PE health care deal value robust in 2022

Private equity in health care saw rich returns last year despite macro headwinds, with total disclosed deal value reaching around $90 billion, according to a new report by Bain & Company.

Why it matters: While value was down from $151 billion in 2021, 2022 raked in over $10 billion more than the next-closest year — more evidence that 2021 was an outlier year.

Yes, but: Buyout volume fell by more than 35% in the second half of last year, compared with H1 — and Q4 of 2022 had the lowest quarterly health care private equity deal activity since 2017.

Of note: In 2022, health care information technology buyout volume added up to be the second highest ever on record.

• Provider tech continues to be the main driver, though biopharma and payer-focused technology are catching up.

Zoom in: There are abundant opportunities to expand around value-based care, the report notes.

• "While investment activity remains focused on primary care and Medicare Advantage, opportunities across other payer and specialty segments are expanding," per the report.
• Enabler models represent an attractive investment path, with adoption driven by a need for traditionally fee-for-service groups to participate in risk-based arrangements.
• See VBC-enabler Wellvana, which raked in $84 million from Heritage Group and Welsh, Carson, Anderson & Stowe-backed Valtruis.
• Bain’s analysis suggests fee-for-value arrangements will capture a 15%–20% market share from traditional fee-for-service providers in primary care by 2030, supporting further investment in the space.

What they're saying: While the death of fee-for-service has been underway for the last five years, "we are still in the same boat today," says VSS Capital Partners principal Eric Kim.

• "It is hard for providers to do a 180 and quickly shift their models but there is so much opportunity there," he says. "The biggest challenge has been duration (how long someone is cared for). Medicare Advantage is a natural place to get into VBC.”

• As tech-enabled VBC continues to evolve, "there are new market leaders emerging," says Dan Harknett, partner at Ridgemont Equity Partners.
• Ridgemont partnered with AOM Infusion in 2022 following a multi-year effort in the home infusion subsector.
• "Alongside our management team partners, we have been able to scale the platform in multiple key metro areas and deliver high-quality infusion services that are in great demand," says Petri Lindberg, principal at Ridgemont.

Aaron's though bubble: Fee-for-service seems to be slowly dying but like Michael Myers — it seems to always come back somewhere.