Navigating Private Equity in Healthcare: Insights from VMG Health’s Lukas Recio

May 23, 2024

Written by Christa Shephard

VMG Health’s own Lukas Recio joined Scott Becker on the Becker Private Equity & Business podcast to discuss the rise in private equity acquisitions in physician practices. Lukas, who is a leader in VMG Health’s Financial Due Diligence division, broke down the key factors driving the surge in private equity investments and its impact on healthcare professionals.

Private equity companies’ interest in the healthcare sector has flourished over the past 15 years, and private equity purchases of physician practices have increased by over 600% from 2012 to 2022. That statistic, Lukas says, reflects the “growth of healthcare spend as a percentage of GDP… [In the last five years], we’ve really seen the dollars, allocated specifically to investment in the healthcare space, really take off alongside those investment figures.”

Those changes and trends already taking place were exacerbated by 2020’s global pandemic. “2020, 2021, and 2022, we really saw deals happening at a frenetic pace,” Lukas says. In the wake of the global pandemic, the healthcare industry experienced a seismic shift in priorities. With the urgent need to meet unprecedented demand for care, the prevailing mentality became “grow at all costs.” Against this backdrop, healthcare buyers and sellers began requesting VMG Health’s services earlier in the transaction process than usual.

However, healthcare margins are growing thinner thanks to inflation and increasing operational costs, forcing organizations to navigate a landscape where growth opportunities must be balanced against heightened regulatory limitations. “When we think about deals themselves,” Lukas says, “2023 was definitely a down year as far as deal volume. But what we found was that quality assets in attractive markets were still experiencing healthy multiples.”

Despite the challenges posed by regulatory scrutiny, there are still ample opportunities for innovation and expansion. However, achieving sustainable growth in this environment requires a strategic approach that emphasizes compliance with evolving regulations. States are now noticing that anti-trust and access to healthcare services are not currently aligned, which has prompted some states to begin reviewing healthcare transactions.

Lukas explains, “You can easily imagine a world where it becomes more difficult to execute an investment in these states that are imposing these regulatory reviews because, in some cases, they could take months review the information before they let you know whether or not it’s been green-lighted.”

On top of these dynamic changes, Lukas urges listeners, especially those in physician-owned practices, not to view private equity partnerships as a silver bullet: “Private equity can be a really great partner, but there are also things that you need to consider that are going to have their challenges—as with any other relationship that you’re going to be in, whether it’s personal or professional.”

For more of this insightful discussion, listen to the episode, The Rise of Private Equity in Healthcare: Challenges, Opportunities, and Regulations. VMG Health is dedicated to helping healthcare entities big and small through their transaction, strategy, and compliance needs. Contact our industry experts or visit our website for more information.

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