Private Equity Investment in Health Care Stays Strong (Corrected)

By Mary Anne Pazanowski

Private equity investment is burgeoning throughout the U.S., and health care is one of the “in” targets for investors.

More than $10 billion was invested in health-care deals in the first half of 2018, according to industry watchers. An additional $1 trillion of investable capital currently is available for deployment in health care, investment banker Hector M. Torres told Bloomberg Law. Torres, a principal with ECG Management Consultants in Chicago, counsels investors.

The amount of money available ensures private equity will continue its role in disrupting traditional models of health-care financing.

Moving On Up

A curated list of deals announced and/or closed in August demonstrates the private equity trend is definitely moving upward. The list, compiled by investment bankers for Bloomberg Law, tallied 103 deals in August.

August “just nudged out March” for the month with the most deal activity, Gary W. Herschman, a transactions attorney at Epstein Becker Green, Newark, N.J., told Bloomberg Law. A total of over 730 deals were announced and/or closed in the year so far, according to the curated year-to-date list.

The summer’s activity “is a harbinger for heightened activity” for the rest of 2018 and into 2019, Herschman said.

Physician Practices

Over 120 physician practice deals were announced and/or closed in 2018, Herschman observed. “August was yet another double-digit month” in this space, he said, noting that “industry insiders are forecasting many more transactions” through 2019.

Private equity is a major deal driver, and it is the most attractive one for investors, Torres said. The leading areas are ophthalmology, dermatology, and orthopedics, though urology is starting to attract investors’ attention. Neurology and women’s health care are “on the cusp,” Torres said.

Deals in this sector are “booming” both in value and volume, Torres said. “There is a proven business case” for investing in physician practices, he said.

Private equity investment in this space began in earnest in 2015 in dermatology, Torres said. Investors liked this specialty because patients pay out-of-pocket for most services, he said.

The model started snowballing when early investors reaped big gains upon selling their interests. Private equity investment works on a “replicator” model, Torres said. Investors wait to see if early investors “successfully exit” their deals by selling their interests at a profit, he said.

A “second wave” of private equity investment is underway because those early investments succeeded, Torres said.

Practice Space Winners

Orthopedics is the growth space for investment. Atlantic Street Capital’s August deal with OrthoBethesda is “the third private equity partnership in orthopedics” since April 2017, Robert Aprill told Bloomberg Law. Aprill, an analyst with Provident Healthcare Partners in Boston, expects to see more private equity groups enter the space.

Gastroenterology, too, is attracting private equity interest, Aprill said. There has been only one investment in the space to date—Audax Group’s 2016 partnership with Florida-based Gastro Health—but Aprill expects to see more.

In the meantime, Gastro Health continues to make “add-on acquisitions and capitalize on being the first mover in the space,” Aprill said.

Add-on acquisitions are growing eye care practices, as well, Aprill said. Three of the largest companies—Blue Sky Vision, EyeSouth Partners, and Metrolina Eye Associates—acquired practices in August, he said.

Private Equity in Hospital Space?

Some private equity investors are venturing into the hospital/health system sector. In July, New York-based private equity firm Apollo Global Management acquired publicly traded LifePoint Health for about $5.6 billion.

Apollo plans to combine LifePoint with its existing hospital operator company, RCCH HealthCare Partners, Torres said. The resulting company would have about $8 billion in revenue and operate 84 hospitals in 30 states.

Torres doesn’t believe that this sector will catch on with investors. Hospitals have very small operating margins—they just don’t make very much money, Torres said. Investors may be concerned they won’t be able to make a successful exit when their normal investment period ends, he said.

Advisers should “continue to monitor and observe” this space, Torres said. “Business fundamentals and return-generating parameters historically are misaligned with the three-to-five-year investment horizon,” but investors may jump in if the Apollo deal succeeds, he said.

Hospitals ‘Pick Teams’

“There has been an uptick in acquisitions of smaller hospitals,” especially those located in rural areas and otherwise outside of major metropolitan areas, as smaller hospitals start to “pick teams,” Herschman said. He predicted there will be over 200 hospital/health system deals by the end of 2018.

Additionally, there was a “broad range of providers” involved in August deals, Paul D. Gilbert, of Epstein Becker Green’s Nashville, Tenn., office, noted. Nonprofit systems, academic medical centers, government-owned organizations, and publicly traded and private equity-backed systems all took part.

Hospitals’ "efforts to invest in certain markets while withdrawing from others, increase scale to better provide coordinated care, and—for many stand-alone hospitals—to preserve care by joining larger systems, likely will continue apace,” Gilbert said.

Hospital/health system deals are aimed at optimizing systems and networks, Gilbert said. Hospitals are growing their own carefully targeted markets, while transferring assets that don’t fit those markets to other hospitals, he said.

These transactions are designed to “create opportunities for reducing expenses by allowing providers to deliver better care in the most appropriate settings and locations,” Gilbert said. “The same is true for system-to-system mergers.”


The lists of select transactions involving health-care providers, managed care, and services companies for August 2018 and the year to date were compiled by health-care investment bankers using publicly available information, including articles, websites, and press releases.
The list of transactions announced or closed in August is at
The list of transactions year-to-date is at
Bloomberg Law’s Health Care Transactions Editorial Committee contributed editorial guidance for this report. Members include Gary W. Herschman, of Epstein, Becker & Green PC, Newark (; Paul D. Gilbert, of Epstein, Becker & Green PC, Nashville (; Yulian Shtern, of Epstein, Becker & Green PC, in Newark, N.J. (; Robert Aprill, of Provident Healthcare Partners LLC, Boston (; Hector M. Torres, of ECG Management Consultants, Chicago (; and Aaron T. Newman, of ECG Management Consultants, Chicago (

Epstein, Becker & Green PC did not comment on any particular transaction or party discussed or listed in this article.