Private equity investment in healthcare down 20% as regulatory pressures mount
A new report shows private equity investments in healthcare have stagnated in 2024, as the downward trend seen since 2021 continues. However, the number of pending deals could signal a spike on the horizon in 2025.
An analysis from market research firm PitchBook estimates 158 private equity deals in healthcare services have closed since the start of the year, marking a roughly 20% decrease in the rate of investments compared to Q1 2023, which saw 200.
The reduced flow of private equity funds likely stems from changes in the regulatory landscape at the state and federal level becoming “much more complex over the past year or so,” and sales of healthcare investments have resulted in weak returns once firms finally sell, the report said.
While investors are not afraid of regulatory enforcement of antitrust laws, increased attention on the impact of private equity stakes in health systems has been exacerbated by the recent collapse of Steward Health Care. After the wave of bankruptices filed by healthcare organizations owned by private equity firms, public opinion is on the side of more stringent protections for patients and consumers—and that isn’t likely to change.
“Even if the public spotlight drifts elsewhere post-election, we fear a lasting effect on perceptions of PE’s interests and approaches among potential sellers and partners in the provider landscape, including physician groups and health systems,” the report noted.
Change Healthcare hack gives investors pause
PitchBook added that challenges with reimbursement as a result of the Change Healthcare ransomware attack have also left investors hesitant to move forward.
“The Change Healthcare cybersecurity breach, which began on February 21 and was resolved in mid-March, caused temporary delays in active deal processes as target companies scrambled to reconfigure their billing processes and buyers looked for assurance that revenue would normalize at previous levels,” the report stated.
The massive scope of the breach has highlighted the growing risks associated with HIPAA compliance and cybercrime from a regulatory and cost standpoint, the report noted. Ultimately, the regulatory attention the breach has engendered has given private equity firms a reason to reconsider their investments in healthcare.
Buyer-friendly landscape has changed
The economy has changed a lot since 2018. While funds are readily available and there are ample opportunities for private equity firms to invest in healthcare organizations, inflation has made the proposition more expensive. The Federal Reserve’s evident intent to keep interest rates high for most of 2024 has stalled deals, widening the bid–ask gap as investors look forward to the inevitable reduction in inflation rates that could push prices down.
However, PitchBook noted that there are a large number of deals currently in progress, which means private equity groups still have an appetite for healthcare—they’re just being more cautious with how and where they invest. It’s possible the downslide in investments seen since 2021 will bottom out in 2024, resulting in a wave of new purchases next year.
“Firms have deals in the pipeline, to be sure, but we expect most of these processes to progress slowly, with announcements trickling in toward the end of the year and activity picking back up in earnest in 2025,” the report said.
The full analysis from PitchBook is available here.
Chad is an award-winning writer and editor with over 15 years of experience working in media. He has a decade-long professional background in healthcare, working as a writer and in public relations.