Despite being a leader in medicine, the US healthcare system has been scrutinized for its slow uptake on new technologies, administrative burden, and arduous claims processes. Now, more is being done to address these challenges—and private capital has been taking on more responsibility to build a more efficient, less complex system. In this episode of McKinsey on Healthcare, McKinsey Senior Partner Prashanth Reddy sits down with Matt Holt, managing director and president of private equity at New Mountain Capital, to consider what private markets can do to improve the US healthcare system and ultimately enhance patient care.
Holt and Reddy last spoke five years ago about the potential for healthcare investing to drive innovation.1 Just weeks later, the COVID-19 pandemic upended the global healthcare landscape, exposing vulnerabilities and accelerating transformation across the system. In this follow-up conversation, Holt reflects on how the US healthcare system has evolved in the years since and the shifts that have reshaped care delivery, technology adoption, and investment priorities. In this interview, Reddy and Holt discuss how private markets can bring value to healthcare systems, serving as a catalyst for innovation and modernization. Data transparency and system interoperability, Holt notes, will be important to improve the public’s relationship with healthcare and allow patients to have more ownership over their health. And partnerships across all stakeholders in the industry will be vital to create the guidelines for change and enact it smoothly.
For Holt, the driving motivation is simple: making the healthcare system work better for patients and families. While the discussion that follows explores the business mechanics of healthcare—administrative efficiency, interoperability, and data flows—those efforts are ultimately in service of real outcomes: making it easier for people to get the treatment they need, where and when they need it most. Ultimately, the aim is to build a healthcare system in which strong returns support stronger outcomes for patients and communities alike.
An edited version of their conversation follows.
Investing in the new age of healthcare
Prashanth Reddy: How have the core tenets of your investing framework evolved over the past five years, if at all? How do you see them evolving going forward?
Matt Holt: We’ve been studying and investing in the healthcare technology market for approximately 15 years. Over the first ten years, three core tenets shaped the framework of how we invested capital. The first one is the reduction of administration costs and the reduction of administrative inefficiency: converting paper to digital and manual to automated processes. Tenet number two was enabling the shift to an outcomes-based system, and number three has been supporting digitalization along the way as you generate data and information.
Over the past five years, those three tenets—reducing administrative costs and inefficiencies, shifting to an outcomes-based system, and digitalization to generate better data—have expanded as the market became larger and more nuanced. Our core tenets have grown, shaped by the addition of new market drivers. There are now six tenets: The first is the empowerment of patients—we’re finally entering a time in the industry where consumers, patients, have a stake and a voice. Number two is the democratization of patient data and information. Number three is the acceleration of interoperability, breaking the silos between patient data and information sources. Number four is the removal of administrative waste and the restoration of patient trust. Number five is the convergence of clinical and financial decision-making. And number six is the enablement of next-generation research. These are the six core tenets we’re investing in today.
Prashanth Reddy: That’s expanded and specific, which is a combination I like. We’ll discuss those more in the second half of our conversation. But to pull us back to a broader macro view for now: Private capital continues to play an increasing role in healthcare and life sciences. From an investor’s point of view, what makes this an interesting market?
Matt Holt: Private equity has some specific advantages when it comes to accelerating value creation. Private companies relative to publicly traded companies can manage based on long-term timeframes, but they’re also often set up to enable the transformation of business processes in the short term. Those features position the private market—and the private equity market in particular—to drive the modernization of the US healthcare space.
Private markets’ role in transforming the healthcare market
Prashanth Reddy: How do you think the ownership model of private ownership and private markets impacts affordability, access, and quality?
Matt Holt: When it comes to driving transformation, private ownership and private markets can influence people and process in a way that unlocks value on an accelerated timeline. With respect to where you play in the industry, there are different ownership models that are suited to different components of the value chain.
Prashanth Reddy: The public perception of private-capital investments in healthcare hasn’t always been positive. How would you respond to some of those concerns? How do these perceptions impact your strategy and thesis as you think about investing?
Matt Holt: If you look at the history of private equity interest and investment in healthcare, the majority of private equity capital investment over the past 20 years has been in and around owning the regulated entity, the provider of care, and the owner of the license.
Over time, private equity has increasingly been investing in efficiency, which is what New Mountain Capital has been focused on over the past ten to 15 years, building the tool kit and bringing modern technology—what I call modern business process—that may be standard in every other industry into the healthcare industry, which has largely lagged in this area.
Prashanth Reddy: Over the past maybe ten to 20 years, you’ve been willing to make bold moves in your underwriting process and growth thesis for bolt-on investments. What has given you the conviction to make these big bets?
