Amid widespread critiques of the U.S. healthcare system—the high costs, chronic inefficiency, and the labyrinth patients must navigate to receive care—the role of private equity in healthcare has come under recent scrutiny by the Biden administration. Critics have been quick to attribute a number of these problems—which predate private equity’s participation in the sector—to its entrance in the market.
Such assertions are nonsensical, however. Private equity can play an important role in not just fixing these chronic problems but also in delivering a paradigm shift in healthcare delivery. Through strategic expansions, technological advancements, enhanced patient experiences, and quality care, along with managerial expertise, private equity promises to bring managerial innovation in a sector in dire need of reform.
While the prevailing wisdom holds that healthcare organizations are best run by medical professionals alone, a notion overlooks the complex management, finance, and economics skills required for any professional to navigate today’s healthcare landscape. Private equity investors introduce top-tier management expertise to the healthcare sector, enabling providers to focus on patient care. Investment capital also allows for advancements in healthcare technology, such as improved electronic medical record systems and imaging technologies, which are essential for better patient outcomes.
The critique that private equity prioritizes profit over care overlooks the simple reality that all healthcare concerns--whether it be for-profit hospitals, nonprofit systems, or physician-owned entities--also have strong incentives to reduce costs and increase revenues. Indeed, there are numerous examples of nonprofits using their political heft to limit their competition, thereby helping them preserve market share and revenues.
The opposition to private equity investment in healthcare primarily stems from a reluctance of many incumbent healthcare providers to compete with the efficiencies and advancements that PE-backed practices can bring. However, the challenges currently plaguing the healthcare sector—including numerous anti-competitive practices and suffocating regulations that stifle innovation—exist independently of PE investment. The system's design, which limits competition and drives up costs, benefits the established healthcare entities at the expense of consumers—witness for example the continued existence of Certificate of Need laws in many states, which require explicit government approval for many new healthcare services or facilities.
By embracing private equity investment, the healthcare sector can expose and challenge these systemic issues. Regulators and policymakers should focus on deregulating the industry to foster a more competitive and innovative environment, rather than imposing restrictions on private equity investments. History shows that private equity can engage in and win fair competitive battles across various industries, and a competitive healthcare market is the best path forward to prioritize patient care and innovation.
