Private Equity Continues Targeting Healthcare

The number of private equity deals in healthcare rose from 325 in 2010 to over 1,000 in 2021, according to research from the University of Pennsylvania Leonard Davis Institute of Health Economics.

“Private equity firms have invested nearly $1 trillion through thousands of deals to acquire hospitals and specialized practices in the last decade alone,” said Rachel M. Werner, MD, PhD, Executive Director of the institute.

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According to Sabrina T. Howell, PhD, currently an Associate Professor of Finance at NYU Stern School of business, conditions in both healthcare and private equity are driving the surge. “In 2021, U.S. health expenditures were 18% of GDP,” she said. “At the same time, the private equity industry has grown dramatically over the past couple of decades.”

The value of portfolio companies owned by private equity leveraged buyout funds was $2.6 trillion in 2021, with more than half of the investments taking place in the U.S. Private equity in healthcare jumped over 10x between 2004 and 2021, Howell said. Meanwhile, investments reached $150 billion in 2021.Additionally, private physicians are becoming increasingly interested in selling their practices as the healthcare industry continues to consolidate, according to the professor.

With demand remaining relatively stable in healthcare, the industry can withstand downturns, making it an attractive part of a larger portfolio that includes less-consistent sectors, she added.

The effects of private equity ownership on patient care are not fully recognized.

“There’s a lot more that needs to be done to fully understand the effects of private equity ownership,” Assistant Professor of Health Care Management at the Wharton School at the University of Pennsylvania, Atul Gupta, PhD, told Healio. “It’s very important to keep in mind that private equity firms are not inherently evil. They just have higher-powered financial incentives, and they’ll respond to those incentives.”