Continuing my ongoing discussion of healthcare services M&A, a recent Axios Pro Rata email highlighted some significant insights for the future of healthcare transactions.
Similar to how VC and PE firms initially took a hands-off approach to cannabis investments—avoiding companies that directly handle the cannabis plant— Axios reports that large private equity (PE) firms are now moving away from healthcare businesses that provide direct licensed care to patients.
Here’s why:
Rising Political and Legislative Pressure
Financial investors are increasingly facing scrutiny and risk in healthcare services, including:
– Proposed Legislation : A U.S. senator has introduced a bill that would require investors to obtain a license from the Department of Health and Human Services before investing in healthcare services.
– State Regulations : The California legislature is considering a bill that would grant the state’s attorney general the power to block healthcare-related deals.
– Media Backlash: Public scrutiny has grown around healthcare deals that have gone wrong, such as with Steward Health.
PE’s New Approach: Moving Away from Direct Care Delivery
According to Axios , large PE firms aren’t abandoning healthcare altogether but are shifting away from direct patient care. This mirrors the cannabis sector’s “We don’t touch the plants” approach, with a new healthcare counterpart: “We don’t touch the patients.”
What’s Next?
It’ll be interesting to see whether this risk-averse strategy by big PE firms filters down to smaller investors, or if those smaller players will spot opportunities in a market that’s becoming less efficient.
On one hand, the responsibility for patient care should rest with healthcare professionals, not financial investors. On the other hand, private equity remains one of the main exit strategies for physicians who have successfully built their practices independently.
How this plays out will be critical for the future of healthcare services M&A.
Weavil Law
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