Sustainable Growth for Independent Orthos in 2024

Reflecting on Key Trends, Shifts, and Strategic Moves Shaping the Year Ahead

Ahhh yes, my obligatory look back and forward post.

(For anyone writing a newsletter, it’s in the fine print to write one of these a year.)

I’ve done my best to write how concrete changes this year will tangibly impact next year.

Let’s dive in.

Hinge contracts are up for renewal

The typical three-year contracts digital health companies signed during the COVID-19 boom are entering the renewal phase.

• Any company in this season will face increased scrutiny of ROI data, potentially hurting renewal rates.
• Hinge is eyeing an IPO next year. They’ll be looking for ways to run leaner to look more attractive.
• IPO also means growth. Aggressive targets are coming, but there is no pandemic to spur demand and shrink sales cycles.

As Hinge contracts reach a pivotal renewal stage, careful navigation is required to address internal changes and market skepticism.

I predict 2024 will be rocky for Digital MSK companies. Heightened demand for profitability while contracts are contracting do not mix.

A note on the insights above.

Each point is backed by conversations with brokers, clinicians, and Hinge sales reps, but I’ve intentionally generalized them to incorporate them authentically.

Payors want to be are providers

Payors like United are increasingly acquiring primary care groups and other practice types, a trend I expect to continue due to favorable market conditions.

• Acquisitions remain a primary growth strategy for payors, with low multiples making primary care groups attractive targets.
• Acquisitions will continue to disrupt referral patterns as payors attempt to drive down spending and manage patient flow.
• The trend impacts referral streams, making self-referral and alternative patient acquisition methods a key to sustainable growth.

The acquisition trend among payors signifies a shift in the healthcare landscape, emphasizing the need for new patient acquisition strategies.

Fee-for-service models and traditional payor relationships will not drastically change in 2024 but the events of the last 12 months, spurred by the winds of COVID-19, demand that practices think differently about their growth plans over the next decade. A reliance on FFS or traditional referral streams will leave many out of business or gobbled up by larger entities.

The great (margin) compression

Rising labor costs and declining physician fee schedules in 2023 are set to further compress margins in 2024, necessitating revenue diversification. One customer mentioned their labor cost per capita had gone up 18%.

• Stubbornly high labor costs and new physician fee schedules are expected to exacerbate margin compression in 2024.
• Commercial payors are likely to mirror CMS in cutting physician reimbursements, impacting profit margins.
• Diversifying revenue streams, including payor mix and direct contracts, becomes crucial for financial health.

Facing tightened margins, healthcare providers must explore diverse revenue channels to sustain growth and financial stability.

Private equity powder goes boom

PE activity slows in 2023. 2024 looks to ramp up.

Link

• PE activity slowed in 2023 due to various economic and geopolitical factors, leading to a significant cash build-up.
• With a record $2.59 trillion in "dry powder," PE firms are well-positioned for future investments.
• Anticipated Federal Reserve rate cuts in mid-2024 could reinvigorate PE interest in healthcare acquisitions.

As the market conditions evolve, 2024 could mark a significant uptick in PE investments, with well-positioned practices likely to attract attention.

It's an election year

Of course, I’d be remiss not to mention it’s an election year. Regardless of the economy or international turmoil, healthcare is always a key issue for voters.

• Specialty drug prices and Dobbs will be key healthcare-related points both parties make during the run-up to November.
• Employers and Unions will have a louder voice with lobbyists regarding rising healthcare costs and reduced access to care.
• In what will inevitably be a highly debated and close race, I predict who has the best healthcare plan to be the ultimate winner.

Each party has done a poor job showcasing its healthcare policy, instead focusing on a questionable economy, immigration, and international conflicts. As the race heats up, healthcare will, as it always does, take center stage.

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