Healthcare private equity deals hit $90B in 2022
The high performance was due in large part to the white-hot pace of investment at the start of the year.
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Private equity in healthcare saw its second highest year on record in 2022, closing on roughly $90 billion worth of deals, according to a report from consulting from Bain and Co.
Despite a slowdown caused by macro-economic and geopolitical forces in the second half of the year, 2022 was still the second-best year on record for healthcare dealmaking, due in large part to the white-hot pace of investment at the start of the year, according to the report.
Total disclosed deal value reached nearly $90 billion, down from $151 billion in 2021 but still more than $10 billion more than the next-closest year. Bain's new report shows that ample dry powder and a track record of returns will continue to attract healthcare-specific funds in 2023.
"Healthcare private equity has earned a recession-proof reputation, typically outperforming overall private equity activity during economic downturns," said Kara Murphy, co-lead of Healthcare Private Equity at Bain.
WHAT'S THE IMPACT
Looking ahead to 2023, funds are tapping into new sources of capital, looking to carve-outs and public-to-private deals, and looking to sub-sectors that may perform better in the current market environment.
There are sectors worth watching this year, the report found, such as biopharma and life sciences. Six of the top 10 deals last year were in biopharma, life science tools and related services, and within these subsectors, more than 600 healthcare buyout deals have been executed over the past five years globally.
Another thing to watch: Sustained macro trends continue to drive value-based care adoption across a spectrum of care models. While investment activity remains focused on primary care and Medicare Advantage, opportunities across other payer and specialty segments are expanding.
Enabler models represent an attractive investment path, with adoption driven by a need for traditionally fee-for-service groups to participate in risk-based arrangements. Providers and value-based care enablers that can bend the cost curve with differentiated care models and advanced analytics are positioned to succeed, according to Bain.
This is likely to accelerate as regulation increases, data from early adopters is seen, and more capability-enhancing technology floods the market. Bain's analysis suggests fee-for-value arrangements will capture 15%–20% market share from traditional FFS providers in primary care by 2030, supporting further investment in the space.
Also worthy of note is that 2022 was a monumental year for generative artificial intelligence, with new services emerging in imaging and text generation. AI is already accelerating therapeutic discovery, optimizing supply chains and automating payer and provider back offices, Bain found. Use cases for generative AI are just emerging, and stakeholders are watching closely, ready to adapt when the time is right.
Lastly, despite healthcare historically underspending on technology, in 2022 healthcare IT buyout volume added up to be the second highest on record. With provider IT continuing to be the main driver, biopharma IT and payer IT are catching up. Within biopharma IT, Bain sees interest in businesses that use technology to support workflow productivity and reduce clinical trial length. Payer IT deals reflect continued interest in technology focused on payer administrative functions.
THE LARGER TREND
In September AHIP released a brief on private equity investments in healthcare, saying the need of these firms to achieve high returns, including through the use of provider consolidation, directly conflicts with the goal of lowering costs.
Over the past decade, there has been a rise in private equity investments in fee-for-service healthcare ventures, according to the brief.
AHIP contends that some private equity firms look to turn a quick profit by acquiring fee-for-service medical providers, such as physician specialties and ambulance services. They then sell their shares within three to seven years with the aim of delivering a 20% to 30% return in profit in that timeframe, the association for insurers said.
At least 70% of physicians in the U.S. are directly employed by a corporate entity or employed by a hospital-owned by a corporate entity, most often a private equity firm, according to AHIP.
Hospitals owned by private equity firms bring in nearly 30% more income than hospitals owned by other entities by using a number of tactics to boost revenue, AHIP said. These include, according to an Arnold Ventures report cited by AHIP, cutting staffing and supplies, pressuring doctors to bill for unnecessary services and up-coding claims.
Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com
