US Private Equity Deals Within Healthcare Hit $90B In 2022

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According to a report from one of the consulting firms, private equity in healthcare had its second-best year on record in 2022, closing at around $90 billion in deals.

Despite a decline caused by macroeconomic and geopolitical forces in the second phase of the year, 2022 still happened to be the second-best year on record at the time for healthcare dealmaking, mainly due to the white-hot pace of invested capital at the start of the year, says the report.

The total disclosed deal value reached almost $90 billion, a decrease from $151 billion in 2021 but more than $10 billion higher than the previous year. A fresh study says that enough dry powder and a proven track record of returns will help attract healthcare-specific funds in 2023.

According to Kara Murphy, co-lead of healthcare private equity with a consulting firm, healthcare private equity has developed a recession-proof reputation, generally exceeding overall private investment activity throughout economic downturns.

Looking forward to 2023, funds are seeking fresh sources, carving out public-to-private transactions, and exploring sub-sectors that may outperform the current market situation.

According to the research, there are some industries to keep an eye on this year, including biopharma and life sciences. Six of the top ten acquisitions last year were in biopharma, life science instruments, and related services, and more than 600 healthcare buyout agreements have been completed globally over the last five years within these subsectors.

Another element to keep an eye on is the long-term macro factors that continue to boost real value-based care adoption across a range of care models. While investment activity in primary healthcare and Medicare Advantage remains concentrated, opportunities in other payers as well as specialised categories are expanding.

Enabler models are an appealing investment path, with adoption spurred by the need for typically fee-for-service organizations to participate in risk-based arrangements. Providers and value-based care facilitators who can bend the cost curve with innovative care models and advanced analytics are well-positioned to thrive.

This trend is anticipated to accelerate as legislation tightens, data from early adopters becomes available, and more capability-enhancing technology enters the market. Fee-for-value arrangements will gain 15%–20% of the share from traditional FFS providers in general practise by 2030, paving the way for additional investment in the field.

It is also worth noting that 2022 was a watershed moment for generative artificial intelligence, with new services in imaging and text production developing. AI is already expediting drug discovery, streamlining supply chains, and automating payer and provider back offices. Application cases for generative AI are still developing, and stakeholders are watching attentively, ready to react when the time is right.

Finally, despite consistently underspending on technology, healthcare IT buyout volume in 2022 was the second largest on record. While provider IT remains the primary driver, biopharma IT and payer IT happen to be catching up.

According to an AHIP brief on private equity funds in healthcare released in September 2022, the need for these firms to earn large profits, especially through provider consolidation, directly contradicts the goal of cutting costs.

As per the brief, there has been an increase in private equity investments in fee-for-service healthcare initiatives over the last decade.

According to AHIP, some private equity groups seek a rapid profit by acquiring fee-for-service medical providers such as physician specialties and ambulance services. They sell their shares within three to seven years, then, with the goal of achieving a 20% to 30% profit return in that timeframe, according to the insurers’ organisation.

According to AHIP, at least 70% of physicians in the United States are either directly employed by a corporate company or employed by a hospital owned by a corporate entity, most typically a private equity firm.

According to AHIP, hospitals controlled by private equity firms earn roughly 30% more than hospitals owned by other companies by employing a variety of revenue-boosting strategies.