Private equity investments in health care have fallen by 20% as regulatory pressures mount

Hack Change Healthcare gives investors a break

PitchBook added that reimbursement challenges from the Change Healthcare ransomware attack have also made investors hesitant to move forward.

“The cybersecurity breach at Change Healthcare, which began on February 21 and was resolved in mid-March, caused temporary delays in active transaction processes as target companies attempted to reconfigure their billing processes and buyers sought assurance that revenues would stabilize at previous levels.” – added. stated in the report.

The report noted that the massive scope of the breach highlighted the growing risks associated with HIPAA compliance and cybercrime from a regulatory and cost standpoint. Ultimately, the regulatory attention that the breach received gave private equity firms a reason to reconsider investing in health care.

The buyer-friendly landscape has changed

The economy has changed a lot since 2018. While funds are readily available and private equity firms have ample opportunities to invest in healthcare organizations, inflation has made this proposition more expensive. Federal Reserveobvious intention maintaining high interest rates through much of 2024 has choked deals, widening the gap between bids and asking prices as investors eagerly await the inevitable cut in inflation rates that could push prices lower.

However, PitchBook noted that there are a lot of deals going on right now, which means private equity groups still have an appetite for healthcare – they’re just more cautious about how and where they invest. It is possible that the investment decline observed since 2021 will bottom out in 2024, prompting a wave of new purchases next year.

“Companies are obviously preparing to complete a transaction, but we expect most of these processes to proceed slowly, with announcements arriving towards the end of the year and activity to pick up in earnest in 2025.” – we read in the report.

Full analysis from PitchBook is available Here.