Private equity-backed providers represent less than 4% of US market

Private equity investment in providers is fairly small, despite the swell of political and media attention to its role in the health care ecosystem, according to a report published by PitchBook.  

PE-backed providers currently make up less than 4% of the U.S. health care provider market by revenue, according to the market data research firm.  

Investment growth in providers has also slowed over the past six years. The report found the year over year growth rate in the number of PE-backed healthcare companies has slowed from nearly 25% in 2018 to less than 1% in the first quarter this year.  

Patient advocates, federal regulators and lawmakers have lambasted the role of PE in the healthcare sector, arguing the firms raise prices and reduce care quality. PE investors typically buy or invest in companies with the intent to sell them at a profit. 

Patients are more likely to experience adverse health events, like infections or falls, at PE-owned hospitals, according to a study published late last year in JAMA. Other research has linked PE ownership to higher costs for patients and payers, and some studies found harmful impacts to health care quality.  

Report writers said they’re not looking to address critiques of PE firms’ investment in health care, like the effects on clinical outcomes. Rather, the report noted firms are moving away from investments in providers, looking instead to health care IT or pharmaceutical services.  

Although PE groups invested in hospitals and skilled nursing in the 2000s and early 2010s, PE groups are more interested now in care delivery in lower acuity settings. 

“Most PE firms seek to invest in growing industries with long-term demand tailwinds and are therefore attracted primarily to outpatient care delivery,” Rebecca Springer, lead analyst for health care at PitchBook, wrote.  

The report noted that, although PE firms have previously targeted acquisitions in fields that often relied on out-of-network reimbursement — like physician staffing businesses, substance use disorder treatment and emergency medical transport — the trend is currently less popular for PE firms. 

The decline in investments may be in part due to the No Surprises Act, a law that went into effect in 2022 to curb the impact of surprise bills on patients, according to the report. 

“Due to payer pushback and the clinical inadequacies of this model, PE investment in SUD treatment and other mental health models swung in the late 2010s toward acquiring in-network, in-state, medically focused providers almost exclusively, as out-of-network reimbursement is considered too risky and volatile to underwrite,” Springer wrote.