Mar 23, 2022 - Health

Private equity's pandemic-era health care push

U.S. private equity deals in life sciences
Data: Pitchbook, American Investment Council; Table: Thomas Oide/Axios

Private equity firms invested nearly $70 billion in the life sciences and medical device industries last year — a sign that the pandemic's disruptions didn't cool interest in the sectors, according to a new report by the American Investment Council.

Why it matters: The influx of capital could help bring more lifesaving drugs and medical technologies to market. But private equity's growing presence in health care isn't always viewed positively, particularly when it's associated with price increases or reduced access to care.

U.S. private equity deals in healthcare devices and supplies
Data: Pitchbook, American Investment Council; Table: Thomas Oide/Axios

By the numbers: Private equity deals in the life sciences sector were worth nearly $26 billion in 2021, the highest amount in a decade.

  • Medical devices and supplies deals were worth nearly $44 billion last year, which was also the highest value over the last decade — by far.
  • Private equity has invested more than $280 billion into the sectors over the last decade, according to the report.

What they're saying: "What COVID brought was probably a bigger focus on health care gaps and needs in the country, and I think you saw more money going into this sector as a result of a new focus on exposing some of the challenges we have in the health care system," American Investment Council CEO Drew Maloney said in an interview.

  • "We really are filling a gap in the marketplace to bring these innovations to life through our funding mechanisms," he added.

The big picture: Private equity firms like Bain Capital, Cerberus and Blackstone Group already have invested heavily in hospitals, nursing homes and staffing companies — which not everyone thinks is a good thing. The companies typically rely on debt financing to buy assets, maximize returns to partners and exit in a fairly short window of time.

  • The presence came into play during Washington's surprise billing debate, which focused partially on the behavior of private equity-backed physician staffing firms. Private equity-owned nursing homes have also been criticized as offering lower-quality care.

Yes, but: Investing in drug and device development isn't the same as investing in these other areas, said Craig Garthwaite, a professor at Northwestern University's Kellogg School of Management.

  • "There’s lots of value to be created and captured by these private equity firms, and there's much less of the worry ... about private equity and health care services or providers," Garthwaite said. "In a product market, we think of this being the domain of for-profit companies, and we're just arguing about what the capital structure is."
  • And for private equity to lead to higher drug prices, pharmaceutical companies would have to not already be charging the highest prices that the market will bear.
  • "I don’t think it'll raise prices here, because I think people will charge whatever they can for the product, and if they cut costs they'll just take it as profit," Garthwaite added.
Go deeper