In 2018, there were 590 private equity (PE) deals in the US healthcare industry collectively worth more than $88 billion.
Many of these deals focused on historically fragmented specialties within the provider sector, including behavioral health, dermatology, orthopedics, otolaryngology, urology, and dentistry. With the COVID-19 pandemic putting a severe financial strain on the shrinking pool of independent provider groups, it is likely that PE investment in such groups will continue over the next several years as the providers seek financial support.
PE-backed healthcare providers need to optimize their contracts with commercial health insurers and Medicare Advantage plans to deliver the returns necessary to satisfy their owners, and most importantly, their physician partners. Payer contracts should recognize the improved value PE investment typically brings—for example, expanded access through the hiring of more providers and the opening of new locations, along with technology to improve the patient experience. However, many PE-backed providers struggle to improve the financial and operational terms of their payer contracts at the same rate as their value propositions to payers and patients.
Solving the Problem
When negotiating payer contracts, there are six common challenges PE-backed healthcare organizations face. In this article, we discuss those challenges and offers solutions that can help these organizations establish and meet reasonable expectations for contractual improvements.
