organizations to reevaluate and change how they deliver care to their communities.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
