Private Equity’s Healthcare Surge

By: David Ostrowsky

Private equity’s prevalent influence in healthcare is not a new story. It goes back to at least the mid-2000s when, after decades of securing a foothold in a wide swath of industries including manufacturing and telecommunications, many PE firms started viewing the acquisition of healthcare facilities as their next opportune investment. Over the following twenty or so years, these investment firms would make their presence known in a multitrillion-dollar industry that promises dependable cash flow among other enticing features. This decade, the trend has only intensified as PE firms across all quadrants of the country have increasingly backed all types of healthcare facilities—from physician practices to nursing homes to fertility clinics—in hopes of accelerating twofold or even threefold returns on their initial investments.

How prominent is private equity’s influence across the healthcare landscape? According to the American Medical Association (AMA) Journal of Ethics, the valuation for PE-backed acquisitions in healthcare has expanded to over $150 billion since 2020. Going back a little further, the number of PE-backed acquisitions of healthcare facilities nearly tripled from 2010 to 2021, per a recent report from Kaiser Family Foundation (KFF) Health News.

Yashaswini Singh, a prominent Johns Hopkins University healthcare economist, stated in a recent interview with KFF Health News that private equity is merely one element of a more global “corporatization” of healthcare in the U.S. As he goes on to say, “There’s been a longstanding tension between medicine as a profession and healthcare as a business. The key concern has always been that business obligations to shareholders might not align with physician obligations to patients.”

Some blame private equity ownership of healthcare facilities for escalating prices, abrupt staffing changes, and substandard patient care. The correlation between a staffing shortage and subpar patient experience is quite logical: Fewer physicians and nurses on hand would naturally mean that more patients are sitting in the waiting room longer and/or rushed through appointments. The critics argue further that PE firms, generally speaking, don’t prioritize properly managing patient panels and clinician personnel or ensuring that service delivery streams are optimized for patients. They, it is argued, want to maximize profit as quickly as possible—usually between 3-7 years—before flipping their investment.

Yet, proponents of private equity-fueled healthcare investments posit that the flurry of activity infuses desperately needed capital and solid operational expertise into independent practices that are staring down lower reimbursements and higher operational costs every single day. In other words, it may not be wrong to suggest that without the infusion of PE capital, such facilities would be at risk of closure, reducing the amount and quality of available care. Furthermore, from the perspective of some physicians who operate their own practices, it can be incredibly exhausting to manage business operations in addition to providing care for patients. The prospect of either partnering with or selling their practices to PE firms that would handle the business side can be incredibly appealing.

Either way, it seems safe to say that private equity is not leaving healthcare anytime soon. For PE investors, the lure of entering a sprawling ecosystem of physician practices ripe for consolidation under unified management can be too appealing to pass up. For a PE firm, the opportunity to run a string of businesses under one established platform in a cost-efficient manner could mean reaching another stratosphere of return on investment.

But, of course, private equity stakeholders themselves represent an extraordinarily miniscule component of the healthcare ecosystem. Patients represent the overwhelming majority of the healthcare ecosystem and it seems reasonable to believe that some of the neediest will continue to be shortchanged with this dynamic in play.