Private Equity and Healthcare need to be better aligned.

I participated in a wellness summit with the theme resetting for a post Covid life. The theme is fitting for a discussion about how we emerge from Covid as an industry.

I also participated in the McDermott Private Equity [PE] conference last week to get the latest insights from healthcare investors. The consensus is that the market for transactions is hot and may already be overheated.

The multiples and funding are already stretching the imagination of some experienced investors. An overheated market usually results in questionable conduct as investors try to realize a return on overvalued and over leveraged companies.

For instance, when I hear the words free breakfast, massage and Florida used in the same sentence as Medicare Advantage, the word inducement comes to mind – not wellness. Inducements are a red flag for fraud and abuse.

Private Equity


If you’re not aware, PE firms own the majority of US nursing homes and are actively consolidating other parts of the healthcare industry including healthcare technology, physician practices and surgery centers.

The PE industry can provide the much needed capital to the healthcare industry but how they provide it likely needs to be reset. A focus on value extraction does not align with the triple aim.

The role of Private Equity in healthcare is reportedly under review by the Federal Government. It’s not all that surprising after the hearings on balanced billing last year and now the stories about patient abuse in nursing homes and reimbursement related reporting issues. Companies with this track record end up under an Office of Inspector [OIG] settlement.

Nursing Homes

While reading the stories about the abuse in nursing homes, I often think about the simple changes that could help solve some of the common problems.

Most of us dread the idea of having someone else wipe our bottoms again. Evidently no one really likes doing it either given the number of nursing home patients abandoned on the toilet.

When everyone was hoarding toilet paper during the pandemic, one of my friends in India told me that they use bidets rather than toilet paper. I wonder whether or not a bidet toilet is a viable solution for nursing homes as well as seniors living at home.

Bed sores are another common issue that could be mitigated with better bed technology. Stryker produces mattresses for 23 hour stays in surgery centers that help relieve pressure points and reduce the need for turning. I can’t help but wonder what bed technology if any is being used in nursing homes.

Lower margin facilities often don’t get the same level of investment in technology even though the need is as great and in some cases, greater. It’s a problem of finite thinking and excessive focus on value extraction that needs to change.

Investment Strategy

Some PE investors acknowledged the need for change during the JP Morgan Healthcare conference earlier this year. One investor spoke about their work with Pharma to fund research that would not otherwise get funded.

They spoke of it as picking up the scraps from the floors of labs. However, many of those scraps likely have valuable Intellectual Property [IP] that just needs to be applied to the right project. Corporate leaders are not willing to invest the resources to do it.

PE funds pursuing a research and innovation strategy may need to change their investment thesis and timeline. However, these types of investments would create better alignment between the two industries and produce better returns for investors in the long run.

Medicare Advantage

Investors are looking at Medicare Advantage as a big opportunity. There is likely a big reset coming that will effect this market too.

Both Clover and Oscar had fraud and abuse related issues or disclosures respectively that effected their Initial Public Offerings [IPOs]. Plus it’s not clear yet whether or not Medicare Advantage achieves the cost savings goal of the triple aim.