2024 healthcare services outlook: Challenges and opportunities

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Healthcare services comprise a range of organizations, from technology companies and financial sponsors to pharmacies, that focus on the payer and health systems markets. Over the past decade, each of these segments has rapidly grown in number of stand-alone entities and total profit pools. We summarize our views on what 2024 holds for these key segments below.

Healthcare services and technology

Three areas stand out in terms of opportunities and challenges:

Data analytics and artificial intelligence (AI). Generative AI has aroused interest in health services and technology but use case development and deployment are in their early days.1 Payers and health systems that have already invested in data analytics (as well as related infrastructure and governance) are beginning to differentiate themselves from competitors. We anticipate a greater focus on use cases that enable clear, near-term operational value—for example, AI that supports more rapid throughput of imaging equipment. Overcoming history, especially with health systems for which investment in technology has underwhelmed in terms of productivity gains, will be essential for health services to fulfill AI’s promise.

Outsourcing. Strategic players, especially not-for-profit health systems and payers, are facing financial headwinds. While many are reticent to outsource given the impact on employees locally, the combination of the financial value proposition, rising gaps in capabilities, and the inability to otherwise access required talent is increasingly compelling. Outsourcing transactions often involve legacy processes that benefit from scale and automation (for example, transactional functions such as human resources and finance), but we are also seeing more point solutions and adoption in critical healthcare-specific business functions such as revenue cycle management.

Programmatic M&A. Many healthcare services and technology companies have seen substantial reductions in their most recent valuations. Several have had to shut down or seek alternatives despite cutting R&D spending and loss-leading customer acquisition programs. Strategic and PE investors now have an opportunity to add both talent and capabilities by acquiring these entities on favorable terms; advantageous refinancing for not-for-profit health systems through 2021 may enable not-for-profit health systems to diversify as opportunities arise.

Private equity

Global private equity deal volume in healthcare rose about 8 percent annually from 2017 to 2022. This period includes a material pull-back in 2022, when deal volume fell 37 percent year over year.2McKinsey Global Private Markets Review: Private markets turn down the volume, McKinsey, March 21, 2023. Nevertheless, healthcare-focused fundraising remained resilient, with first quarter of 2023 fundraising posting the second highest first-quarter total on record.3

We see the following trends in 2024, especially as industry expectations of valuations and anticipated rates of return continue to reset:

Carve-outs. As healthcare organizations have reduced R&D spending and completed portfolio evaluations in 2023, these strategic players have shown increasing interest in divesting business units that are further away from the core. Simultaneously, private equity (PE) firms and PE-backed assets have expressed interest in segments with attractive profit pools.

Public-to-private deals. Reduced valuations have increased the potential for opportunistic buying, especially from public assets for which PE has a strong value creation thesis. We expect an increasing number of these proposals to include partnerships between PE and strategic investors.


The pharmacy market has undergone major changes in recent years, including from the impact of the COVID-19 pandemic, establishment of partnerships across the value chain, and the introduction of new pharmacy models. Pharmacy dispensing revenue increased by 9 percent in 2022, to $550 billion, and is projected to grow at a 5 percent CAGR, reaching $700 billion in 2027.4

Continued pressure on the retail pharmacy. Retail pharmacies will continue to face reimbursement challenges, labor shortages, inflationary pressures, and a plateauing of generics dispensing rates. To address these headwinds, we expect that chains will:

  • continue to optimize core operations through further rationalization of store footprints
  • invest in technology enablement, such as microfulfillment centers and robotics, to expand workforce capacity and streamline dispensing costs, and artificial intelligence to optimize pharmacist workflows
  • look to further diversify and expand revenue streams beyond the core dispensing business through the provision of healthcare services and the integration of recently acquired assets into a delivery ecosystem

Growth in specialty pharmacy. Specialty pharmacy is one of the fastest-growing subsegments within pharmacy, with revenue rising more than 9 percent annually.5 This is due to continued growth in utilization and pricing as well as expansion of the treatment pipeline (for example, cell and gene therapies and oncology and rare disease therapies). The growth is expected to be offset partially by pressure on reimbursements, specialty generics, and increased adoption of biosimilars. Additionally, margins among specialty pharmacy players have been affected by manufacturer contract pharmacy pressures, creating headwinds for larger central fulfillment specialty pharmacies and tailwinds for some health system–owned pharmacies.

Evolving regulatory landscape. The pharmacy segment has seen increased calls from regulators to increase transparency of drug prices and improve affordability. Under the Inflation Reduction Act of 2022, the Medicare prescription drug Part D benefit is being redesigned through 2024–25. The redesign comprises a new beneficiary out-of-pocket spending cap of $2,000 and a substantial increase in plan liability (from 15 percent to 60 percent) in the catastrophic phase of coverage, increasing plans’ imperative to manage high-cost drugs. Additionally, the Centers for Medicare and Medicaid Services (CMS) is set to require pharmacy rebates under Medicare be shared with consumers at the point of sale; it also announced that price transparency rules will apply to prescription drugs. There are several bipartisan bills in Congress that would mandate increased transparency requirements for pharmacy benefit managers (PBMs) in addition to potentially banning spread pricing and PBM-retained rebates.

Last, CMS has announced the first ten drugs covered under Medicare Part D selected for negotiation. The negotiations with drug companies will occur in 2023 and 2024; any negotiated prices will become effective in 2026.

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