Private equity firms are defined as investment firms that use money from institutional investors to purchase stakes in or buy companies outright, with the aim of later selling or publicly listing the company for profit. Given the growing importance of private equity acquisitions in the Australian healthcare market, investigating the effects of this trend on healthcare outcomes is important, the study argues, given the focus nationally on healthcare costs and primary care, in particular. More should also be done to assess the local impact of this trend, the study adds, especially since American studies have identified some negative outcomes.

Authored by Victoria L Berquist, from Harvard Kennedy School, Harvard University, the study paper observes that private equity investors globally have become increasingly interested in healthcare delivery assets. In the decade 2010–2020, the United States saw the number of identified private equity acquisitions of medical practices grow from 39 to 167 organisations – yet little research has been carried out on healthcare private equity acquisitions in Australia.

Negative outcomes

The paper points to previous studies in the United States, where private equity ownership has been shown to be linked to changes in care delivery and negative effects on quality of care. In one study, doctors at private equity‐owned dermatology clinics reported feeling pressurised to carry out procedures, sell products, refer patients, and maximise charges. Another study, also of private equity‐owned dermatology practices, found that prices for services increased after the acquisition, even though procedure numbers remained flat.

The paper also underlines the importance of understanding the impact of private equity on quality of care. It points to evidence in the United States that private equity ownership was associated with a short-term increase in mortality in nursing homes of 10 per cent. A retrospective study, meanwhile, identified higher rates of hospital‐acquired adverse events compared with hospitals.

It’s also noted that private equity ownership can benefit doctors and healthcare services. Private equity acquisition of a clinic can be an attractive retirement option for some doctors. In addition, the capital boost resulting from acquisition can enable services to make new investments and better compete in an increasingly challenging market. Other economic benefits include broader referral networks and greater bargaining power with suppliers, while doctors may be able to focus more on patient care if investment from private equity firms helps free them from administrative tasks.

With these insights in mind, Berquist sought to understand the scale and focus of private equity investment in healthcare delivery assets – clinics, hospitals, imaging facilities, and other doctor‐led healthcare services – in Australia. Understanding the role, scale, focus, and motivation of private equity investors, she reasons, can help doctors make a more informed decision when they’re approached by private equity buyers or their parent company is purchased.

Method and results

Private equity acquisitions during the period 2008–2022 were identified in the PitchBook database – a repository of corporate mergers and acquisitions, including in healthcare.

Over this period, a total of 75 private equity acquisitions of healthcare delivery assets in Australia were identified – 65 in PitchBook and ten other acquisitions identified during verification. There were three acquisitions in 2008, rising to 18 in 2022, at an equivalent annual growth rate of 14 per cent. From 2008 to 2010, five of seven acquisitions were of in vitro fertilisation providers; from 2020 to 2022, 22 of 39 acquisitions were clinics or clinic groups, including 11 of 18 in 2022.

Data on the value of purchases was not available for 36 of the 75 acquisitions during 2008–2022. For the remaining acquisitions, the estimated total value during the period was $24.1 billion. Total known private equity investment in healthcare assets rose from $258 million in 2008 to $4.5 billion in 2022. The medical specialty most often involved in private equity acquisitions of clinics during 2017–2022 was general practice, ranging in size from single practices to large networks.

Influencing market factors

The paper lists several possible reasons for the market growth in private equity investment in healthcare during 2008–2022, including demand, healthcare industry, and private equity portfolio factors.

“Demand factors include an ageing population and the rising burden of chronic disease, each of which will increase the future need for healthcare,” explains the paper. “Industry factors include the highly fragmented nature of most healthcare delivery services, providing the opportunity for more consolidated firms to benefit from economies of scale and broad networks that increase their competitiveness. Portfolio factors could be particularly relevant in the wake of the coronavirus disease 2019 pandemic, which boosted recognition that healthcare is a relatively recession‐proof business and that healthcare assets can reduce risk in an investment portfolio.

“In addition, low interest rates have, until recently, eased access to capital, increasing private equity activity in general.”

The paper argues that more research is needed to assess the local impact of private equity acquisitions in healthcare assets, especially given the negative healthcare outcomes identified in some US studies. The paper also reasons that there are major differences between the payment and delivery characteristics of different countries’ health systems, so such negative outcomes may not necessarily apply to Australia.

As well as noting several limitations with the study, the paper asserts that the number of private equity acquisitions of Australian healthcare delivery assets increased during 2008–2022, particularly of general practice, imaging, and ophthalmology companies and clinics.

“Understanding the impact of private equity ownership on clinical care and costs in Australia is important,” it concludes. “Doctors should be aware of the motivations and dynamics of private equity companies, as they are increasingly likely to interact with these firms and assets owned by these firms.”

The paper, ‘Private equity investment in health care delivery’, Australia, 2008–2022’, is published in the Medical Journal of Australia.