Article - December 17, 2024

Healthcare IT: Five Capabilities Sparking Investor Interest

With patient volumes showing strong year-over-year growth and now above pre-pandemic levels, many healthcare providers are struggling to keep up, facing labor shortages, compressed margins, and other operational challenges.

To help solve these obstacles, providers are investing in technology infrastructure—particularly in an increasingly value-based care environment. “The healthcare sector is working toward multiple interwoven goals: higher quality care, lower cost, improved patient engagement, higher clinician satisfaction, and equity of access,” says Sam Hendler, a managing director. “Tech investment is essential to achieve these objectives.” Indeed, more than 80% of providers indicated that they’ve increased spending on IT in the past 12 months.¹

At the same time, providers are rationalizing their vendor landscape to speed up integration and reduce total cost of ownership. However, they remain open to new solutions, especially those that deliver rapid innovation and ROI. “ROI is clearly top of mind for providers as they evaluate their HCIT vendors,” says Dan Linsalata, a managing director. “Against this backdrop, we’re seeing several HCIT capabilities stand out to both healthcare providers and investors.”

Revenue cycle management (RCM) is a prime example. “Healthcare organizations are focused on financial stability, yet many assess their revenue cycles as below average,” adds Hendler. “Healthcare providers are planning to invest in RCM and related technologies, supporting strong long-term growth and drawing the attention of M&A investors.”

In the payer and employer community, growing patient volumes and the delayed impact of inflation have led to accelerated cost pressures. Healthcare costs grew 7% in 2024, with the outlook for 2025 and 2026 expected to be even higher.² As a result, employers are increasingly seeking to shift benefits plans away from the traditional BUCA fully insured plan to innovative plan designs, such as MERPs, HRAs, ICHRAs, level-funded, and self-insured models.

“All these solutions can offer greater upfront savings and plan design flexibility to help power transparency, incentives, and greater control over costs,” says Nick Owens, a managing director. “Health plans and employers are also demanding innovative tech-driven cost containment solutions to drive payment integrity and lower their operating cost base.”

Because of these factors, the HCIT sector is expected to see increased M&A activity in 2025 and beyond. Below, senior professionals in our Healthcare & Life Sciences Group share what’s driving this positive M&A outlook for HCIT and five key capabilities being prioritized by providers and investors alike.

Five Capabilities Sparking Investor Interest

Interoperability and Data Management

Deepening troves of healthcare data are accelerating the need for better data management and integration—an important enabler for value-based care. “The diversity of the healthcare IT ecosystem makes it challenging to develop a comprehensive view of a patient, much less a population,” explains Hendler. “This makes interoperability and data management a fundamental building block of value-based care.”

In fact, 85% of hospitals reported issues with exchanging health data due to using different vendor platforms with varying data exchange standards and protocols.³ This reportedly costs the healthcare system approximately $30 billion annually because of inefficiencies and redundant testing.⁴

“Improving data management is critical for providers to fully leverage analytics, which is vital to enhancing quality of care, patient engagement, and operations,” says Linsalata. “Alongside innovative software, providers are also seeking a wide range of value-added services to ensure they’re getting the most out of their data.”

Revenue Cycle Management

As healthcare providers focus on maximizing revenue and reducing costs, technology is increasingly essential to optimize the revenue cycle. In a recent survey by Harris Williams and Sage Growth Partners, fewer than half of healthcare companies said their revenue cycle has improved since 2019, while one in five indicated it has become worse. Healthcare leaders noted that workforce shortages, a decline in the financial climate, and operational process obstacles are all contributing to revenue cycle challenges. Many also lack staff with RCM expertise.

These difficulties are spurring more healthcare providers to adopt RCM solutions and related technologies such as AI, robotic process automation, and automated coding. “Leading RCM vendors are delivering valuable operational improvements and tangible ROI to health systems and physician groups,” says Hendler. “RCM providers can also differentiate themselves and drive outsized growth by focusing on a specific care setting or specialty.”

Improvements in integrated technologies—including AI—will further enhance the value of RCM vendors. “The best RCM investment opportunities will feature more advanced technology and AI capabilities, a broader set of solutions, and strong organic growth potential,” notes Linsalata.

Security and Compliance

With a growing volume of sensitive healthcare data and a constantly evolving threat environment, healthcare companies of all kinds are sharpening their focus on security and regulatory compliance.

In addition, the flow of information between different healthcare entities makes security even more crucial. “Healthcare’s incredibly fragmented IT landscape makes it especially vulnerable to cyberthreats,” says Linsalata. “IT security and compliance are key focus areas for C-level executives at both providers and payers, with information security a top spending priority.”

“It’s difficult for healthcare organizations to protect themselves from increasingly sophisticated cyberattacks while staying up to date with rapidly changing regulations,” adds Hendler. “In response, many are turning to third-party experts and technologies to ensure they have the right tools, processes, and procedures in place.”

Innovative Health Plan Solutions

More companies are self-insuring to have greater control over their healthcare costs and plan designs. This growing market of self-insured companies is giving rise to a host of businesses that help employers better manage rising healthcare expenses and offer expanded benefits packages to employees.

Across the employer health landscape, investors are looking to back a range of innovative, high-quality self-insurance enablement platforms, including third-party administrators, cost containment solutions, and direct-to-employer provider organizations. Although all these business models are unique, they share a common goal of improving access to quality care while helping employers take control of rising healthcare costs. “Investors are recognizing the need for these solutions, and we’re seeing the private equity community allocate more dollars and time toward employer health,” says Owens.

“The employer health market offers several ways for investors to create value,” adds Hendler. “Many employers are still on fully insured plans, and those that already self-insure are continually looking to leverage technology and technology-enabled solutions to improve plan design, manage costs, and deliver better care for members.”

Artificial Intelligence

AI’s ability to streamline operations, analyze large amounts of data, identify patterns and trends, and offer actionable insights has many valuable uses across healthcare. Thanks to these benefits, AI adoption among providers is growing quickly, with 15% indicating they now have an AI strategy in place compared to just 5% one year ago.⁵

Looking forward, standalone AI solutions and AI integrations with other software platforms will both be in demand. This is particularly true in the revenue cycle, where there is enough data to build strong large-language models and many repetitive tasks that can be transformed by AI. “On the provider side, we’re also seeing good traction for AI applications that manage physical capacity, optimize staff scheduling, and minimize spend,” says Linsalata.

“Similarly, in the payer world, more organizations are leveraging AI to determine the best methods for interacting with members, identifying patients with higher health risks, and managing payment integrity,” adds Owens.

Conclusion

As the volume and fluidity of information continues to increase across the healthcare ecosystem, the need for interoperability, security, and compliance will intensify. Meanwhile, enhancing revenue cycle management and boosting operational and clinical efficiency are crucial for managing more patients and achieving value-based care. And the strategic use of AI will help reduce costs and uncover new insights across all healthcare operations.

“Spending in each of these HCIT capabilities is buoyed by healthcare providers’ push for higher quality care, lower costs, improved patient engagement, higher clinician satisfaction, and equity of access,” says Linsalata. “With strong tailwinds for growth, HCIT M&A activity will be strong in the years ahead.”

To further discuss HCIT M&A, please contact our senior professionals.

https://www.bain.com/insights/healthcare-it-spending-innovation-integration-ai/
https://www.wsj.com/health/healthcare/health-insurance-inflation-charts-612812ed?mod=article_inline
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https://www.bain.com/insights/healthcare-it-spending-innovation-integration-ai/