The Role of Private Equity in Health Care for Older Adults

Abstract

With demographic shifts in longevity, healthcare has struggled to adequately meet the needs of older adults who are living longer and with more complex illness than ever. These demographic trends pose a substantial opportunity for emerging business ventures focused on health care for older adults. The operational inefficiencies, inequities in access, and increasing consumer demands for quality care also make health care ripe for innovation and disruption. Thus, it is no surprise that private equity (PE) firms are playing an increasing role in the business of the US health care system. PE investment in health care has grown dramatically over the last decade; estimated annual deal values have gone from $41.5 billion in 2010 to $119.9 billion in 2019, totaling approximately $750 billion (Scheffler et al., 2021). PE firms raise capital from investors or acquire private operating companies, improve their financial condition and business prospects with an expectation to have 20%–30% returns, and sell companies to the public through an initial public offering or to a strategic buyer at a profit within a truncated frame (3–7 years; Gondi & Song, 2019). The PE model puts enormous financial pressure on the delivery of health care to produce short-term profits, which is often achieved through operational and management changes, staffing restructuring, standardization, and cost containment. PE investment in health care is increasing because health care is an essential industry that functions on a reimbursement structure and is largely insulated from recession. The growing demand in health care services for the aging and chronic disease population is also contributing to the increased investment in health care from PE.