Menachem Langer Knoxville on Private Equity in Health Care

Why Private Equity Investment is Big in Healthcare Right Now


By Menachem Langer, Knoxville TN M.D., MBA

Author bio: Menachem Langer, Knoxville M.D., MBA’s personal and professional background has provided him with a unique skill set that sets him apart, as his experience spans the full spectrum of healthcare. He has been in leadership positions at a large 1,061-bed dual site teaching hospital in New York City as well as in a community-based rural referral center. He has experience with all types of physician-based structures as well as union and non-unionized staff. Having an opportunity to have worked in such diverse organizations has provided him with a unique perspective, and the ability to solve problems and relate to multi-faceted cultural and social differences.


More and more investors are turning to private equity for their portfolios right now: bypassing the public exchange and instead investing directly with the companies themselves. This creates many more opportunities, by allowing investors to take on more formative controlling positions within the businesses that they invest in, while also increasing the range of companies available for investment. Of course, it also carries some inherent risk however, and is not an endeavour to take on lightly.

Right now, private equity investments are particularly common in the healthcare industry. It appears that health care is a hot topic for investments, with over $10 billion invested in health care deals during the first half of 2018 (reference).

If that wasn’t enough, a further $1 trillion of investible capital is currently available for deployment within the sector according to Hector M. Torres.

This has been affecting physician practices in particular, with more than 120 closed or opened during 2018. Private equity was one of the major drivers of all this change.


Why Healthcare Investments?


So what is it about healthcare that has investors swarming? And why are they choosing to go the route of private equity investments?

This move towards investment for the healthcare industry appeared to begin in 2015, according to Torres. Specifically, investors began paying close attention to dermatology – the draw being the fact that most patients would pay out of pocket.

With many of these businesses being relatively small, they often were not publicly traded. Therefore, the best way for investors to get involved, was to offer their direct support. Those small companies would also be more receptive to suggestions and strategies, which would potentially prove to be profitable for all parties.

And prove profitable, it did.

This proved to be a successful strategy, and like all successful investment strategies, it propagated. Soon a ‘second wave’ of investors was following suit. This would of course also lead to more diverse investments, with other areas seeing similar attention.


Where is Money Being Spent?


Particularly big sectors within the healthcare industry for investors are long term care, physician practices and services, healthcare IT services, and hospital health systems. All of these have long-term business models that should provide investors with stable and growing income. The long-term care sector in particular is only likely to grow as life-spans increase and the general population becomes older and slightly less able.

Within practice spaces, it appears that orthopaedics is garnering some of the most attention. Gastroenterology is likewise getting a lot of investment through private equity.


What’s Next?

So where now, from here? One likely option, is that more investors will venture into hospitals. We’re seeing this already: in July last year, the equity firm Apollo Global Management publicly traded LifePoint Health for $5.6 billion.

Is this good news for physicians, business, and patients?

As with anything, it is a double-edged sword. On the one hand, the healthcare sector can certainly do with the financial help – which has likely also driven some of the increased investment in the area. With money being injected by individuals and firms, patients can expect a better standard of care and hopefully fewer accidents.

At the same time though, the very nature of investment is that it is intended to generate profit. That means that the direction that many of these organizations are likely to take, might be one that doesn’t put the service of many first. Potentially, this could lead to corners being cut, or to longer wait times and higher costs.

Only time will tell, but at least the sector is getting the attention that it deserves.


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