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The Keckley Report

The PE Playbook: What to Expect in 2022

By December 20, 2021March 1st, 2023No Comments

Private equity’s impact in healthcare delivery accelerated during the pandemic. Next year, it’s likely to continue with profound implications for traditional providers. The facts are these:

Market Conditions in 2022 are Favorable for Private Equity Investments in Healthcare Services

The pandemic has created financial challenges for hospitals, long-term care providers and specialty services providers. Operating costs for staffing in hospitals hardest hit by the pandemic have eroded margins. Medicare and private insurers have cut reimbursement. Federal policies that discourage hospital consolidation and encourage greater price transparency have bipartisan support. Affordability and uneven access are growing concerns to voters. The transition from fee-for-service to value-based care via alternative payment programs has been disappointing prompting policymakers to re-think their strategies.

Collectively, these conditions handicap traditional providers of care: those affiliated with multi-unit systems have fared better in sectors where demand is strong and reimbursement manageable, but for others, or for opportunists, access to capital for growth has been problematic. Thus, the opportunity for private equity.

Private equity GPs (General Partners) have $$3.3 trillion cash on hand to invest: healthcare services are an attractive target. Per Goldman Sachs, private equity investing produced its highest return for its Limited Partners in 14 years in 2020. Healthcare deal volumes have grown 56% in the 12 months through Nov. 15, 2021, compared with the same period in 2020, which include 9 megadeals of at least $5 billion and 400 medical group transactions. In looking closer at provider transactions, 200-250 medical group deals occurred during the same period in 2017-19. Already 1,975 PE healthcare deals have closed in the first nine months of 2021 and 33 have exited to the IPO market.

Private equity is a buyer in a seller’s market today. Its leveraged buyout model while borrowing costs are low and ‘2-20’ fee structure is attractive to investors who will add another $250 billion to their coffers this year.

Global PE Sponsors will Continue to have Advantages in 2022, but Opportunities Still Exist for Smaller, Specialized Funds

In 2022, the after-effect of the pandemic and the economy will draw attention to health costs, affordability, equity and transparency in an election year. Though some policymakers and elected officials have voiced concern about the role of private equity in healthcare delivery, significant restraint on PE activity is unlikely. Mega-funds like Carlyle Group, Apollo, Blackstone, TPG and others who have raised $138 billion this year already of course have an unrivaled ability to scale their investments by way of their size; but can also absorb deep losses through diversification and can pivot quite quickly, if needed.

More specialized and inherently smaller funds (whose asset allocation may or may not span multiple industries) don’t necessarily have that luxury, but they have and still will find success in making bets where they have operational expertise, even if that means expanding their investment theses to include new provider specialties. Of particular note within the healthcare provider landscape are names like Webster Equity Partners, Gryphon Investors, LLR Partners and Centre Partners, among others. Their investments range/have ranged anywhere from Dermatology, Urology, Dental, and Allied Health type rollups (like Physical Therapy) to more emerging and no doubt hot areas where deals can loosely be categorized as behavioral health bets- IDD, Autism, Addiction/Psychology/Psychiatry, traumatic brain injury treatment etc. To do this, they no doubt have a strong understanding of OPPS/ASC final rules (CMS-1753FC) which are a major driver of many ASC anchored investment decisions. And they understand the power of leveraging technology- be it through claims data repositories like Definitive, mapping software etc. But even with these advantages, they too are struggling to find deal flow in a highly competitive seller’s market where there’s been a lot of downstream investment and EBITDA is becoming increasingly more engineered. And the flow through effect hasn’t stopped there- growth/VC names are too feeling the downstream strain.


Healthcare is an industry accustomed to spending growth. Between 2014 and 2019 before the pandemic, the US population increased 3.1% to 328 million, the nation’s GDP increased 21.8% and national health expenditures increased 25.3%. Private equity is betting the economics of healthcare continue to be favorable and regulatory constraints on their activities are minimal. With the emergence of the omicron variant and the recent blow dealt by Senator Manchin’s public opposition to President Biden’s Build Back Better Act, private equity reform looks marginal for the time being.

As we continue to experience record dry powder, expect more of the same healthcare investment themes in the private markets, but slightly tweaked. From a provider standpoint, those will include:

  • Telehealth- particularly, specialty platforms with a much more narrowed treatment focus

  • Both existing and “novel” PPM investments like Cardiology

  • Support Services- RCMs, Staffing etc.

  • “Behavioral Health”- both traditional investments, and specialty offerings like Opioid Use Disorder services (addiction), neuro related rehabilitation services and others.

For hospitals, medical groups and others who deliver care, knowing the private equity playbook is an imperative whether as a target, partner or competitor. PE is here to stay.


