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The Keckley Report

2021 is Prime for Private Investment in Healthcare: What that Means for the Health System

By March 15, 2021March 1st, 2023No Comments

In 2021, record levels of private investment will flow into the U.S. healthcare system accelerating merger and acquisition activity and fundamentally altering competition in the industry as organizations look beyond the pandemic.

Financial sponsors i.e. private equity, hedge funds, large-cap multi-nationals operating in the U.S., ended 2020 with $2.9 trillion cash on hand to invest. Of more than 300 ‘blank check’ aka Special Purpose Acquisition Companies are looking for acquisitions–53 focused exclusively on healthcare deals. Last year, a record 7 unicorns ($1 billion in revenues and privately owned) went public with names like Oscar, 23 and Me, One Medical, GoodRx and others now publicly traded. And notwithstanding growth in recent short-seller activity as some think SPACs might pay too much for their acquisition targets, merger-acquisition activity in 2021 could rise by 35% and reverse mergers, which include SPAC deals, could jump 47% this year. It’s understandable:

  • The U.S. health system is dependent on private funding. In 2019, its funds came from the government (45%), private insurers (26%) and household out of pocket payments (28%).

  • Constraints on healthcare spending are advantageous to private investors. In the decade before the Affordable Care Act passed (2000-09), healthcare spending went from 13.3% to 17.3% of GDP. In the decade since (2010-19), it has risen to 17.7% of GDP. Thus, margins have thinned in many sectors and opportunities for private investors have increased as a result.

  • Private investments in healthcare have performed well. In comparing 38 industries, Standard and Poor’s rates cyclicality risks for healthcare services, healthcare equipment and pharmaceuticals low (2) and it also rates risk from competitive and growth-related forces a low risk. It’s a predictable industry!

In response, the industry’s traditional players—its hospitals, medical practices, insurers, post-acute providers, drug, and device manufacturers, et al– have implemented four strategies to protect their turf and compete:

  • Cost Reduction: “The estimated cost of waste in the US health care system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending, and the projected potential savings from interventions that reduce waste, excluding savings from administrative complexity, ranged from $191 billion to $286 billion, representing a potential 25% reduction in the total cost of waste“, according to studies. Reducing operating costs is standard operating procedure in healthcare.

  • Consolidation: in every sector of U.S. healthcare, scale is an advantage. In some sectors, like drug manufacturing, drug distribution, health insurance, retail pharmacy, health information technology and others, 5 companies, all investor-owned and publicly traded, control 50% of the U.S. market. But not so in healthcare delivery: the acute, post-acute and physician services sectors remain fragmented, and all are seeing encroachment in their sectors from niche-grabbing disruptors.

  • Joint ventures: The new wave of JV’s involve broader scale opportunities funded by multiple sponsors for the sole purpose of pooling talent, reducing risks, and optimizing their returns on investment. Two announcements this year illustrate: Truveta has raised its funds from 14 health systems (13 not-for-profit, 1 investor-owned) in a bid to pool their clinical and administrative data and monetize its value. And Ascension Ventures closed its 5th fund raising $285 million through its 13 health system partners and others.

  • Advocacy: Advocacy efforts aimed at influencing legislation is essential to the viability of each sector in healthcare. According to Open Secrets, the industry spent more than $615.4 million and employing 2,892 lobbyists including 54% who previously worked for the government. Advocacy efforts aimed at reduced regulatory constraints or enforcement of laws that strengthen certain sectors against encroachment is standard fare.


The long-term impact of private investment in healthcare is unknown: shareholders in healthcare expect a return on their investments. Profiting in healthcare runs afoul of public sentiment in some circles that healthcare is a fundamental right. But healthcare investing is widespread: it’s part of virtually every retirement portfolio in America which lends to mixed feelings about ‘the business of healthcare’. And all concede the status quo is not sustainable—expensive, wasteful, and inaccessible to diverse populations including persons of color.

The immediate implications are clear:

  • Profitability in every sector will get heightened attention. Most private investors, especially hedge funds and private equity, expect their returns in 5-7 years or less. Some investors are more patient. But all pay attention to profit. Modern Healthcare’s reporting last week is illustrative: “Hospitals posted higher profits in second half of 2020 even as COVID cases soared” On the one hand, the American Hospital Association reports that hospital losses were $320 billion last year and might reach $122 billion in 2021. On the other, media reports like this paint a contrasting picture.

  • SPACs will spark short selling and attention to valuations: Many fear the influx of capital via SPACs will prompt their private company targets to inflate their revenues and strip costs to artificially inflate their earnings.This year, bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to data from S3 Partners.

