Private Equity Investment in Healthcare

“Ten years ago, only a few private equity firms had dedicated healthcare components, but today, nearly everyone does” says Dmity Podpolny of McKinsey & Company, one of the largest consulting firms in the world. Private equity and medicine are now on the rise. For years, private equity firms have invested in healthcare. However now, the rapidity is significant private equity firms increase their presence in a compartmentalized healthcare industry, grasping on alliance opportunities to obtain a better business model. PwC Health Research Institute explains that “private equity’s acquisitions and investments in the health sector have become increasingly diversified and frequent; they include such things as new entrants in technology and convenient care delivery, contract research organizations, and ophthalmology and dermatology practices”.

Last year, private equity continued to move into new medical specialties, according to a 2018 report. The report outlined three major points to consider. The third quarter of 2018 saw roughly $30.4 billion in deal volume, rising 8 percent year-over-year. Private equity will likely continue to push into the health sector, specifically in medical specialty practices. Researchers estimate that industry players have roughly one million dollars to invest in certain businesses. The urgent care realm for example, has grown by 5.8% in 2018. PwC notes that due to the high quantities of these deals involving private equity, other firms may make the decision to sell themselves to these private equity groups to better improve their business model.

Moving forward, this means several things. PwC expects this trend to accelerate even more in 2019, giving conventional healthcare companies various opportunities to sell portions of certain “noncore” assets and really focus on their core functions. Alternatively, conventional healthcare companies could partner with private equity in acquisitions, which they would otherwise be competing against or unable to accomplish without the partnership. 

For example, last month KKR & Co., a private-equity firm, entered into an agreement to purchase Envision Healthcare, an emergency department staffing company. The deal was valued at $9.9 billion, including debt. If approved by shareholders, the deal would be the largest in a string of recent health-care investments by KKR. These investments include an ambulance service, a company that helps treat children with autism, and a creator of various medical devices.

What does this mean? Private equity is accelerating change in the industry. “Private equity investment in healthcare isn’t going to single-handedly improve care quality, enhance the patient experience or reduce healthcare costs to consumers,” PwC stated. “But it likely is fueling the efforts already in place.” Private equity firms bring wealth and knowledge from other industries that can contribute to the healthcare industry’s efforts to rein in costs and achieve better outcomes.