Stacks of coins with a graphic showing financial growth above them

Private equity (PE) investments in healthcare in 2022 were the second-highest on record behind 2021, with home health and hospice among the top 15 subsets, according to a new report by the Private Equity Stakeholder Project.

The PESP tallied a total of 628 private equity deals in healthcare last year with home health and hospice accounting for 37 deals. PE firms notched up 12 add-on acquisitions in hospice and 22 add-ons and three buyouts in the home healthcare sector. An add-on is a company that a private equity firm adds to one of its platform companies.

The report’s authors raised concerns about the deals, saying for-profit home healthcare and hospice companies have been linked to lower standards of care compared to their non-profit counterparts.

“Private equity typically buys up companies with the aim to produce outsized returns over short time periods,” Mary Bugbee, report co-author and PESP healthcare researcher, said in a statement. “However, as we’ve historically seen in healthcare, this strategy can lead to cost-cutting efforts that jeopardize patient care and working conditions. The strategy to consolidate companies into larger ones can also lead to higher prices and overall higher costs for patients and payers.” 

Private equity’s interest in home health and hospice has been growing over the past several years, according to PESP. The report noted private investor groups accounted for half of all home healthcare deals between 2018 and 2019. Private equity deals in hospice increased 25% between 2011 and 2020.  

PE investment, especially in hospice, has been raising concerns as the number of agencies has exploded in recent years. Last month, the Centers for Medicare & Medicaid Services revised new guidance for hospice surveyors to identify bad actors in the sector. A report last fall by investigative media site ProPublica claimed some for-profit hospices were fraudulently admitting patients who did not qualify for hospice care under Medicare.

PE firms often buy companies with the expectation that they’ll be worth more than the original investment by a specified date and can be sold at a profit. However, mergers and acquisitions advisory firm Mertz Taggart said in a recent report some PE firms are expected to hold onto investments longer in the current economic climate.

“Multiple private equity groups have shared with us that they’ve pushed off their exits for now while they wait for the credit markets to ease up a bit, and with the hope that trading multiples of some of the public companies normalize at a higher level,” Mertz said.