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Private equity dollars are booming in the value-based care market

Investors want to get in on the ground floor of the shift to value-based care.
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Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.

Private equity only has eyes for value-based care (VBC).

Investment in companies that focus on quality over volume increased more than 400% between 2019 and 2021, according to a 2022 McKinsey analysis.

Some recent deals include private equity firm Kinderhook Industries investing $500 million in value-based primary care physician group Physician Partners in February 2022, and Humana, a health insurance company, creating a $1.2 billion joint venture with private equity firm Welsh, Carson, Anderson & Stowe in May 2022 to expand the insurer’s VBC clinics for Medicare patients.

So, why do private equity firms want to invest in VBC?

According to a PitchBook analysis, it’s because there’s now more consensus among policymakers, payers, and providers that the US healthcare industry is making a broad shift toward VBC, and investors want to get in on the ground floor.

“Investors are eager to be on the right side of a secular change in an industry that represents nearly 20% of GDP,” Rebecca Springer, lead healthcare analyst at PitchBook, wrote in the April 2023 analysis.

The shift to VBC requires substantial up-front costs, Brent Nicholson, co-founder and chief partner officer at healthcare services company Carrum Health, previously told Healthcare Brew.

Private equity dollars could help fill the gaps.

“VBC is difficult and requires technological, operational, and clinical acumen to successfully implement,” Springer wrote. “The transition toward value has already required, and will continue to require, significant capital investment not only into provider groups that are pursuing [alternative payment models], but into technology and tech-enabled services solutions that facilitate VBC for both providers and payers.”

The VBC market is expanding rapidly, leaving more room for investment. McKinsey analysts Zahy Abou-Atme, Rob Alterman, Gunjan Khanna, and Edward Levine projected in the 2022 analysis that if the VBC market continues to evolve at its current pace, it could someday have a $1 trillion valuation.

“Our research suggests that the number of patients treated by physicians within the value-based care landscape could roughly double in the next five years, growing approximately 15% per annum,” the analysts wrote. “Increased physician appetite for value-based models lies at the heart of this acceleration.”

Are you eyeing investment in a VBC company? Drop Maia a line at [email protected].

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.