Private equity investment in the industry is receding, not increasing.
As private equity’s involvement in healthcare continues to draw scrutiny for its potential negative consequences, it’s fair to ask just how prevalent PE is in the industry.
A new report by PitchBook, titled Quantifying PE Involvement in Healthcare Providers, offers the answer that PE’s role is “vastly overstated,” indicating that PE investment is trending away from providers.
The research estimated that the aggregate revenue of PE-backed providers in the country is at $117.7 billion for 2024, which accounts for just 3.3% of total US healthcare provider spending.
Regulatory conversation around PE has seemingly picked up and gained traction, but the report notes that PE investment in healthcare is not new. While the number of PE-backed companies in the industry has increased from 350 in 2017 to 648 at the end of this year’s first quarter, the year-over-year growth rate has declined sharply from 24.9% in 2018 to less than 1% in Q1 2024.
“PE firms are actively pivoting away from investing in healthcare providers and are instead seeking investments in other areas of healthcare, such as healthcare IT and pharma services,” PitchBook stated.
When it comes to physician employment, the growth is not primarily driven by PE either. Of all the physicians currently employed by either hospitals or corporate entities, 71.1% are hospital employed, while 28.9% are employed by corporate entities.
Interest in hospitals and skilled nursing facilities (SNFs) by PE has also waned. PitchBook highlighted that there hasn’t been a significant PE acquisition of a US hospital since 2018, while 98% of currently PE-backed companies are in categories other than hospitals and SNFs.
Finally, PE investors are avoiding out-of-network investment, according to the research. Investors pursued higher out-of-network rates in the past, but they’re now staying clear of them in categories including acute-care physician staffing, SUD treatment, and EMT.
Though the data shows PE’s role in the industry is not as significant as the narrative may make it seem, high-profile bankruptcies of PE-backed organizations like Steward Health Care are expected to put increased pressure on lawmakers and regulators.