Maximizing Healthcare Private Equity Investments

Investment in healthcare has been especially strong, with notable growth in investments in medical technology.

FREMONT, CA: Private equity poured into the healthcare industry at a record rate. Increased caution prevails among investors, and the investment is an important development for financing healthcare and the sector's ownership. Many people favor private equity firms' push in healthcare, claiming that the surge in investment will improve management and operations.

Others see the entry of profit-seeking enterprises as pushing up healthcare costs and fragmenting an already fragmented healthcare system, particularly in the US.

Maximizing return: Some people do not believe private equity is a boon for the healthcare industry. Investors in private equity are making money, and the companies they invest in are ones they believe will provide them with a significant return on investment. To maximize returns, private equity firms aim to increase healthcare costs. They often want to cut costs by reducing staff, consolidating services, or narrowing networks. These actions can increase patient costs and reduce the quality of care they receive, which can ultimately impede the industry's progress.

Surprise billing is common among private equity-backed staffing firms, which drives up healthcare costs. Surprise billing occurs when patients are billed by out-of-network providers even though they were seen in-network.

Ripe for change: According to McDermott Will & Emery and WSJ Intelligence, part of The Wall Street Journal, 40 percent of private equity firms plan to invest in healthcare IT and telehealth in the next three years, followed by 37 percent who plan to partner with large health systems. A majority of respondents are interested in pharmaceuticals and biotechnology, as well as physician practice management. Recent pandemics have caused large health systems to struggle, and there has been a significant shift in profitable procedures away from hospitals.

Among the most important topics for survey respondents were healthcare inefficiencies, value-based care models, and cost reductions. The pandemic has accelerated opportunities to invest in new modes of healthcare delivery, with nearly three quarters agreeing that the sector was ripe for structural change.

Healthcare certainly needs innovation. In contrast, incumbents have miserably failed when implementing value-based care models. Certain private equity investment leaders have expressed support for value-based care, and the incumbents do not need to be disrupted completely. The situation might improve with private equity investors, but she is skeptical.