P.S. This week, media attention will continue on the Omicron variant and inflation (6.8% increase in November; +4.9% for Core CPI and +1.7% for Medical Care per BLS). Also, a verdict in the Elizabeth Holmes trial (Theranos) is expected.


Christopher M. Whaley “Sources Of Health Care Price Variation Create Barriers To Measuring Health Care Costs”; December 13, 2021; Health Affairs

Elizabeth Rourke “In Clinical Care, What Will Amazon Deliver?”; December 18, 2021; NEJM

“Will Private Equity Activity in 2022 be as Robust as 2021?”; December 2021; Lincoln International

“Health services: Deals 2022 outlook”; PWC

“2021 Private Equity Deal Performance Benchmarks” DealEdge

Robertson, Benjamin. “Private Equity Is Smashing Records with Multi-Billion M&A Deals.”; September 21, 2021; Bloomberg

Special Purpose Acquisiton Companies (SPACS); December 20, 2021; MarketBeat

“Private Equity Investment in Healthcare Could Come Under Increased Regulatory Scrutiny”; Globe Street December 20, 2021; Globe St

“Healthcare Portfolio”; 2021; Bain Capital Private Equity


Study: Hospital Employed Physician Comp 0.8% Lower than Independents

Researchers analyzed physician income in 2014-2018 to examine whether hospital or health system ownership of physician practices were associated with differences in physician income for the period. Findings:

  • Hospital and health system ownership of physician practices increased by 89.2%, from 24.1% to 45.6% of all physicians.

  • Among physician practices overall, vertical integration with hospitals or health systems was associated with, on average, 0.8% lower income compared with independent physicians after multivariable adjustment. Overall, there was a $2,987 decrease in physician’s annual income on average. Nonsurgical specialists’ income dropped by 2.4%, $9,652 per year. Surgical specialists saw a 2.1% increase, $10,741 per year.

Whaley et al “Physician Compensation in Physician-Owned and Hospital-Owned Practices”; December 2021; Health Affairs

Doximity: Physician Income up 3.8% in 2021

Doximity found average pay for doctors increased by 3.8% in 2021 which is up from an increase of 1.5% last year. Like last year, the increase did not outpace the rate of inflation. In 2021, the 12-month headline inflation rate was 6.2% as measured by the Consumer Price Index (CPI).

  • Neurosurgery has highest average annual compensation, at $773,201; pediatric infectious disease at $210,844 was lowest.

  • The gender pay gap among physicians was 28% this year. Male doctors currently earn over $122,000 more than their female counterparts.

“2021 Physician Compensation Report Fifth Annual Study”; December 2021; Doximity

Mercer: Employer Health Costs up 6.3%

Per Mercer’s latest analysis of employer health costs: Average costs for employer-sponsored health insurance rose 6.3% in 2021 to $14,542 per employee, following last year’s increase of 3.4%.

“National Survey of Employer-Sponsored Health Plans” Mercer December 2021; Mercer

Judge Reverses $4.5 billion Purdue Pharma Bankruptcy Settlement

Last Thursday, a federal court judge reversed the Purdue Pharma bankruptcy plan after deciding a bankruptcy judge did not have authority to grant immunity to the Sackler family members who control the drug maker. A provision in the plan grants immunity to some of the Sacklers as well as hundreds of their associates from future lawsuits, even though — unlike Purdue — they did not file for bankruptcy protection. The Sackler family members had insisted that a bankruptcy deal would not be possible unless they were released from all future liability related to the harm caused by Purdue’s OxyContin painkiller. Purdue issued a statement saying it plans to appeal the decision.

“Judge Throws Out Purdue Pharma’s Deal to Shield Sacklers From Opioid Lawsuits”; December 16, 2021; Wall Street Journal

Study: MA Correlates to Reduction in Hospital Spending

Claims data was analyzed from February 2020 to October 2021. Findings: The first year of MA enrollment was associated with a differential reduction in institutional (Part A) spending of $95 PMPM, and a differential reduction in total spending (Parts A and B) of $142 PMPM.

Schwartz et al “Health Care Utilization and Spending in Medicare Advantage vs Traditional Medicare Difference-in-Differences Analysis”; December 10, 2021; JAMA Health Forum

Oracle Acquisition of Cerner Adds to its Healthcare Push

Oracle Corp. is in talks to buy electronic-medical-records company Cerner Corp in a deal that could be worth around $30 billion and push the enterprise-software giant further into the $214 billion domestic ($400 billion global) healthcare cloud computing market competing with Microsoft and Amazon.

