Private Equity Investment in Healthcare Could Come Under Increased Regulatory Scrutiny
Meanwhile, growth in PE investment in healthcare has been steadily outpacing the wider sector for years.
Despite a challenging regulatory framework, growth in PE investment in healthcare has been steadily outpacing the wider sector since 2009. In 2000, there were 191 PE healthcare deals, whereas by 2020 that number had risen to 2,360, the highest total on record. The lead investor from 2007 to 2020 was Amsterdam-based Alpinvest Partners, while the leading US domestic investor was Kohlberg Kravis Roberts in New York.
There were 1,975 PE healthcare deals closed during the first nine months of 2021.
Interest among private equity firms in healthcare services is expected to continue to grow in the short term, but analysts at Colliers caution that such investors are likely to come under increased scrutiny.
“Restructuring often results in cutting overheads, most notably staffing,” notes a recent report on private equity activity in the sector during the fourth quarter. “It is critical that service quality and outcomes are sustained and improved upon without passing on notably higher costs to clients. Investment in innovation and technology can result in new and improved services.”
In addition, the Centers for Medicare and Medicaid Services (CMS) recently announced a push for greater transparency in how private equity-owned healthcare firms operate.
“There is a perception in some areas that consolidation by PE owners can adversely impact the quality of care,” Colliers’ Stephen Newbold and Shawn Janus note in the report. “The CMS is also investigating whether profits are being boosted by steering patients to non-essential procedures.”
The acquisition and consolidation of private practices are at the core of the expansion of PE interest in healthcare services, with firms increasing diversification across asset locations and healthcare services, Newbold and Janus say. They point to service areas like ambulatory care, healthcare technology and telemedicine, long-term care and senior living, behavioral health, managed care and diagnostic services as particularly of interest to investors.
“Investors are attracted to healthcare because the demand for healthcare services constantly needs to rise further as the US population ages. This makes the sector more recession-resistant, as evidenced by its robust performance during the global financial crisis,” the report notes. “Accordingly, the healthcare sector is viewed as having long-term performance potential coupled with less volatility. The COVID-19 pandemic has served to heighten investor demand further due to its exponential impact on demand for healthcare services and therapies.”