The role of private equity in healthcare

The drive to innovate in healthcare arises both from the sector’s desire increasing importance in society and on its reliance on scientific advancements to stay competitive. Advances in healthcare research require teams of professionals and state-of-the-art facilities and these, in turn, only happen when money is plentiful. Funding healthcare’s pursuits in research and its growth in facilities and personnel is dependent on executing proper investments.

While healthcare providers attract plenty of investors, economic uncertainties and other shocks, most notably the COVID-19 pandemic, have affected the flow of traditional investments. The healthcare industry can be better served by exploring a wider variety of funding sources. Healthcare businesses looking to adjust their business models to tomorrow’s challenges must examine new funding sources to stay viable.

To explore these possibilities, Grant Thornton Healthcare Industry Leader David Tyler recently spoke with three top healthcare executives in Atlanta about funding innovation:

• Robert Bunch, President, BCBS of Georgia
• Sherry Farrugia, Chief Executive Officer, Global Center for Medical Innovation
• Charlie Brown, M.D, Chief Executive Officer, Physician Enterprise Piedmont Healthcare

Pathways to financing innovation

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“Atlanta is it is a very tight knit community, and everybody wants to help everyone,” Farrugia said. “So, we've had great support from the donor community, from the federal government and the state government with grants.” 

But Farrugia said the greatest support has come from its community partners, such as Piedmont Health, and Blue Cross Blue Shield in Georgia, Farrugia said. In another instance, when the federal government was calling on GCMI to deliver personal protective equipment in large numbers in the early days of the pandemic, Atlanta-based Aflac stepped in with a $2 million gift to jumpstart the ramped-up PPE production.

Bunch said his company, BCBS of Georgia, has been proactive in finding sources of private equity money, partnering with these investors to bring solutions to market. The key is that these investors are looking to find the right partners, so being a valued part of the community will earn their trust.

Amplifying what Farrugia said, Brown added that strong community ties extended to individual patients who had a rewarding experience in their healthcare system and sometimes become generous donors as a result.

Private equity to the rescue?

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Tyler noted that the influx of private equity money into healthcare was significant now, but that that was not an altogether positive development. “We all remember the influx of private equity money into the people physician practice management roll-ups that happened in the 1990s and we're trying to avoid those lessons today.” Trying to avoid those mistakes today, healthcare companies must focus on incentive alignment, operational efficiency and improved patient outcomes.

Farrugia said private equity investors in medical devices companies such as GCMI are often merely looking to diversify their present holdings and have preconceptions such as the length of time needed to develop new devices. It’s a matter of education – assuring them that new products don’t often take a decade or more to develop. Understanding that private equity investors are much more likely to be interested in short-term results guides her outreach efforts.

“What I say to any private equity entity individual is, ‘I'm not going to waste your time if I don't have something that isn't going to bring you a return in two to four years,’” Farrugia said. Contacting and attracting private equity investment, then, is best done when GCMI has a product that’s ready for production now.

Bunch said it’s important driving that private equity investors clearly see a return attached to any investment. And for his company, that investment needs to be tied to the core mission of his company. Additionally, Brown cautioned that a healthy skepticism is warranted with attracting private equity investment, particularly when it comes to delivering care.

What all the speakers acknowledged is that finding new sources of funding should never involve compromising patient care or any other healthcare company’s primary goals. Patient care and safety must be primary, and healthcare companies seeking to improve operations must work to align the value of what they already do with the needs of investors in order to ensure a mutual benefit.