Private equity firms are shifting their focus from providers to healthcare information technology and pharmaceutical services.
State and federal regulatory scrutiny has deterred private equity investment in healthcare providers, PitchBook analysts said in the company’s latest healthcare services report. But regulatory oversight of healthcare-related private equity deals has slightly cooled as certain state bills stalled in the 2024 legislative session, and the report says analysts expect more private equity activity through the rest of the year.
Related: Why private equity-linked sales of physician groups have slowed
Here are four takeaways from the report.
1. Private equity-backed deals declined in the third quarter
There were an estimated 148 private equity-linked healthcare deals in the third quarter, down 25% from the 186 transactions in the third quarter of 2023.
While analysts expect a modest end-of-year bump, deal volume is projected to drop 15% in 2024 compared with 2023.
2. Healthcare IT, specialty pharmacy investment picks up
Private equity investors are more optimistic for deal activity to rebound in the second half of the year, with much of that optimism focused on healthcare IT and pharma, not on physicians.
Last month, for example, private equity firm Resurgens Technology Partners invested in Movemedical, a medical device inventory management software developer. Terms of the deal were not disclosed.
Guardian Pharmacy, the private equity-backed company that provides specialty pharmacy services to long-term care facilities, raised $112 million in September via an initial public offering.
3. Private equity firms are holding onto physician groups longer
Private equity firms, which typically invest in physician groups through management services organizations, have been unable to find buyers for their physician practices. As a result, private equity companies are expected to hold onto those practices longer and grow them by rolling practices into other acquisitions, according to the report.
For instance, there are 19 private equity-backed mental health practices that have remained in investors’ portfolios for at least seven years, Pitchbook data shows.
4. Medicare Advantage market shifts hurt primary care companies
As insurers have dropped Medicare Advantage plans in some markets, value-based primary care companies have become less profitable, analysts said.
Value-based primary care companies often need to provide care for a large number of Medicare Advantage beneficiaries to remain profitable.
The report pointed to the October bankruptcy filing of Miami Beach, Florida-based primary care provider Clinical Care Medical Centers, which is backed by private equity firm Sun Capital. That filing followed an announcement form Cigna, which is cutting Medicare Advantage plans in Florida.
