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“Disruption Breeds Opportunity”: Private Equity Investments and Legal Changes Leading New Developments in the Healthcare Sector

Posted in Healthcare Services Investing

By: Jennifer Wiegele, iGlobal Forum

We all know the healthcare sector has changed dramatically with the new implementation of ACA, but the major shift has occurred within the move from “fee-for-service to value-based healthcare.” In an interview with Geoffrey Cockrell, Partner & Co-Chair, Private Equity within McGuireWoods, and Amber Walsh, Partner at McGuireWoods, two speakers on iGlobal Forum’s upcoming Private Equity Investment in Provider Healthcare in New York on June 11th, we discuss the major changes that this new law and the surrounding developments have had on private equity investment and provider care within the healthcare sector.

Q: How does the new law directly affect private equity investments in provider healthcare?

GC: The biggest impact on the healthcare sector is only partially driven by the ACA. The big shift is the move from fee-for-service to value-based healthcare. This shift is occurring in many different areas – pilots by large payors, bundled payments, ACOs, etc.  As market participants begin absorbing outcome risk, they begin behaving differently and valuing different things. That is very disruptive to the market, and disruption breeds opportunity.

Q: What deals are currently in process that will add capability and scale to providers?

GC: Of keen interest to investors are sectors where relatively low-cost facility expansion is available and the market is generally fragmented – think dental practice management, urgent care, physical therapy, pain practices and other sectors where an investor can stamp out new locations without massive capital expenditures.

Q: How will these new deals affect provider care?

GC: Hard to say. When we did capitation last time, the problem was that it created incentives for denial of service. I think that we have learned a lot since then and have the benefit of observing other systems throughout the world who have managed to combine cost-containment with quality care. The risk of creating denial of service is real, but, I think, avoidable.

Q: What non-traditional industries are currently entering into the healthcare sector? 

AW: With the ongoing focus on innovation and ways that providers can be more efficient and effective in their delivery of care, we’re seeing providers partner with a whole host of unique players. One of the most prominent and interesting is the changing role of insurance payors, as they step into new positions of shared risk takers with their providers through joint venture models, ACOs etc.

Q: Where do you see these investment trends heading in the future?

GC: I think the hot sectors within healthcare will continue to be robust. I also think that payors and hospitals will increasingly become direct market participants. The shift toward value-based healthcare means that someone is taking the outcome risk and everyone else is a service provider. In many instances the risk takers will be the hospitals and the payors. To manage that risk, they will increasingly be buying into the sector to manage the risk.

Q: How are these new areas creating new opportunities for the development of the healthcare industry?

AW: Any time there is attention, like there is right now, on efficiency, change and innovation, it opens opportunities for investors who have both capital and knowledge from inside and outside the industry to offer.

The industry itself is in the midst of a huge overhaul, and private equity investors could change the direction of the new healthcare advancements within the field. The new law has led the way for new opportunities within the sector for investors and those working within the healthcare field alike.

Next week on iGlobal Forum’s Private Equity Investment in Provider Healthcare, Geoffrey Cockrell is speaking on the 9:30am session, “M&A 2014 Roundtable: Subsector Convergence as a Driver of 2014 Deals,” and Amber Walsh will be speaking on the 1:45pm panel, “Never-Seen-Before Provider Care Sprouts: How Private Equity Investors May Leverage Returns through the Unfolding of a New Kind of Supply Chain.”

The mission of iGlobal Forum is to connect business executives across the financial industry and provide an exchange platform for education and strategic relationships. We concentrate our events on the most pressing business issues, and our attendees get the opportunity to meet face-to-face and network with the leading experts in the field.

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