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Private Equity in Healthcare

Private equity investment in the healthcare sector has continued to grow, despite concerns over its impact on medical quality and cost. According to a new report by market data firm Pitchbook, PE firms announced or closed an estimated 863 deals in 2022, making last year the second-highest on record for activity in the sector, after 2021. While the pace of dealmaking is expected to slow in the first half of 2023, there could be a rebound in the second half of the year if macroeconomic conditions stabilize.

Although some proponents believe that PE investments can improve operations for payers and providers, others have raised concerns that PE firms prioritize short-term profits over patient care, resulting in poorer and costlier care. This claim is backed up by several studies, which have found that PE interference can impact the quality of nursing homes, autism care, and rural hospitals, and can lead to higher charges for patients.

Despite these concerns, the healthcare sector remains an attractive area for PE investment. The recent primary care M&A frenzy, for example, has benefited PE by creating an "extremely dynamic" exit landscape for primary care, behavioral health, home health, and multispecialty network assets, according to Pitchbook. In addition, physician practice management companies are less exposed to staffing shortages, suggesting that the PPM landscape for deals remains robust. 

Looking ahead, the report suggests that care models that sidestep staffing issues, such as cash-pay in-home care, or those that boast high workforce efficiency, like ambulatory infusion, are likely to see heightened interest. In addition, the recent consolidation in the sector is set to continue, as nearly three-quarters of US doctors now work for corporate entities such as private equity firms, health insurers, and hospitals, up from 69% in 2021.

For more information on the outlook on the healthcare industry in 2023, please contact our team today.

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