From Deals to Disruption: The Financial Forces Reshaping Healthcare in 2025

Welcome to Architect Health’s The Front Door Newsletter! In this newsletter, Architect Health’s Co-founder & CEO, Sohum Shah, interviews healthcare executives, founders, and experts on healthcare innovation, digital health, and preventative care. The goal is to identify pain points in these spaces and paint visions on how to address them, inspiring decision makers at traditional healthcare organizations.

Today’s first interview of Season 2 features healthcare M&A expert and thought leader, Ian Wijaya. Ian shares his perspectives on M&A trends, digital health and value creation in 2025.

Interview Key Takeaways:

• Incentive Realignment: Healthcare economics are shifting towards value-based care, driving closer payer-provider partnerships and flexible capital allocation

• M&A Recovery: Healthcare M&A is rebounding, fueled by narrowing bid-ask spreads, clearer interest rate pathways, and improved forecast reliability.

• Tech Integration Imperative: Traditional healthcare players are adapting through internal development, strategic partnerships, and acquisitions, with M&A crucial for verticalization.

• Digital Health Success Factors: Investable digital health companies must demonstrate clear ROI, scalability, healthcare expertise, and seamless integration with existing infrastructure.

• Data-Driven Innovation: Continuous R&D based on customer interactions and leveraging unique data assets will be key differentiators in the AI-optimized healthcare landscape.

Listen to the Podcast:

• Spotify

• Apple

Ian Wijaya is a Managing Director at Lazard, and also leads Lazard’s North America Healthcare Services practice, which he cofounded. Ian’s practice focus on M&A, strategic advisory and recapitalization advisory for managed care insurance payers, providers across the continuum of care (e.g., acute care hospitals, ambulatory surgery centers, post-acute care, etc.), PBMs, distributors, payor and provider services companies, Healthcare IT, digital health companies and PE firms invested in these areas.

Ian has advised on more than $250 billion of corporate finance transactions, including mergers and acquisitions, leveraged buyouts, financial restructurings and reorganizations, joint ventures, and defense against shareholder activists. Ian has advised on several of the largest and most transformative M&A transactions in healthcare, including three of the largest in recent history.

Healthcare Macroeconomics

Sohum: Walk us through the core macroeconomics of the healthcare services and healthcare IT industries. How does the current financial climate impact healthcare organizations, investors, entrepreneurs, and potentially even the patient?

Ian: The core macroeconomics of health services and HCIT are complex but can be boiled down to a historical mismatch of incentives between the supply side (clinicians) and the demand side (patients, members, consumers, and those who finance healthcare, which are the insurance companies). This mismatch has led to conflicting goals around utilization, value, outcomes, and patient experience. However, this dynamic is evolving, with value-based care being a key aspect of this change.

We're seeing payers, especially larger ones, acquiring or much more closely partnering with providers in primary care, ambulatory areas, and home health to align incentives and create more unregulated fee streams, which creates capital allocation flexibility for their overall enterprise. Simultaneously, providers are becoming "payvidors" by taking on risk. In the healthcare technology and tech-enabled services sector, companies are essentially derivatives of their end markets, whether provider-facing, payer-facing, or pharma-facing, each navigating the macroeconomics of their respective supply or demand side, and endeavoring to sell services and/or software to help those end-markets run their businesses more efficiently, and/or to drive additional revenue.

M&A Activity and Driving Factors

Sohum: What is the state of healthcare services and healthcare IT M&A activity today? What key factors will drive an increase in healthcare Services and healthcare IT M&A activity going forward?

Ian: Health services and healthcare IT M&A activity is in a reset from the peak of 2021, but we're seeing greenshoots for a gradual, sector-based and company-specific recovery. Three key dynamics are driving this. First, bid-ask spreads were quite wide in 2023 and 2024 due to post-pandemic reevaluation of forecasts and valuations. We're starting to see these narrow as there's greater macroeconomic and sector-specific clarity.

Second, the cost of capital is a factor. Elevated interest rates tend to reduce multiples, but we're moving towards greater clarity on the pathway to reduced interest rates, which enables better planning and forecasting. The most challenging cost of capital environment for M&A is one in which rates are high and could go higher, or could go lower – that creates uncertainty, which makes it difficult for companies to plan. If it is difficult for companies to plan, it is thus difficult to forecast with confidence, and thus that creates wide error bars around valuations. When that happens, it is challenging for a buyer to price a target in a way that overlaps with the seller’s view of their valuation.