Matt Holt: It starts and ends with the quality of the team and their track record and experience. As a firm, we have been building out a talented team and organization to both invest and operate, including the build-out of our operating partners, which is a supporting team for our portfolio companies. Our team of investment professionals increasingly has a track record of replicating success. There’s the team complexion within our own firm and the team members at the portfolio companies themselves. That unique makeup allows us to underwrite and use value creation approaches that have previously worked. So while it looks like we’re being bold or taking more risks from the outside, we’re really re-underwriting elements of value creation where we’ve been successful previously. We also are able to avoid mistakes we have made in the past, and we catalog those lessons learned. Ultimately, our business model is in a constant and continuous improvement process, allowing us to stay ahead of the market and jump on the next generation of opportunities we see in the industry.
Combining private-market innovation with healthcare’s mission
Prashanth Reddy: You’ve talked before about injecting a venture innovation mindset into a private equity platform. How do you see that playing out?
Matt Holt: The venture market is good at corralling the best talent in the world, building and designing modern cutting-edge product road maps, and building out best-in-class engineering capabilities and corresponding products. Combining that element of the market with access to scale—scaled access to data, scaled access to workflow, and scaled access to customers—is where private equity can add a lot of value. Marrying innovation with access to scale speeds up the commercial adoption of those modern tools that are accelerating the technology market today.
Prashanth Reddy: What are the top concerns you want to address in the healthcare system?
Matt Holt: There are three major issues with the current state of the US healthcare system. Number one, we continue to have suboptimal health outcomes compared to other countries, especially relative to the historical economic investment associated with the industry. Suboptimal health outcomes is a major issue across maternal mortality rates and infant mortality rates, for example. I could list a whole set of clinical KPIs where we’re lagging, and we shouldn’t be in this country.
Number two is growing costs. We’re really at a breaking point in terms of the portion of the US economy that’s being absorbed by cost within the healthcare industry, and that’s something that continues to be a burden at a system level.
And number three, the increasing administrative burden, which is correlated to cost, makes the system challenging to navigate as a patient, as a physician or provider, and as a supplier. There are huge opportunities to simplify the system and use modern technology to attack the administrative burden. Correspondingly, costs should be reduced over time and outcomes should improve. So the solutions to number three will ultimately help us address number two and number one, as well.
Expanding data protections to increase data liquidity
Prashanth Reddy: Maybe we can pick some of the themes you started off with, including empowering patients, democratizing patient data, enabling next-generation research, and accelerating interoperability. Let’s start with the role of data. We had a conversation five years back on this when data’s role had a different level of maturity. When you think about price transparency and giving patients greater access to clear and transparent data on the cost of services, how do you think that can be possible with all the friction that exists in the system today?
Matt Holt: Transparency is directly linked to supporting patient or consumer choice. We have a structural issue today in that we have a lack of transparency across the system. Being able to shop across markets and push more power to the consumer and to the patient is ultimately an outcome of greater transparency. Price transparency regulation drove the availability of more information for patients. We now need more tools to make that data consumable and the ability to link it with quality and clinical data to really empower patients.
Data transparency can also facilitate patient IDs and matching. The US healthcare system and technology infrastructure is based on the claim of the transaction, meaning we center on the financial side of healthcare, not the patient or their health. Of course, privacy and security are paramount considerations; however, we must balance putting the patient at the center of technology systems to evolve the system to become more outcomes-based and healthier. Duplicate procedures and defensive practices inflate costs healthcare costs. If we could have an underlying patient ID system that profiles their health history and symptoms and follows patients through the system, we could better ensure precise, accurate performance and delivery of service. Then, products will create efficiency in the system and drive better outcomes.
Prashanth Reddy: Patients are already owning and managing their healthcare data through wearables. How should the industry shift the paradigm for patients to further own their healthcare and medical records?
Matt Holt: There is a counterintuitive element that I believe should be a point of focus for the industry and that will unlock a lot more value for the patient: It is to expand privacy protections to all healthcare data uses. That is something that has been at odds with a lot of industry participants who’ve been looking for data liquidity, but the expansion of privacy protections is critical to building a system patients trust. Expanding privacy protections is an objective that private-market participants and the government should focus on to enable the right data liquidity. Technology gives us the ability to build granular controls around data sharing that can enable reduction in administrative burden but still ensure privacy is at the center of every exchange.
Prashanth Reddy: That is counterintuitive. Many of these entities are trying to open the tap for data. You’re saying expanding protection can make even their markets more efficient.
Matt Holt: The value proposition of data controls allows AI technologies to have access to the right information in a way that society and the patient population can have trust in, which is fundamental for the system to work. That concept of data controls, certification, and compliance with consent and with stakeholder participation is important.
Prashanth Reddy: On the flip side, if there’s a breach, there needs to be real consequence management.
Matt Holt: We live in a world that’s increasingly dangerous with respect to cybersecurity incidents. Patient information and healthcare information is the most sensitive in the world. It’s another reason why data controls and systems are vital to create a marketplace for the use of this data, which will unlock the power of AI in this market.
