Going into 2021, it was difficult to predict how the healthcare sector would fare while in the midst of a pandemic. Some predictions, such as the continued expansion of “medtail,” proved accurate, while other events, like the explosion of M&A activity, weren’t foreseen following a tumultuous 2020.

Over the course of the year the sector experienced several growing pains as it tried to respond to the challenges of COVID-19. Supply chains remained largely disrupted, inflation reached a 30-year high and the accelerated shift to digitalization experienced hiccups ­– an excessive number of data breach incidents left the records of more than 40 million individuals exposed.

Looking back at the last eleven months, there were several highpoints, as well as challenges, that characterized healthcare in 2021.

Carryover from the Pandemic
Many of the challenges that arose at the start of the pandemic were still being ironed-out through the first quarter of this year. Supply chain breakdowns persisted, and “effective and timely sourcing of sufficient crucial items including personal protective equipment (PPE), sanitizer and ventilators became a critical problem for hospitals and healthcare systems,” per Colliers’ Summer 2021 report.

The implications of this fallout were still being felt one year later. While there have been some improvements, shortages continue, and stockpiles remain low. Between November 2020 and March 2021, glove spend rose 250% –  even by March 2021, most hospitals still had less than 30 days’ worth of exam gloves on hand. When the Delta variant surged in July, PPE supply levels were once again left battered and well below targeted inventory rates.

The necessity to go virtual due to social distancing protocols caused an accelerated digital shift for health systems. Telehealth visits, which skyrocketed during the early stage of the pandemic, leveled-out from their peak in April 2020.  However a new report from Kaufman Hall reports that although hospital volumes have made a recovery, they have not yet reached pre-pandemic levels.

In response, healthcare providers are even more focused on creating environments that appeal to the patient experience. According to one survey, 66% of healthcare respondents “consider it a high priority to redesign and expand digital capabilities and physical facilities.”

Continued Convergence of Healthcare and Retail
The sector’s tenuous start to 2021, as well as record inflation, haven’t discouraged the convergence between the retail and healthcare sectors, which started gaining momentum pre-pandemic.

Anticipating an increase in foot traffic as in-store shopping resumed, retailers were eager to launch health initiatives or expand existing programs. Walmart Health grew its services to 17 more states in July, and also announced plans for “omnichannel healthcare superstores.” Retailers including Best Buy, Walgreens and Amazon also amped up their healthcare strategies this year.

Retailers were bolstered in their healthcare plans by the progressive uptick in consumer spending, which surpassed pre-pandemic levels despite a 31-year record of 6.2% price inflation.

From the healthcare provider perspective, retail also presented an opportunity for healthcare organizations to expand. According to the Colliers 2021 Healthcare Marketplace report, “While retailers have been aggressively expanding into the healthcare domain, we expect to see a proliferation of hospitals and healthcare services taking over centers vacated by retailers during the pandemic. Many of these prime retail locations are ideal for redevelopment as they offer generous parking, favorable zoning regulations, and adequate utility service.”

M&A Explosion
One of the brightest points for healthcare in 2021 was the proliferation of M&A activity across the industry. There are more than 3,000 total transactions expected by year-end, which would represent an increase of more than 25% as compared to 2020. The first quarter had the highest quarterly deal volume in history with 426 transactions, per Becker’s Healthcare.

Interest from private equity (PE) firms drove a large percentage of the activity and resulted in an impressive number of megadeals. Just recently, Hellman & Friedman and Bain Capital announced it was acquiring Athenahealth for $17 billion – one of the largest deals of the year. This year also saw the biggest leveraged buyout of the decade: Blackstone, Carlyle and Hellman & Friedman agreed to acquire Medline for more than $30 billion.

Despite the challenges faced by the healthcare industry, 2021 was a transformative year. Stay tuned for next month’s blog where I’ll look at expectations for the healthcare sector in 2022.