Digital health companies at last week's J.P. Morgan Healthcare Conference weren't just looking for investors. They were looking for dance partners.
The desire of digital health companies to scale through mergers and acquisitions or partnerships was one of the most buzzed-about topics at the conference. Marissa Moore, principal at venture capital firm Omers Ventures, said potential buyers and sellers were trying to size up prospects during the event.
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“People were soliciting us, ‘Hey, we’re trying to spin off this asset, do you know any good buyers?’ Every conversation we were having [at JPM] was an M&A conversation,” Moore said. “We were approached by corporate development executives from big tech companies…you could tell they were trying to get a pulse on what was struggling and what might fit into their growing portfolios, and where there might be an opportunity to partner.”
That search was particularly active for companies selling digital health solutions to employers, a market that has become challenged as employers grapple with the rising cost of healthcare and low usage rates of their offerings. Employers are looking to reduce the number of companies they contract with to reduce costs and simplify the experience for their employees, said Jim Winkler, chief strategy officer at Business Group on Health, an industry group that represents large employers.
Digital health companies are starting to get the hint.
“Consolidation is something we’ll see for certain,” Winkler said. “We’ll see new entrants in the marketplace, I don’t think that will slow down, but among existing companies, there will be a tendency to bring together solutions to make the employer contracting process easier and to make the employee experience a lot better.”
Earlier this month, Transcarent, which connects self-insured employer customers to health services, said it would buy Accolade for approximately $621 million. Transcarent said the addition of Accolade, which provides healthcare navigation and engagement tools to employers, would grow Transcarent's reach to 1,400 employers and 18 million covered lives.
Employers are tired of so-called point solutions, companies focused on a single area of medical treatment, and they no longer can afford to contract with dozens of those companies, said Glen Tullman, Transcarent CEO.
“Every major employer out there is looking for a solution that puts all their healthcare in one place,” Tullman said. “A CEO I was meeting with said that three years of a 10% increase in healthcare costs wipes out [his] entire profit.”
The 8-10% increase in healthcare costs that employers faced last year is more than twice the historical average, said Akshay Kapur, a senior partner at consulting firm McKinsey. Kapur said he expects to see a similar increase in 2025.
It’s not just high costs that will drive potential consolidation, according to experts. Complexity and the need for flexible solutions also play big roles in the discussion, said Chris Michalak, executive chairman of Personify Health. The company is the result of the merger of digital health navigation company Virgin Pulse and third-party health plan administrator HealthComp in November 2023. Personify Health offers preventive health, third-party administration and care navigation services to employers.
Employers are not interested in fragmented digital health solutions that aren’t personalized for their workers, Michalak said, adding he is looking for additional opportunities.
“We are always on the lookout for what belongs in our ecosystem,” Michalak said. “Because of the strength and breadth of our platform, those two things make us a great acquirer.”
Offering a consolidated solution can be a way to solve a lack of user engagement, which has been a struggle for most digital health companies in the employer market. If an employer has up to 30 vendor partners, it’s confusing for an employee trying to navigate what’s available to them and how it works, Winkler said.
“Consolidation through an aggregation platform or ultimately, M&A, can make that experience better for that individual,” Winkler said. “It’s just a logical outcome.”