  • The competitiveness of the U.S. healthcare system will get attention from regulators. President Biden’s 3 appointees to the Federal Trade Commission, and the posture it takes in evaluating competition in healthcare will be consequential for healthcare. The historic mechanisms whereby anti-competitive constraints are adjudicated in courts seem decreasingly relevant: the growth of vertically integrated systems of health, global operations, digital connectivity, online self-care, patent laws, multi-national operations, scope of practice constraints imposed in states and a plethora of similar changes defy conventional approaches to assuring competition in the U.S. health market is fair.

  • Investments by not-for-profit health systems in for-profit ventures will provoke pushback from critics. The issues of community-benefits and tax exemption will resurface, and the profitability and executive compensation will garner attention. It’s a likely consequence of the growing prominence of successful large not-for-profit systems like Common Spirit, Trinity, Ascension, Advent, Providence, and others that are successfully charting new paths to long-term sustainability.

  • The public debate about the future of the U.S. healthcare system should more deliberately include the role played by private investment.It’s not just big names like Goldman Sachs and Berkshire Hathaway and strategic investors like Amazon and United Health that leverage their scale. It’s individuals with retirement accounts and households that own stocks (53% of all households in 2019 per the Federal Reserve—up from 32% in 1989).

The momentum created by private investors coming out of the pandemic is the U.S. health industry’s most significant trend. It will drive unprecedented innovation and intensified competition living many in the dust.



“National Health Expenditures 2019”; CMS

David Cutler “Building Health Care Better Means Reining in Costs “; March 9, 2021; JAMA Network

“Records Broken in Global Capital Markets during Q3”; Refinitiv

“Standard & Poor’s Assigns Industry Risk Assessments To 38 Nonfinancial Corporate Industries “January 5, 2021; Standard & Poors

Shrank et al “Waste in the US Health Care System: Estimated Costs and Potential for Savings” JAMA October 7,2019; JAMA Network

Tara Bannow “Hospitals posted higher profits in second half of 2020 even as COVID cases soared”; March 11, 2021; Modern Healthcare

“January Results Reflect Rocky Start to 2021 for U.S. Hospitals and Health Systems”; February 22,2021; Kaufman Hall

Matt Wirz, Juliet Chung “Short Sellers Boost Bets Against SPACs”; March 15,2021; Wall Street Journal

John Tozzi “UnitedHealth’s New CEO Sees Better Blending of Key Units Ahead”; March 10, 2021; Bloomberg


Current stats: CDC

At least 533,904 Americans have died from the coronavirus; the global death toll stands at 2.6 million. One in three Americans is grieving the loss of someone who died of Covid-19. Many of the virus’s victims were vulnerable, while others had been entering new chapters in their lives. About 68.9 million people have received at least one dose of a Covid-19 vaccine, including about 36.9 million people who have been fully vaccinated, with an average of 2.54 million shots administered daily.


Study: Nursing Home Death Rate Declines

Brown University researchers analyzed changes in thirty-day mortality rates between March and November 2020 among 12,271 nursing home residents with COVID-19. Key finding: Adjusted mortality rates significantly declined from a high of 20.9% in early April to 11.2% in early November. Mortality risk declined for residents with both symptomatic and asymptomatic infections and for residents with both high and low clinical complexity.

Kosar et al “COVID-19 Mortality Rates Among Nursing Home Residents Declined From March To November 2020”; March 11, 2021; Health Affairs

ANA Survey: One in Four Sought Mental Health Support in Pandemic

The American Nurses Association surveyed 22,316 nurses responded between January 19 and February 16, 2021:

  • 24% of nurses reported that they sought mental health services since the pandemic started last March including 36% of those under 34 years of age. More than half of those surveyed who were younger than 34 disagreed or strongly disagreed with the statement “My employer values my mental health.”And 3% of these reported feeling suicidal in the prior 14 days, she noted.

  • 18% of the nurses surveyed said they intend to leave their current position in the next 6 months, and 4% plan to leave the profession altogether.

  • 70% of nurses reported receiving either one or two doses of a vaccine. Among the rest, 34% said they intend to get the vaccine as soon as possible, 13% plan to get the vaccine in the next 6 months to a year, 25% are undecided, and the remaining 28% said they don’t plan to get it ever citing concerns that the vaccines were developed too quickly to assure their safety or “Personal and/or religious reservations” about vaccines broadly.

  • 15% of nurses reported having been infected with COVID, which for many factored into their decision on whether to get vaccinated.

“Year One COVID-19 Impact Assessment Survey”; March 13, 2021; American Nurses Association

CDC: Obesity is Risk Factor for Covid Hospitalization

Obesity is a common metabolic disease, affecting 42.4% of U.S. adults and is a risk factor for other chronic diseases, including type 2 diabetes, heart disease, and some cancers. The CDC analyzed medical records for hospitalized patients the correlation between BMI and covid-related hospital admission.


One half (50.8%) of adult COVID-19 patients in this analysis had obesity, compared with 43.1% in the total PHD-SR sample and 42.4% nationally. An increased risk for severe COVID-19–associated illness among persons with excess weight and provide additional information about a dose-response relationship between higher BMI and risk for hospitalization, ICU admission, invasive mechanical ventilation, and death.

