At the McDermott Will & Shulte Healthcare Private Equity conference in Miami Beach, Florida, LevinPro HC sat down with Michael Hacker, a Partner at McDermott who works closely with private equity investors and healthcare companies on transactions and diligence. The conversation touched on where healthcare investment is heading, how artificial intelligence is affecting the sector, and what buyers are prioritizing in today’s M&A environment.
And several clear themes emerged: efficiency is becoming central to growth strategies, behavioral health remains highly competitive, and AI is creating both opportunity and uncertainty across healthcare and professional services.
Behavioral Health and Long-Term Care Continue to Draw Investment
Behavioral health remains one of the most active sectors in healthcare investment. According to Hacker, investors are still showing strong interest in areas such as autism services, intellectual and developmental disability care, and general mental health platforms.
Telehealth usage surged during the pandemic, particularly in behavioral health services, and while demand has moderated somewhat, it is unlikely to disappear.
Instead, Hacker expects a hybrid model to dominate going forward. Many behavioral health providers are maintaining physical locations, since some forms of care still require in-person settings, but they are also expanding telehealth capabilities to meet patient preferences, helped by CMS’s support for it.
“Consumers are more comfortable talking to people on Zoom, particularly when it’s more of a counseling session.” At the same time, some forms of care still require in-person settings, reinforcing the need for both physical infrastructure and digital access.
Long-term care and hospice are also attracting attention, driven largely by demographic tailwinds and aging population trends. And these sectors should continue to generate deal activity because demand fundamentals remain strong, even as broader market conditions fluctuate.
Efficiency Is Becoming the New Growth Strategy
One of the recurring themes across healthcare executives and investors right now is the growing importance of operational efficiency. Hacker made a distinction, however, that “it’s not that efficiency is replacing growth, it’s that you need to use efficiency to grow properly.”
Healthcare organizations are increasingly looking at ways to improve margins, streamline operations, and deploy capital more strategically while still scaling their services. That is where AI could play an increasingly visible role in healthcare technology and operations. While AI has the potential to significantly improve productivity and accelerate software development, Hacker noted that the risks of overreliance remain significant.
One of the key concerns is the possibility of inaccurate outputs or hallucinated data influencing business decisions. Because of the potential consequences, particularly in clinical environments, “healthcare will be slower to adopt those tools than other industries.”
Still, Hacker believes healthcare IT companies that successfully integrate and implement AI solutions could see meaningful opportunities in the years ahead.
Provider Investments May Be Coming Back
Healthcare provider businesses saw significant investment between 2020 and 2022, but interest cooled as valuations rose and operational challenges emerged.
Hacker suggested that the pendulum may be swinging back. Investors are beginning to revisit provider platforms as valuations normalize and lessons from previous investment cycles improve alignment with physician incentives and operational structures.
“Everyone’s starting to meet in the middle more… that becomes a more investable space going forward,” said Hacker.
Also, these sectors can be seen as more “AI-proof,” since the patients themselves and the care they need cannot be replaced. If anything, AI can help provide better care in a more efficient way. How much that care is reimbursed in the future is a little more uncertain.
The M&A Market Is Becoming More Disciplined
During the peak deal years of 2020 through 2022, healthcare transactions often moved at an unusually fast pace due to intense competition and seller leverage. That environment has changed.
Buyers are now pushing back on accelerated timelines and spending more time on diligence to ensure valuations and fundamentals hold up. “More buyers are calling the bluff… we need our time to do this work,” noted Hacker. But while dealmaking remains active, the shift toward more disciplined investment practices may ultimately produce healthier outcomes for the market.
One of those active buyer groups, private equity, has substantial capital available to take advantage of a more disciplined M&A market for healthcare investments. Hacker expects private equity’s share of healthcare acquisitions to rise relative to the past two years, largely because firms continue to hold significant “dry powder.”
Looking Ahead
Healthcare remains one of the most resilient sectors for investment. Healthcare’s fundamental demand drivers, aging populations, chronic conditions, and ongoing innovation, ensure that the sector will continue attracting investment.
“It’s an area that always needs investment. You can’t just not have healthcare,” Hacker added.
And while the industry faces regulatory pressure and technological disruption, it also continues to present opportunities across provider services, behavioral health and healthcare IT.