Related: Gartner forecasts cloud services will reach nearly 10% of all corporate spending on information technology (IT) in 2021, up from around 4% in 2017.

“The battle of the computing clouds is intensifying”; December 13, 2021; The Economist

“Oracle to Buy Medical Records Company Cerner in its Biggest Acquisition Ever”; December 20, 2021; CNBC

LAN Survey: 40% of Health Payments Tied to Alternative Payment Models in 2020

40% of U.S. healthcare payments were tied to alternative payment models (APMs) in 2020 year with Medicare Advantage claims representing the largest amount, according to a study published Wednesday by the Health Care Payment Learning & Action Network.

The report found that 38.2% of healthcare payments in 2019 and 40.9% of payments in 2020 were tied to an APM. The percentage of payments tied to value increased from 35.8% in 2018.However, the percentage is below the network’s goal of 50% by 2018.

Health Care Payment Learning and Action Network; CMS


CMS Office of the Actuary: National health Spending up 9.7% in 2020 due to COVID

US health care spending increased 9.7% to $4.1 trillion in 2020 vs. a 4.3% increase in 2019. The increase was due to a 36.0% increase in federal expenditures for health care that occurred largely in response to the COVID-19 pandemic vs. a 5.9% increase in 2019. Findings:

  • The gross domestic product (GDP) declined 2.2% and the share of the economy devoted to health care spending spiked, reaching 19.7%.

  • Hospital care, physician and clinical services, and retail prescription drugs accounted for 59% of total health care expenditures. Hospital spending grew at about the same rate in 2020 (6.4%) as in 2019 (6.3%), whereas physician and clinical services spending increased at a faster rate (5.4% compared with 4.2% in 2019).

  • The federal government’s share of all national health expenditures increased to 36% in 2020 vs. 29% in 2019 as the other sponsors of health care (state and local governments, households, and businesses) all paid for a smaller share in 2020 than in 2019.

  • Out-of-pocket spending fell for the first time since 2009 as Americans used the health care system less for non-COVID related health issues

  • Prescription drug spending grew at 3% vs. 4.3% in 2019.

Hartman et al “National Health Care Spending In 2020: Growth Driven By Federal Spending In Response To The COVID-19 Pandemic”; December 15, 2021; Health Affairs

Federal Reserve: Recovery Slower than Earlier Forecast

Wednesday, central bankers published new 3-year projections for the national economy. Highlights:

  • Unemployment is forecast to drop to 3.5% next year, down from the September forecast of 3.8%.

  • The median inflation forecast for 2022, however, rose to 2.6% from 2.2%.

  • Gross domestic product is now projected to grow 4% in 2022, up from the previous median forecast of 3.8%.

“The 2022 Economy will be Hotter and Pricier than the Fed Expected just three Months Ago”; December 15, 2021; Business Insider


COVID Trackers, CDC Guidance & Other Resources

Key data (CDC, Hopkins, WHO) as of 12/17/21

• Cases: daily avg 127,648, 2-week trend +17%, total reported 50,739,052
• Testing: daily avg 1,468,604, 2-week trend +52%
• Hospitalized: daily avg 69,186, 2-week trend +18%
• Deaths: daily avg 1296, 2-week trend +9%, total reported 804,758

Commonwealth Study: 1.1M Deaths Averted by Vaccinations

A Commonwealth Fund study concludes that vaccinations prevented 1.1 million more deaths and 10.3 million more hospitalizations from the coronavirus-up from July’s projection of 279,000 deaths and 1.25 million hospitalizations. Caveat: the model is based on the Delta variant’s emergence but does not account for Omicron.

“The U.S. COVID-19 Vaccination Program at One Year: How Many Deaths and Hospitalizations Were Averted?” December 14, 2021; The Commonwealth Fund

Study: Costs for Covid Hospitalizations Vary Widely

Hospital costs for Covid-hospitalizations vary widely:

  • For complex Covid hospitalization: Range: $49,127 in MD to $128,650 in NJ

  • For noncomplex COVID-19 hospitalization: Range: $12,531 in MD to $44,239 in AL

Covid 19 Cost Tracker, Fair Health

Study: 30% Skipped Care During Pandemic

Per a West Health-Gallup survey of 6,663 adults in September and October:

  • 30% of Americans skipped care this summer due to cost, up from 18% in February. 1 in 5 said they or a member of their family saw their health deteriorate over the past year as a result.

  • 2 in 5 Medicaid beneficiaries and those without insurance have seen their health conditions—typically chronic—worsen over the past year after forgoing care.

  • 40% of adults are worried they will be unable to pay for needed healthcare services over the next year, according to the survey.

West Health-Gallup 2021 Healthcare in America Report December 2021