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Healthcare Private Equity Trends and Challenges in 2024


The last four years have ushered in a new paradigm of healthcare deliveries and corporate structures, with a dramatic surge and fall in healthcare private equity (PE) deal value and volumes. According to Troy Keach, Kirby Bates Associates Vice President of Executive Search, “Private equity firms are increasingly interested in the healthcare sector and view this as a great opportunity, driven by the potential for significant returns and the sector’s resilience.” 

Private equity investments can revitalize healthcare organizations and health systems. If your organization is considering taking on private equity funding, it’s essential to be familiar with the ongoing trends in the private equity space. Understanding a PE firm’s primary challenges and how they’ll approach your organization can improve your ability to negotiate and find a firm aligned with your organization’s goals.

Kirby Bates Associates has worked with organizations at all stages of private equity deals. Our team of veteran healthcare executive recruiters and interim leaders like Keach understand the goals private equity approaches healthcare with and what organizations must do to succeed under a new, energized ownership structure.

Here, we’ll examine the top healthcare private equity trends and challenges emerging in 2024 in-depth, equipping you with the knowledge you need to make informed decisions.

Challenges Facing Private Equity in Healthcare in 2024

While private equity deal volumes in healthcare still garner headlines, they didn’t keep up with the pace set from 2020-2023. We attribute this decrease in volume (and value) to three challenges facing healthcare private equity: liquidity challenges, the lingering effects of macroeconomic forces, and a shifting regulatory environment.

Credit and Liquidity Challenges Remain

Difficulties in fundraising have persisted into 2024 despite some respite from the inflationary environment. High interest rates and restrictive credit conditions have impacted the volume of deals the healthcare space has seen over the last year. In this environment, private equity firms remain cautious and conservative with investments compared to years prior.

Fundraising is challenging for buyers and sellers. With buyers facing difficulties accessing the capital they need, sellers struggle to reliably find buyers without dramatically reducing their bid-ask spread.

As a result, holding periods have increased beyond the typical five years commonly seen in private equity healthcare. According to BCG, the average private equity holding period reached a 20-year high of 7.1 years in 2023. Private equity firms must be more strategic than ever when pursuing new acquisitions in an investment landscape with lower liquidity than before.

Macroeconomic Forces Are Having a Lasting Impact

Private equity in healthcare isn’t immune to the macroeconomic forces that have been creating problems across the healthcare industry. Two of the most notable factors influencing PE deals are the lasting impacts of inflation and labor supply shortages.

Inflation has impacted every aspect of healthcare delivery systems, from equipment and facility costs to payer reimbursements and budgeting. Supply and staffing costs have significantly outpaced reimbursements, which leaves healthcare organizations with little choice but to raise costs where they can, such as in elective surgical procedures.

Additionally, the Inflation Reduction Act (IRA) has influenced the broader health and life sciences ecosystem and will ultimately have downstream impacts on provider-side healthcare organizations. For example, as the IRA pressures payers to cover more drug costs — costs that will be transferred to providers when possible — private equity-backed healthcare organizations will need to find creative ways to adapt to these costs.

Inflation is due to labor supply shortages throughout the healthcare industry. With a higher cost of living, clinical staff are getting squeezed in their personal lives, and healthcare organizations either increase wages or risk losing talent to competitors. The situation forces private equity-backed healthcare as talent shortages and vacancies also force organizations to depend on costly traveling clinicians, reducing firms’ ability to drive rapid turnaround.

Private Equity Faces an Uncertain Regulatory Environment

In 2023, 25 states enacted a combined total of 39 bills focused on healthcare consolidation, including merger reviews and reforms. In March, the Justice Department, the FTC, and the Department of Health and Human Services issued a Request For Information to better understand private equity’s impact on the American healthcare system.

As uncertainty regarding regulations grows and consolidation reviews become increasingly common, private equity firms face lengthy acquisition processes that can ultimately impact their turnaround time and exit strategy.