Lastly, there's an increased focus on the achievability of target company forecasts. As the macroeconomic picture becomes clearer, both target companies and acquirers can better dimensionalize forecasts, synergies, and value. As these factors improve, we're likely to see an improving M&A environment in both services and health tech.

Healthcare Subsector Activity

Sohum: Which subsectors within healthcare are seeing the most activity and why? The least?

Ian: We're seeing elevated activity across almost all subsectors. The key differentiation is less about sector and more about specific companies and their positioning. We're likely to see increased activity in value-based care, especially companies that can manage specialty care costs and those in government business (Medicare Advantage, Managed Medicaid, duals). Virtual health is another area of focus, as companies seek to create broader solutions for whole-person health and drive scale.

Companies that can drive operating efficiencies by automating previously labor-intensive functions, including AI applications, are also attracting attention. Behavioral health is another area ripe for consolidation, as MSOs seek to scale, address broader acuity ranges, and drive more measurable outcomes. The focus is on companies that can fill capability gaps, align with long-term value creation plans, and address specific market needs efficiently.

Tech Integration & Verticalization

Sohum: With the increasing integration of technology (including AI) in healthcare, how do you see traditional healthcare players adapting to these changes? What role does M&A play in the verticalization of healthcare technology?

Ian: Traditional incumbent healthcare players are leveraging technology in three main ways. First, through self-help via internal teams, recruiting data scientists or repurposing staff for specific technology missions. Second, by commercially contracting for technology solutions, either with big tech hyperscalers or specialized HCIT companies with healthcare domain knowledge. Third, by acquiring healthcare technology companies to bolt technology into their own DNA and ensure control over its benefits.

Regarding verticalization, there's no faking healthcare expertise. Solutions must start from identifying an unmet need and deciding on a clear way to attack that need, often involving technology but also human intervention. The key is fashioning the right combination of capabilities, software, and services to deliver a replicable and scalable ROI. M&A plays a crucial role in this verticalization by allowing companies to acquire the necessary technology and expertise to create comprehensive, integrated solutions.

Post-Merger Integration Challenges

Sohum: Healthcare is a complex industry with various stakeholders. What unique challenges do you see in integrating healthcare companies post-merger, especially considering regulatory and patient care considerations? Does this inherently decrease the likelihood of successful M&A activity within healthcare?

Ian: Certain aspects of post-merger integration are vitally important to the success of a deal. This includes planning for teams responsible for success, setting milestones for the first 180 days post-closing, and establishing key performance indicators for the first year. It's important for leadership to recognize there's a range of outcomes, hold themselves accountable to hitting milestones, and mitigate risks early, while also carefully considering reasons for deviations from those milestones.

Most M&A deals need to hit escape velocity within the first year post-acquisition. While healthcare's complexity doesn't inherently decrease the likelihood of successful M&A, it requires careful planning and alignment between people – that requires a meshing of cultures and collaboration within teams. The foundation for a successful M&A deal is that both sides of the deal are committed to delivering on the integration, and a healthy mix of strong leadership that listens to the teams “on the ground” and has operational discipline, a collaborative culture that plays to win, and economic incentives are supportive of this.

Investing in Digital Health

Sohum: As digital health companies start to seek additional rounds of financing or explore sales, what aspects of quality and value do they need to demonstrate to be investable assets? What is the theoretical bar to meet?

Ian: The most investable digital health companies in 2025 will have several key characteristics. Firstly, they need to deeply understand healthcare and be purpose-built to solve a specific healthcare problem in a clearly-defined end-market, with strong healthcare expertise on the leadership team. They must deliver an undeniable and clear hard-dollar ROI relative to unmet market needs and competitor sets, in a way that is generally explainable in plain English. One of the key tests for the quality of a digital health company: if the market it serves and the value proposition it delivers is not explainable in 1 or 2 sentences, it is not going to have an easy time monetizing itself in a financing or sale transaction today. Also, a scaling plan with the right team, relationships, and go-to-market strategy is crucial, as is the ability to convert pipeline into annual recurring revenue.

Other important factors include appropriately leveraging the hyperscaler big tech ecosystem, having a product roadmap that complements existing HCIT infrastructure (whether that is Epic or others), and clarity on unit economics and pathway to profitability. Investors are taking a back-to-basics view, focusing not just on potential exit valuations but also on the pathway or method to exit. Companies need to demonstrate their long-term viability and ability to navigate various exit scenarios, as the past 2 years showed that one cannot always count on the IPO market to be available beyond specific windows.

