Over the past few years, private equity firms have significantly increased their stake in U.S. healthcare providers, acquiring everything from nursing facilities to short-term acute care hospitals. And on a global level, private equity investments are significantly increasing in both deal volume and deal value, with favorable government regulations and consumer behavior helping expand private equity markets in North Africa, India, China, and Southeast Asia.
Not only have these acquisitions provided returns to equity investors, but they’ve also changed the way many of these facilities operate. Below, Afsane Jetha—the co-founder, managing partner, and CEO of Alta Semper Capital—explains more about the important role private equity investment plays in the healthcare industry.
Private Equity’s Effects on Healthcare
Although it’s too early to assess the long-term impact that private equity acquisitions can have on the global healthcare industry, just a couple of the more immediate effects include increased compliance rates and improved efficiency.
Healthcare providers are subject to a broad patchwork of regulations—and compliance isn’t a given. Companies that operate in more than one country may find themselves constantly scrambling to determine their obligations. When a private equity firm acquires a healthcare facility, it often leads to greater adherence to government rules and regulations. “Private equity capital can force providers to reduce fraud and abuse and improve their billing practices,” Jetha explains.
Many private equity firms are interested in aggregating fragmented medical providers, particularly physician practices. By acquiring multiple practices and combining many of the administrative tasks—from purchasing to contract negotiation—private equity firms can improve their overall efficiency and streamline the practice of medicine. This also creates a blueprint for future acquisitions that can reduce transactional and operational expenses.
What Can Private Equity Investors Expect Going Forward?
In 2020, private equity acquisitions of healthcare facilities declined a bit due to the COVID-19 pandemic—but they came back with a vengeance in 2021. In 2019, the total private equity investment in U.S.-based healthcare providers alone was $79 billion; in 2020, 380 deals totaled $66 billion; in 2021, 515 deals totaled $151 billion. Many of these investments were in telehealth, health information technology (HIT), and digital health, with investors interested in using this cutting-edge technology to improve the healthcare sector, increase efficiency, and generate higher returns.
A recent survey indicated that about 40% of private equity investors were interested in pursuing telehealth and healthcare IT opportunities from 2022 through 2025, while another 30% were interested in pharmaceuticals, biotechnology, and physician practice management. On a broader level, many respondents are interested in improving healthcare inefficiencies, expanding value-based (rather than procedure-based) care models, and reducing overall costs of care.
“Looking forward,” Jetha explains, “the biggest areas of investment opportunity are likely to include telehealth and HIT.” These structural changes are likely to continue as private equity firms continue to funnel money into practice management and healthcare technology.
The pandemic has also impacted the profitability of large health systems, with the most profitable procedures moving to outpatient settings rather than hospitals. Technology may have the potential to reverse this trend or at least slow the migration, helping larger health systems maintain profits during a time of market disruption.
Private equity investments can take a number of forms, from commercial real estate to accounting firms to sports franchises. But its investment in healthcare may be the most impactful—after all, healthcare is one of the most universal human needs, and the healthcare industry worldwide has suffered through some major changes over the past few years. “Private equity investors who pursue healthcare investments can earn returns while also helping reshape a struggling industry,” says Jetha, “which is an uncommon opportunity in today’s markets.”
About Afsane Jetha:
Afsane Jetha is the Co-Founder, Managing Partner & CEO of Alta Semper Capital, a private equity manager founded in 2015 alongside Ronald Lauder (Chairman of Clinique LLC) and Richard Parsons (former CEO of Time Warner). The mission of Alta Semper is to invest flexible and strategic capital across selected growth markets, with a focus on the healthcare and consumer sectors.
Alta Semper today manages funds on behalf of its founding shareholders as well as various US and European institutions and is the most active investor in the healthcare space in Africa over the last two years. In recent years, the firm has invested in pharmaceutical manufacturing, retail pharmacy, cancer care, and diagnostics platforms in Egypt, Nigeria, and Morocco.
Afsane holds an MBA from HarvarkArtid Business School and a BSc in Economics, from The Wharton School at the University of Pennsylvania. She has strong personal and professional ties to East Africa, being a fourth-generation Tanzanian.
For more information on Afsane Jetha, please visit her Linkedin profile.