Opportunities for Private Equity in Healthcare in 2024

Despite a fair number of challenges, private equity firms in the healthcare space have a handful of exciting opportunities that inform their current priorities. From a renewed focus on specialty providers and the advent of modern generative AI to an improving fundraising environment and revolutions in healthcare information technology (HCIT), here’s what private equity firms in healthcare are focused on.

Top-Line Growth Gets Top Billing

Recent liquidity challenges have illustrated the importance of solid exit strategies and investments that are prepared to weather fluctuations in the economic ecosystem. Top-line growth will be a priority for firms seeking to illustrate their value and insulate their portfolios from inflation and interest rates in the future. Income repair strategies will primarily focus on driving value through pricing optimization, diversifying the organization’s services, and increasing patient volumes.

For these reasons, acquisitions of specialty providers will be increasingly sought. Firms focusing on private, single-specialty providers will see a competitive advantage, as specialties like oncology, orthopedics, and cardiology aren’t as vulnerable to the macroeconomic impacts that have disrupted hospital systems and other generalized healthcare organizations. Specialty providers, particularly those that capture a large portion of the ever-increasing baby boomer presence in the health system, simplify a firm’s roadmap to top-line growth.

All Eyes Are On AI

In its present state, generative AI could significantly benefit a healthcare organization’s bottom line by minimizing the time valuable staff spend on tedious documentation and reimbursement-related tasks. AI could also substantially improve PE-backed organizations’ billing and note-taking processes, ultimately reducing clinician burnout and administrative costs.

AI is all the rage across industries, and for good reason. Few technologies promise to have such a dramatic impact on the healthcare value chain. Private equity firms in healthcare will eagerly seek opportunities to leverage AI within their portfolios.

However, private equity firms should exercise caution when implementing AI programs. Poorly trained AIs could result in excessive treatments or inaccurate coding, which could lead to waste and fraud.

While such risks exist, private equity’s outlook on AI is overwhelmingly bullish. Implemented without errors, AI could vastly improve patient experiences, staff satisfaction, and a portfolio’s margin profile.

Optimism Returns as Deal Volume is Expected to Increase

While healthcare private equity deal volume has been significantly lower in the last year due to a broad lack of liquidity, PEs anticipate an increase in liquidity and deal volume. Dry powder has increased approximately 7% since 2022, and as inflation recedes, those funds are expected to make their way into portfolios, bringing a promising resurgence in deal volume.

While deal volumes may have not quite recovered to their pre-2023 levels, firms have learned lessons and adapted. PEs may partner with other firms to overcome fundraising challenges for larger acquisitions.

Healthcare information technology is set to be one of the key drivers in deal volumes. Combining AI’s impact on the healthcare value chain with single-specialty providers’ resilience to the macroeconomic environment, HCIT will be a strategic priority for private equity and significantly revitalize deal volume across the industry.

Healthcare Information Technology is Poised to be a Key Value Driver

Private equity firms in healthcare are looking to use healthcare information technology to offset labor costs while improving the revenue cycle, patient engagement, and clinical workflows.

Care delivery models introduced during the COVID-19 pandemic, like virtual care, are nearing maturity and continually proving their value. PEs will look to healthcare information technologies and these new solutions to grow their patient base by making care more accessible to historically underserved populations and improving the patient experience.

Finally, portfolios can improve their margin profiles by implementing HCIT to support operations across the healthcare value chain, from administration to the supply chain.

Is Your Organization Ready? We Can Help You Get There

The leading healthcare private equity trends in 2024 present a blend of challenges and opportunities for PEs and organizations considering taking funding. While private equity firms must navigate liquidity constraints, macroeconomic pressures, and an evolving regulatory environment, they’re poised to capitalize on the value specialty providers, generative AI, and healthcare information technology can bring to their portfolio’s margin profiles.

As the private equity landscape in healthcare continues to evolve, staying informed and agile will be vital to driving value and improving patient outcomes. At Kirby Bates Associates, our team of executive recruiters stands ready to help identify unparalleled leaders with a proven ability to drive the turnaround private equity-backed healthcare organizations need.

To learn more about how we can find the leaders who will shape and drive your organization’s future, get in touch with our team today.