Zombie Investments: The State of Private Equity in Healthcare (HIT Consultant)

Private equity (PE) investment in healthcare faces significant challenges, including rising labor costs, physician recruitment struggles, regulatory scrutiny, and shrinking reimbursements. Once driven by consolidation opportunities, PE-backed healthcare platforms are now faltering, with high-profile bankruptcies like Envision Healthcare and Steward Health exposing operational risks.

Regulatory pressure is intensifying, with nine states requiring pre-approval of healthcare transactions and the FTC scrutinizing large deals. This has slowed M&A activity, making profitable exits difficult and extending PE firms’ hold times beyond five years.

To adapt, PE firms must shift toward smaller, regional deals, reduce leverage, and foster physician involvement in operations. While the era of aggressive PE healthcare investment may be ending, opportunities remain for those adopting more sustainable, collaborative strategies.