Source: Nicole Aschoff, Dollars & Sense, no. 304, January/February 2013
(subscription required)(print only)
Private-equity (PE) firms target the U.S. health-care industry…. Health care is a particularly popular sector for PE firms. After a decline following the 2008 financial crisis, PE investment in health care has rebounded, both in the United States and globally. In particular, medical technology, pharmaceuticals, and medical services (like hospitals and nursing homes) are seeing sharp increases in PE investment. According to a report by Bain, the value of global private-equity deals in health care was over $30 billion in 2011, double the investment of 2012. … PE investors are betting on new profit opportunities from the growing needs of the baby-boomer generation and from the Affordable Care Act, which will dramatically expand health-insurance coverage. … A PE firm’s return on investment has little relation to whether the acquired hospital succeeds through improved patient care or increased cash flow. Instead, PE firms recoup their investment through fees from both the acquired firm and outside institutional investors. … So even if the PE firm’s investment fails to yield the imagined profits, the PE firm still earns a profit, or loses little or no money, because the risk is shouldered by outside investors [like pension funds], and in many cases, the acquired firm itself….