For the past few years, private equity has flooded the healthcare sector across the globe, with investors working to make healthcare more efficient while capturing returns even in down markets. In 2021, the total disclosed value of private equity healthcare investment in the U.S. alone more than doubled, reaching $151 billion over more than 500 deals. And though this booming market softened a bit in the last quarter of 2021, it roared back with a vengeance in 2022 and seems poised to do the same in 2023.
Worldwide healthcare markets are also feeling the impact of private equity investment. In the Asia/Pacific markets, deal volume and values both increased in 2021, adding to the steep increases in 2020. Reports indicate that private equity markets have benefited from favorable consumer behaviors and looser government regulations.
So what does this expansion of private equity investment mean for the healthcare industry? And what should investors know before pursuing a healthcare-related private equity deal? Below, Afsane Jetha, the CEO of Alta Semper Capital and private equity expert, explains more about the important role private equity plays in global healthcare.
Where Deals are Made
The COVID-19 pandemic accelerated private equity investment across the globe in digital health, health information technology, and telehealth, as many investors seem to agree that technology—particularly technology that works to improve the provider-patient relationship and reduce inefficiencies—represents the future of medicine. “The medical field was ripe for change before the pandemic hit,” says Jetha, “and smart investors took advantage of a buying opportunity as soon as they could.”
Other hot investment areas include physician practice groups and managed care providers, as investors have begun to look toward group purchasing as a way to acquire medical practices while improving overall management and efficiency. A number of recent surveys have indicated that private equity investors are primarily interested in healthcare IT, pharmaceuticals and biotechnology, and telehealth. In emerging markets,
“In emerging markets, the focus is increasingly on biopharma and life science tools,” Jetha explains, “which shows that private equity funds are looking for organizations that serve a broad array of market participants.” In other words, these investors aren’t putting all their healthcare eggs into one basket—or even one region.
However, private equity investment rises and falls just like other types of investments. For example, between Q4 2021 and Q1 2022, the healthcare private equity market in the U.S. dropped by nearly half, in large part because of rapidly rising inflation—increasing both labor and supply costs. But with this rapid inflation beginning to wane, investors are once again searching for the next diamond in the rough. And for countries that haven’t been walloped with high inflation rates like the U.S. and much of Europe are currently experiencing, private investment remains strongly in demand.
What Private Equity Can Mean for the Healthcare Industry
Although every private equity investor has their own goals for their investment, there are a few common threads among major investment groups that are beginning to reshape the industry.
Value-based care models
Many equity firms ultimately move their practices toward a value-based model. In value-based healthcare, providers are paid based on the ultimate patient health outcomes, not the specific services provided. This works to incentivize patients to improve their health—and avoid expensive procedures in the process.
Some critics of value-based care models argue that these providers tend to avoid patients with chronic, complicated, or hard-to-manage conditions. However, when managed correctly, value-based care models can maintain profitability while also improving patient outcomes.
Outsourced billing and staffing
Private equity has also begun to spur advancements in medical billing and staffing. Cost-cutting measures like surprise billing—though not without their critics—have increased provider revenues, while centralizing the billing process provides efficiency and allows practices to focus exclusively on patient care, not administrative overhead.
And since the complexities posed by today’s insurance plans show no sign of abating, outsourcing these tasks can reduce staffing needs, improve reimbursement times, and ensure that your practice is consistently recovering all the funds it’s owed.
More siloed providers and practices
One concern shared by a number of healthcare providers involves private equity’s focus on narrow practice areas—a radiology practice, or an emergency medical physician group. Some are concerned that by pigeonholing providers into niche practice areas, it may become more difficult for the average patient to access care in the future.
However, private equity’s foothold in healthcare is just beginning, and there’s plenty of time for the tide to turn. Investors that have an eye toward industry stability may want to focus on more integrated care providers to make healthcare easier to find, easier to provide, and easier to manage in the future. “Remember,” Jetha says, “a solid healthcare investment isn’t just about the rate of return, but the value added to the practice—and passed along to the patient.”
About Afsane Jetha:
Afsane Jetha is the Co-Founder, Managing Partner & CEO of Alta Semper Capital. The private equity management firm was founded in 2015 with the mission to invest flexible, strategic capital throughout selected growth markets. Alta Semper Capital primarily focuses on the consumer and healthcare sectors. Recently, the firm has invested in retail pharmacy, health tech, pharmaceutical manufacturing, and cancer care in Nigeria, Morocco, Kenya, Egypt, and—most recently—Pakistan.
Before founding Alta Semper Capital, Afsane worked for a large London-based emerging markets hedge fund as the managing director of its private equity platform, giving her the depth of experience she needed to hang out her own shingle.
To learn more about Afsane Jetha, you can visit her Linkedin profile.