MD Clarity’s Post

What can we expect from healthcare MSO buyout activity through the end of 2024? It depends… Jerome Powell just signaled that the Fed is prepared to start cutting interest rates, and economists are predicting that the Fed will drop rates by 75 basis points in total through the end of the year. While a decline in interest rates is likely welcome news for MSO operators and their sponsors, a mid-four-percent Federal Funds rate is a far cry from the low interest rate environment that helped facilitate the scaling of many MSOs in 2021 and 2022. Despite overarching macroeconomic dynamics, MSO deal activity is likely to vary by category: ▪MSOs in the nascent cardiovascular space haven’t been slowed by the high interest rate environment. There were a record 20 cardiovascular MSO deals in 2023 (seven platform investments and 13 add-ons). About 80 percent of cardiovascular MSOs are less than three years old. Groups in less mature specialties benefit from a large amount of whitespace for both platform investment and rollup activity, which is likely to continue. ▪Meanwhile, the median hold time for MSOs in more mature specialties like eyecare, urgent care, and nephrology is more than five years. PE sponsors are grappling with prolonged hold periods and the desire for liquidity among LPs. It’s possible that the potential 75 basis point dip in interest rates can jar these platforms loose. Absent further rate reductions, we expect the next wave of platform buyers to be sponsors with the ability to underwrite and then deliver on value creation opportunities specific to organic growth and margin expansion. These value creation levers require revenue cycle and managed care contracting teams that are strong at mitigating denials, recovering underpayments, and negotiating high-performing contracts with payers. The MD Clarity team is energized by the MSOs and their sponsors that understand that operational rigor is the path to value creation in this economic environment. Unless rates return to near-zero, operational excellence as a priority is likely here to stay. #RevenueCycle #RCM #healthtech