Why Private Equity’s Involvement In Home-Based Care Is Largely Overstated

Private equity money plays a part in the U.S. health care system, as well as in home-based care. But PE firms have much less influence and ownership of the provider world than most outsiders likely believe.

This idea was laid out by Rebecca Springer, the lead health care analyst at Pitchbook, in a new report.

One of the key points of the report was this data point: that PE-backed providers represent less than 4% of the U.S. health care provider ecosystem by revenue, at 3.3% specifically.

PE headlines may be more eye-catching in home-based care because home health and home care are burgeoning sectors. But, overall, PE firms are still not incredibly influential across any part of the health care system.

“PE investment in health care providers is neither new nor surging,” Springer wrote in the report. “Such investment grew as a proportion of overall PE activity between 2000 and 2018 but has declined proportionally since then. Year-over-year growth in the total number of PE-backed companies has slowed steadily over the past six years, dipping below 1% in the first quarter of 2024.”

Springer added that more than 70% of all employed physicians are employed by hospitals; that there has not been a major PE investment in a U.S. hospital or health system since 2018; and that deal activity in both hospitals and skilled nursing facilities is near zero currently.

The report comes at a time when PE-driven M&A has been scrutinized by lawmakers and federal regulators in Washington, D.C.

In December, the Biden administration released a fact sheet condemning certain PE activity in the health care space, including in home-based care.

“Private-equity ownership in the health care industry has ballooned, with approximately $750 billion in deals between 2010 and 2020 – in sectors including, but not limited to, physician practices, nursing homes, hospices, home care, autism treatment and travel nursing,” the fact sheet read. “Too often, aggressive profiteering by private equity-owned practices can lead to higher patient costs and lower quality care.”

Pitchbook data shows that private equity ownership has ebbed and flowed, however.

But that stigma alone has likely played a role in slower deal activity in health care – and home-based care specifically – over the last couple of years.

“The key effect of the Biden administration’s scrutiny of PE in healthcare is not direct antitrust risk, but headline risk,” Springer wrote in a separate report earlier this year. “We have been struck by the sudden change in tone among investors on this topic. While the interest-rate environment remains the most important driver of the pace of dealmaking, we also believe sponsors will be somewhat more cautious in 2024 about entering any provider categories that primarily serve vulnerable populations, including home-based care, post-acute care, high-acuity behavioral health, intellectual & developmental disabilities (IDD) care and autism treatment.”

PE-driven dealmaking in home-based care peaked during the height of COVID-19, which makes sense. Some seniors had no choice but to be treated within their homes, and also grew to prefer that mode of care.

Since then, it has cooled. As Springer pointed out, that’s due to a variety of factors, with the biggest one being high interest rates.

Currently, there are about 73 home-based care companies backed by PE, according to Pitchbook. That represents a very small percentage of all providers. It also means that just over 10% of all PE-backed providers are operating in the home-based care space.

“Considerable confusion about the scope and emphasis of PE’s current involvement in US health care is circulating widely in news articles, white papers and even government missives,” Springer wrote. “We are not trying to address critiques of PE’s involvement in healthcare, especially regarding clinical outcomes, which would require different datasets and analytical tools than we have. Rather, as the leading provider of PE health care deal flow data, our aim in this note is to lay out pertinent, objective information in order to contribute to fact-grounded future discussion.”

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