Kompaniyets et al “Body Mass Index and Risk for COVID-19–Related Hospitalization, Intensive Care Unit Admission, Invasive Mechanical Ventilation, and Death — United States, March–December 2020” CDC March 12, 2021; CDC


AHA Wants Delays of Medicare Cuts

AHA is pushing legislation in the House of Representatives that would for the pause to extend through at least the rest of 2021 the scheduled 2% sequester cuts to Medicare that automatically kicks in April 1 as well as exemption from provisions in the American Rescue Act that triggers a 4% cut to Medicare payments. The AHA estimates hospitals could lose between $53 billion and $122 billion in revenue 2021 due to the pandemic.

Jessie Hellmann “House to vote on pause to Medicare sequester cuts”; March 11, 2021; Modern Healthcare

AHIP Survey: Majority Satisfied with their Coverage, Premium Costs Primary Concern

Results from a survey conducted for America’s Health Insurance Plans (AHIP) by Locust Street Group, “designed to measure the perceptions, priorities and expectations of the 183 million Americans who have employer-provided coverage”. Highlights:

  • 76% feel their health care coverage will protect them during a medical emergency.

  • 67% are satisfied with their current coverage and many think their plans would also be good for their fellow citizens.

  • Provider choice, comprehensive coverage, and affordability are top drivers of satisfaction with their plans, while costs continue to be the top issue of concern.

  • The value-added services provided by their insurance provider that are most meaningful to consumers include care coordination and coordination of prescription drug refills.

  • 39% correctly estimate that the average employer contributes 70% or more of the cost of the coverage they receive.

“Employer-Provided Health Coverage Is Delivering Real Value for Consumers During the Pandemic”; March 10, 2021; AHIP

JAMA Commentary: Waste in the U.S. health system Called ‘Financial Pollution’

Harvard Population Health researcher Anita Katharina Wagner observes ‘Wasteful health care spending results from low-value care, undertreatment, pricing failures, fraud, and administrative complexity. Such spending costs US residents between $760 billion and $935 billion each year and harms populations through burdensome health insurance prices and taxes. Therefore, we need a metaphor more powerful than waste; waste conjures images of byproducts that are benign if properly discarded—routed to treatment plants, cleaned, and recycled. We should refer to wasteful health care spending and its toxic effects as financial pollution.’

Wagner et al “Financial Pollution in the US Health Care System”; March 8, 2021; JAMA Network

Study: 2021 HSA Bank Health & Wealth Index

Last week, HSA Bank, a division of Webster Bank that provides banking services to holders of Health Savings Accounts, Flexible Health Accounts, released its fourth annual HSA Bank Health & Wealth Index based on a survey of 2,000 U.S. adults. Highlights:

  • The average consumer was found to be moderately engaged in their health and wealth with an average index score of 57.4, increasing from 56.4 in 2020.

  • 89% of consumers agree that their health insurance plan helps them get the medical services needed while managing costs, which has been of critical importance during the pandemic.

  • 30% of respondents 55 and older never save for future medical expenses.

“2021 Health and Wealth Index” March 9, 2021; hsabank

CMS Announces Delay to Kidney Care Choices (KCC) Model, Alternative Models on Hold Pending Reviews

Last week, CMS posted this notice: The Kidney Care Choices (KCC) Model’s first Performance Year start date will now be January 1, 2022.

The Biden administration is reviewing key value-based reimbursement models, including the review of Direct Contracting and Primary Care First options. The administration is additionally pushing back timelines of other major value-based models including the Medicare Shared Savings Program (MSSP). While the administration has not indicated how long the models will be under review, industry experts indicate that these actions do not represent a setback for value-based reimbursement transition.

“CMS Delays Payment Care Choices Payment Model Start Date to 2022”; March 10, 2021; healthcare innovation

Study: Well-Child Visits with out-of-pocket Costs Decline but still Problematic

Boston University public health researchers analyzed national claims data to describe cross-sectional trends in well-child visits with out-of-pocket costs from 2006 through 2018 focused on the proportion of children who had an office or outpatient visit without a wellness visit and the proportion of wellness visits resulting in an out-of-pocket cost. Highlights:

  • The proportion of children with at least 1 office or outpatient visit and without a wellness visit declined from 39.3% in 2006 to 29.0% by 2018.

  • The percentage of wellness visits with an associated out-of-pocket cost declined from 54.2% in 2010 (the year that the ACA was passed) to 14.5% in 2018.

  • The percentage of non-wellness visits with associated preventive services increased approximately 60%, from 1.8% in 2006 to 3.7% in 2018.

Shafer et al “Trends in Well-Child Visits With Out-of-Pocket Costs in the US Before and After the Affordable Care Act”; March 12, 2021; JAMA Network