In recent months, federal and state lawmakers have been increasing their scrutiny of private equity’s role in healthcare consolidation and pricing. Policymakers are raising concerns about PE ownership structures they say prioritize returns over patient outcomes, particularly in physician practice roll-ups and certain specialty platforms.
One PE investor — Matthew Bennett, partner at Invidia Capital Management — thinks this scrutiny is now an enduring feature that PE firms will have to continue to navigate rather than a short-term political cycle. In his eyes, the firms best positioned to succeed in the healthcare landscape will be those that focus on improving health outcomes and lowering costs rather than just relying on consolidation-driven financial engineering.
PE firms are moving away from physician roll-ups, Bennett pointed out. There is growing skepticism toward these deals, in which PE firms buy up multiple physician practices and combine them into one large organization.
“Generally, when private equity intermediates the patient and the doctor, that’s going to be a bad thing. We don’t want to be sitting between a doctor and a patient telling a doctor what to do. That’s where some other private equity firms have gotten into some trouble — when they do these large, multi-state physician businesses that rely on buying other physician businesses in other states,” he explained.
Many of these physician practice roll-ups have struggled because they over-expanded and had trouble successfully integrating the practices they bought, Bennett said. And many PE funds operating these types of roll-ups have failed to show they’re improving care quality or reducing costs.
The PE investment community at large is pulling back from this strategy, and valuations in that segment of healthcare have fallen to historically low levels, Bennett declared.
He noted that investors are becoming more selective, favoring firms that can prove they improve care rather than simply generate returns. Bennett said the firms that accomplish this are the ones who have figured out how to use technology to eliminate care inefficiencies and reduce waste.
As for some healthcare categories that he is bullish on, Bennett thinks PE investors have a lot of opportunities in the retail health and low-acuity care sector, as well as healthcare business services such as interoperability platforms and infrastructure solutions for enrollment, billing and records management. He also believes PE can play a bigger role in pharmaceutical innovation by investing in faster drug development and clinical trials.
Despite the mounting scrutiny, Bennett argues that healthcare remains one of PE’s most durable opportunities, especially for firms that can demonstrate measurable improvements in care delivery and patient health.
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