From the get-go, 2021 was poised to be a significant year for the healthcare sector, however forecasts were murky due to the ongoing instability of both the pandemic and the political backdrop.
The year kicked off amidst one of the largest COVID-19 case surges in the U.S., and also marked the start of a new White House administration. Early in the year, Deloitte characterized the sector’s largest challenges as related to workforce, digitalization, delivery models and consumer experience.
Now with two quarters under its belt, the second half of 2021 is taking shape with a bit more predictability, providing steady ground for investors, employment and overall spending.
Kicking Off 2021
Going into 2021, there were estimates that the vaccine wouldn’t be widely available until July due to unknowns regarding the supply chain, storage facilities, distribution methods, inventory and more. By the end of the first quarter, however, inoculations were far ahead of schedule where nearly 154 million doses had been administered. These vaccination rates helped quell economic concerns and increase consumer spending.
Also in Q1, global healthcare funding hit a new quarterly record, with a total of $31.6 billion in equity funding being raised.
Telehealth usage surged early in the pandemic, but began to show steady declines early in 2021. Usage fell between February to March across the country, with the steepest dip in the Midwest, where the decrease was 8.9%. During Q2, telehealth utilization did not regain the losses and remained static, hovering at 13-17% total utilization across specialties.
Compared to 2020, M&A activity in Q1 and Q2 of 2021 was the second highest total transacted revenue in recent years, despite a lower volume of deals. Notable acquisitions in the first half of the year included the $3.5 billion acquisition of Landmark Health by UnitedHealthcare and Optum, as well as Evernorth acquiring MDLive for $1 billion.
Outlook for the Next Six Months
The first half of the year contained a flurry of M&A activity for the sector, with several “megadeals” and sizable moves from Humana, Walgreens Boots Alliance and more.
In Q2 alone, M&A activity included 14 transactions for $8.5 billion. Kaufman Hall reports health systems are shifting away from acquiring smaller, independent hospitals and focusing more on regional partnerships in new markets, so it’s likely this sort of activity will carry into Q3 and Q4. Additionally, the PE healthcare market has been gaining traction, and can be expected to carry the volume through the rest of the year.
While virtual care is a growing field, its utilization will not return to the levels it was at in 2020 or even in January-February of 2021. The usage will remain close to, if not lower, than where it sits now.
Another departure from its 2020 usage trends is the kind of specialty areas it’s being applied to most often. The highest penetration for telehealth is in psychiatry and substance use treatment, per McKinsey.
For the second half of 2021, a growing trend among health systems that will continue to flourish is the acquisition of industrial assets. In a move away from the lean inventory process they were using pre-pandemic, healthcare organizations are using warehouse space and distribution centers to house stockpiles of personal protective equipment to avoid the shortages that happened in 2020.
While there are still many unknowns as the country recovers, it’s clear the second half of 2021 has an improved outlook for the healthcare sector with a wake of continued innovations.