It was beautiful at JPM in January and a rainy start in Miami Beach in March.  Go figure.  Spirits are high amongst the bankers who flock to this meeting both to network and to gather intel from the myriad of conversations that occur around the property. They felt the uplift of a better than expected 4th qtr. 2024 and so they are optimistic about 2025 as well.  Simultaneously, they see the fog of uncertainty in DC as a force of nature that no one really understands.

Sitting with a former COO of NEA’s largest healthcare holding, I listened as he mused about the importance of getting reimbursement right and the downward rotation of equitable compensation for care in every category, from every payor.  He sees the PPM space at the precipice of physician exhaustion and wants to see someone bring new thought to how physicians are equipped for the roles we are now asking them to play.  More about that later.

Under the beach tent (if you have never been this entire meeting is held under a tent a hundred yards from the ocean) the senior partner for a leading healthcare investment firm in Colorado said that they have limited their risk exposure to no more than 33% of the revenue from holdings coming from federal government payments. Other firms are telling me they have told their LP’s that they will make no further investments in portfolio companies where there is federal payment exposure.  Payor management on a macro and micro level is on the minds of all the investors with holdings in PPM models at this meeting.

Junior capital markets spent $65BB last year on deals, a tie with 2021.  That is meaningful when you look at appetite for investments.  It is clearly there.  So our questions have focused on what are the kind of B companies that are interesting to PE with the idea that they could turn them to A+ companies. There was some lean toward models like infusion therapy and AI focused on physician effectiveness.   Not surprisingly, a partner from one brand name equity firm said, “It is not purely about the hot hand areas of interest. Show us how solid the management team is and how compelling the model is and we will invest if it is right”. How are they evaluating that? The response was, “It’s tough. Our eyesight clears as we get 6 months post acquisition, but there is a lot of risk and transparently a lot of loss that occurs due to surprises that could have been avoided if we did a multi-dimensional dive in the LOI stage that minimized our blind spots”.  They went on to say that these mistakes are most often due to poor previous leadership, faulty assumptions amidst the financial structure, and limited vision to operating fractures that carry enormous cost and delay.  They said they needed more clarity earlier.

Parnassus makes it our business to do that for healthcare businesses, their sponsors, and their leaders.  Enabling search with the technology and personal analytics means we de-risk all of the swim lanes that we occupy.  We will keep you close to the rest of the meeting.

-John Lankford, President and Founder, The Parnassus Group