Private equity investors are changing where they put their money in healthcare.
Transactions with physician practice management companies remain the most popular choice, but the healthcare industry's shift toward value-based care and ongoing cost pressures are prompting private equity firms to rethink their traditional investment strategies.
Here are five takeaways from the report released Tuesday.
1. Private equity firms are interested in new care models
Healthcare providers face a challenging operating environment, including staff shortages, high expenses and low reimbursement rates. Economic uncertainty—and the negative impact it has on consumers—has jeopardized the performance of providers' ancillary cash-pay businesses. Given these challenges, private equity firms are showing more interest in areas such as healthcare IT, pharmaceuticals, new care models and multispecialty providers.
2. GLP-1's popularity could hurt providers
Rising interest in weight loss drugs such as Novo Nordisk’s Wegovy and Ozempic and their potential health benefits is putting pressure on traditional physicians as more patients demand treatment. It is also fueling an increase in telehealth platforms prescribing the medications. Clinicians are concerned about the adverse short-term effects on patients, but increased use of GLP-1's could also decrease procedure volumes in bariatric surgery, cardiovascular care and orthopaedics, altering the returns on private equity investments.
3. Out-of-network providers aren't popular
Investors were once focused on out-of-network and cash-pay providers to achieve the most profits. However, pushback from payers and industry changes such as the No Surprises Act have forced investors to reconsider. The law, which took effect in early 2022, has led some private equity-backed staffing companies to collapse, as it prohibits unexpected out-of-network bills for patients treated in an in-network facility. Envision Healthcare, backed by private equity firm KKR, filed for Chapter 11 bankruptcy protection in May, citing lost revenue due to the legislation.
4. Multispecialty groups are hot targets
As cost pressures persist and more care shifts to the outpatient setting, fewer investors are interested in rolling up smaller health systems. Private equity firms are taking a closer look at multispecialty groups for potential investments—groups that are catching the eye of mega-retailers like CVS and Walgreens. Investors also have shown more interest in specialized care, including cardiology, neurology and radiology.
5. Investors want in on value-based care
Payers and providers are becoming more aware of value-based care and its role in lowering healthcare costs. As the industry shifts, private equity firms are more apt to invest in these cost-saving operations. Primary care and multispecialty practices can fall into this category.