I always highlight the complexity of the market. If you go out into the market and you say, “Who owns the patient’s data?” The provider of care will say they own the data. The health insurance company or the employer or the funding source that’s paying for it and reimbursing the care will say they own the data. There’s a whole set of vendors who have inserted data rights access into their contracts with those parties. They will say by legal contract, they own and have access to data.
Fundamentally, patients are the ones who have and should have the control of access to their own data. They should have the power and be empowered to share their data with those stakeholders if they choose. That speaks to the need for a framework that enables consent. It’s not the framework’s job to decide who owns the data. It’s the job of the framework to enable a choice across the ecosystem and ensure data moves securely and compliantly. That will help us get a more efficient and outcomes-based system.
Reducing the administrative burden in healthcare and enhancing interoperability
Prashanth Reddy: What’s your overarching vision for interoperability in the healthcare system?
Matt Holt: Several issues are preventing true interoperability. Right now, data is being moved from point A to point B to support one use case. It’s important to have an interoperable system to allow multiple use cases to sit on top of one underlying workflow across a consent network. At the highest level, I want data to move with patients through their delivery of care and seamlessly through the administrative processes that keep the American health system running. The other goal that has been elusive in the healthcare market has been the concept of data reuse. There’s a lot of data that’s moved from point A to point B to support one use case, and then the data from there is no longer used. I think you will need a framework in which government intervention is partnered with market-based solutions to enable data reuse. That could be an incredible way to improve efficiency and data liquidity and will be a critical element to improve interoperability.
Further, we need standard data formats and APIs across EMRs [electronic medical records] and other sources of clinical data. There’s a lot of data that’s being gathered to support administrative functions, which has value in clinical interventions. Pushing the sector forward through regulatory frameworks that can address things such as data integration and reuse and protecting patient privacy will help build out a system that is more outcomes-based.
Prashanth Reddy: What effects do administrative burdens have on the US healthcare system?
Matt Holt: The administrative burden we’re currently dealing with in the US healthcare system creates higher costs and prevents us from meeting outcome goals that we should be meeting. Hospitals and health systems spend over $250 billion annually on costs associated with billing and collections, which are two areas that often have significant errors and inefficiencies. If we invest in more-streamlined administrative efficiency, then we can help the industry speed up. The lack of efficiency is causing processes to take a long time and is raising costs. We are starting to see new platforms come together in the market that are combining agentic AI agents with scaled human-in-loop delivery capabilities and clinically driven billing algorithms in order to optimize and automate revenue management workflows across healthcare organizations’ operations.
This is a good example of using technologies to speed up payments, which helps to take cost out of the system, increase administrative efficiency, and move the system from reactive to more preventative.
The opportunity for all stakeholders to improve healthcare—and put patients at the center
Prashanth Reddy: What are some of the decisions that private-market and public-market participants could make to maintain the edge our country has in this space?
Matt Holt: The system is all interconnected. If we can build an IT system and framework that enables real-time payment and reduces administrative burden, there is a tremendous amount of data and information that can be gathered and managed. A segment of the industry that could benefit greatly is the life sciences market.
In R&D, having more data and information—always with patient consent—should enable faster development of new therapies and products. The biotech industry has been suffering in many ways because of the time it takes to develop new products and get them approved and then paid for. The United States should continue to be an innovation hub for life sciences R&D, speeding things up to be more cost efficient and bringing better therapies and solutions to the market.
The other area that is poised for improvement is existing on-market drugs and therapies. We see a gap between the therapies and the products that are available on the market and the patients that need and deserve to benefit from those modern technologies. That gap is wider than it’s ever been. It’s important for us to enable and invest in businesses that can speed up, for example, the timeline between prescription and first dose within the pharmaceutical industry.
It sounds really complicated because there are a lot of stakeholders. As we look forward, simplifying the framework means bringing all these stakeholders together and putting the patient at the center of the system, then building the data and information systems around that patient instead of building an IT system that puts the claim or the transaction at the center. That’s the framework we’ve used to support our investment prioritization, business building, and transformations.
Prashanth Reddy: What opportunities are there at the federal or state level that could further accelerate these goals?
Matt Holt: I believe it’s the role of government to incentivize the system we want to have as a country—and to be a catalyst for the rules to go into effect. The government and regulation are critical to start the journey toward the healthcare system we deserve as a nation. Then it’s the role of private markets to finish the journey. In partnership with government, I think private markets can enable the disruptors to modernize, break through some of the historical roadblocks, and then incentivize the legacy incumbents to operate more efficiently.
Prashanth Reddy: How achievable do you think that is, and what do you think it’ll take for us to get there?
Matt Holt: I believe it’s very achievable. I think it will take a lot of work. It’ll take partnerships. We all live in an ecosystem, and I believe it’ll take an ecosystem mentality and approach to change the US healthcare system. It will take partnership and alignment across the ecosystem to effectively change.