Digital Health Trends

Sohum: Given your expertise in this space, how has your view of digital health changed over time, pre-pandemic vs. post-pandemic? Looking at your crystal ball, what does the future hold in store for these solutions?

Ian: Digital health started gaining recognition pre-pandemic with meaningful use, digitization of health records, more robust applications of technology to traditional healthcare problems, as well as with the 2015-2016 and 2018-2019 IPO cohorts. The pandemic accelerated adoption of these solutions out of necessity. Post-pandemic, investors are focused not just on utilization (quantity) but also on the value of many of the solutions that saw a quick apogee during COVID.

The best digital health solutions integrate content with infrastructure, similar to the vertical integration in medical-surgical supply or telecom industries. We're seeing a "tale of two cities" scenario: high-quality companies with multiple strategic options, who still need to navigate a reset valuation environment (including down-rounds because money is no longer free) vs. companies that have not reached escape velocity on their revenue growth plans who need to navigate more challenging financing and M&A negotiations. The future will likely involve continued integration of technology with healthcare expertise, with successful companies leveraging their customer interactions to drive R&D and maintain relevance in a rapidly evolving landscape.

Point-solution Fatigue

Sohum: The concept of point-solution fatigue has been voiced repeatedly. Is there a right or wrong approach to specialization of care for targeted populations? What novel approaches might you recommend to combat this problem?

Ian: The point solution versus full suite debate has been ongoing for decades – it’s a classic battle, like Coke vs. Pepsi or Michael Jackson vs. Prince. There's no replacement for a digital health solution that uniquely excels at what it does. For large customers with capacity to manage multiple vendors, quality point solutions may win out. However, full-suite solutions can offer simplicity, data interoperability, and quicker time to value for some customers – especially mid-sized customers with smaller bandwidth to manage a proliferation of vendors.

A key approach, regardless of being a point solution or full suite provider, is to use customer interactions to seed future R&D and maximize the relevance of the solution over time. This focus on continuous innovation and customer retention is crucial for long-term success in the digital health space. Equally, companies are starting to build massive data assets that are currently not maximally monetized. In a world increasingly being optimized by AI, differentiated data assets will be key differentiators to companies that can then drive next best action.

Strategic Advice for Disruptors & Entrepreneurs

Sohum: Do you have any words of wisdom for entrepreneurs building in digital health today?

Ian: Great question – and it is one I approach with a lot of humility. From the standpoint of someone focused on value creation via M&A, strategic advisory and creative financing, my advice would be to work backwards from a specific problem you're looking to solve and create a solution that addresses it in a simple, easily articulated way. It's crucial to deeply root your solution in healthcare expertise, whether clinical or in another area of healthcare.

Additionally, figure out how your solution plays well in the existing ecosystem with incumbents and hyperscalers. Maximize the relevance of your solution not just for today, but for the future, by strategically investing in R&D based on market needs and customer feedback. This approach will help ensure long-term viability and success in the competitive digital health landscape.

Upcoming Healthcare Trends

Sohum: What are you most looking forward to in 2025? What changes or trends in healthcare are you most excited to witness?

Ian: I'm really excited to see the promise of technological enablement in healthcare play out in 2025. This could manifest in various ways, such as businesses executing on existing acquisitions to become more technologically automated and better integrate population health management. We might also see large incumbents executing on M&A roadmaps to create new solutions around population health management and engagement with government-sponsored populations.

As we get more clarity on interest rates and public equity market volatility, and as bid-ask spreads narrow, I think we'll see significant M&A activity that will shape the future of healthcare delivery and technology integration. Perhaps the question is whether that activity materializes starting in the first half or second half of 2025. Overall, I'm looking forward to seeing businesses focus on solving specific problems and creating value by improving patient outcomes through innovative technological solutions, and M&A can be a massive tool in the toolkit to achieve that.

Architect Health’s telehealth vendor management operating system simplifies vendor evaluation, accelerates payer procurement, and ensures measurable ROI for payers. Architect Health is supercharging payer purchasing and eliminating the telehealth bottleneck, relieving point-solution fatigue. Architect's Digital Health Quality Index has vetted and scored thousands of telehealth solutions on efficacy, company reliability, and health equity. Co-founders Sohum Shah and Sidd Hariharan have deep expertise working with health plans and have built care management programs and aligned technology for Humana and BlueCross BlueShield. Architect Health is backed by Drive Capital, Entrepreneurs Roundtable Accelerator (ERA), Cherrystone Angel Group, Plug and Play Ventures, Service Provider Capital, and strategic advisors.

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