Q1 2024 Private Equity Insights: Healthcare Providers in the US Market

Q1 2024 Private Equity Insights: Healthcare Providers in the US Market

Private Equity Healthcare Providers
4 minutes read

Despite common misconceptions, PE-backed providers represent a small fraction of the US healthcare provider ecosystem, constituting less than 4% by revenue. This blog is based on the Pitchbook analysis “Quantifying PE Investment in Healthcare Providers” and explores the key trends and insights from the latest data to provide a clear picture of PE investment in healthcare.

The Scope of PE Investment

PE-backed healthcare providers account for just 3.3% of total US healthcare provider spending, estimated at $117.7 billion in 2024. This figure highlights that PE’s role in the broader US healthcare industry is relatively minor compared to the overall market size of $3.5 trillion.


Historical Context and Trends

PE investment in healthcare is not a new phenomenon. From 2000 to 2018, there was notable growth in PE investments within the sector. However, since 2018, this growth has declined proportionally, with the year-over-year increase in the number of PE-backed companies slowing down over the past six years.

Employment Dynamics – PE’s influence on physician employment is limited :

A significant portion of physician employment is driven by hospitals, not PE investments. Over half of all physicians and more than 70% of employed physicians work for hospitals, indicating that PE’s influence on physician employment is limited.

Current PE Deal Activity

PE deal activity in hospitals and skilled nursing facilities (SNFs) is currently minimal. The last significant PE investment in a US hospital or health system occurred in 2018, signaling a shift in investment interests away from these areas.

Strategies and Objectives of PE Investors in Healthcare Providers

PE investors employ distinct strategies and objectives when investing in healthcare providers. These strategies focus on enhancing operational efficiency and profitability rather than pursuing market consolidation and price increases. The primary goals include multiple arbitrage, operational leverage, and organic growth. Below are the detailed strategies and objectives derived from the analysis.

Multiple Arbitrage and Operational Leverage
Multiple Arbitrage:

Multiple arbitrage involves acquiring healthcare entities at varying EBITDA multiples and blending them down to create value. For instance, if a PE firm acquires multiple practices at an average of a 10x EBITDA multiple but can blend this down to a 7.5x multiple, it creates a value uplift when the consolidated entity is later sold at a higher multiple. This strategy is foundational to PE investments, focusing on buying low and selling high by improving the asset’s financial metrics and operational performance.

Operational Leverage:

PE firms exert significant efforts to integrate and improve the acquired entities. This includes centralizing back-office functions, negotiating better supplier contracts, implementing advanced technologies, and hiring more providers to drive organic growth. The aim is to scale operations and enhance the operational efficiency of the healthcare providers. By doing so, they make the asset more attractive to future buyers, potentially achieving higher valuations upon exit

Negotiating Better Payer Contracts

Leveraging the scale and sophistication of the acquired entities, PE investors aim to negotiate more favorable payer contracts. This includes entering advanced arrangements such as value-based care contracts, which can align incentives for both providers and payers to focus on quality and efficiency in patient care. However, while negotiating better reimbursement rates is part of the strategy, it is not the primary driver of returns. The main contributions to deal returns come from operational improvements and the financial engineering involved in multiple arbitrage and leveraging

Focus Areas and Market Avoidance
Current Focus Area:

PE investors are increasingly selective about their investments within the healthcare sector. They have largely pivoted away from hospitals and skilled nursing facilities (SNFs), with no major investments in these areas since 2018. Instead, they focus on sectors with higher growth potential and less regulatory scrutiny, such as healthcare IT and pharmaceutical services

Market Avoidance:

PE firms avoid investments in out-of-network categories, which were previously attractive due to higher reimbursement rates. This shift is evident in sectors such as acute-care physician staffing, substance use disorder (SUD) treatment, and emergency medical services (EMT). The regulatory and reimbursement landscape has made these areas less appealing due to potential risks and uncertainties associated with out-of-network billing practices


While PE’s footprint in the US healthcare sector is relatively small, its strategies and investment patterns are critical to monitor. From multiple arbitrage to operational leverage, PE investors focus on enhancing the performance and scalability of healthcare entities. These strategies, underscored by improving operational efficiencies and strategic negotiations, aim to maximize value creation.

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