Tag: private equity

PE Practice Purchases Tick Up

Posted on by Brian Casey

Private equity acquisitions of radiology practices ticked up in 2024 after two years of declines. A new paper in JACR sheds light on PE purchases in radiology, which have raised concerns about the corporatization of medical imaging in the U.S.

Private-sector radiology historically consisted of independent imaging practices run largely by radiologist-owners who contracted with hospitals to read imaging exams.

  • That model has begun to break down as radiology attracts investment from private equity investors eager to roll up what they see as a fragmented industry into larger companies that can leverage market power.

But what’s good for PE investors may not be good for radiologists – or for healthcare. 

  • Private equity investment in healthcare providers has raised concerns that investors may be putting profits before patients.

The new study documents the rate of private equity investment in radiology from 2013 to 2024, based on queries of the Pitchbook and CB Insights databases, finding …

  • There were 113 PE-led radiology acquisitions over the full study period (out of a total of 4.3k radiology practices in the U.S. in 2023). 
  • PE radiology acquisitions peaked at 18 in 2021, fell for the next two years, and ticked back up to 10 in 2024.
  • Most of the radiology practices being acquired employed 50-99 radiologists.
  • PE-led acquisitions were most common in the South.

So what’s to make of the numbers? A total of 113 acquisitions over 10 years isn’t that many (although the authors caution that acquisitions of multi-state or national practices and imaging chains would be counted as a single deal). 

  • And the researchers acknowledge that there’s little data on the impact of corporatization on healthcare quality, at least in radiology (although they do cite a study showing that PE ownership was associated with an 8.2% increase in radiology prices).  

The Takeaway

Private equity investment in radiology practices may still be in the early stages relative to other medical specialties, but radiologists will watch PE acquisitions closely for signs of how the trend may impact them. The new study serves as an important baseline for tracking future activity.   

VC Investors Pivot to Quality

Posted on by Brian Casey

Venture capital investors in digital health firms pivoted to quality in 2024, with fewer deals done but a higher median deal size compared to 2023. That’s according to a new report from market analysis firm CB Insights that also documented a record high for both the number and value of AI-focused deals.

Digital health investment has fluctuated in the years since the COVID-19 pandemic, with the number of deals hitting a peak in 2021 but then receding. 

  • The first half of 2024 was particularly slow in the radiology AI sector, but funding seemed to accelerate in the second half, with more and larger deals getting done.

So where did venture capital funding for digital health end up for all of 2024? The CB Insights report found that relative to 2023 there was …

  • A 23% drop in the number of digital health funding rounds, to 1.2k deals, the lowest number since 2014, versus 1.6k deals.
  • A 3% increase in the total dollar value of investments, to $15.6B versus $15.1B.
  • A median deal size of $5.3M, up 39% versus $3.8M.
  • AI-focused companies secured 42% of funding and 31% of deals, up from 37% and 26%. 
  • The biggest imaging-related deal was a $106M Series C round raised by cardiac AI developer Cleerly.

The numbers are a sign of VC investors looking for quality companies that meet heightened benchmarks.

  • Investors want demonstrated progress in terms of clinical validation, commercial traction, and regulatory readiness before they’ll sign checks. 

The Takeaway

The new report illustrates the opportunities and challenges of the current investment environment for digital health. AI developers will find the wind shifting in their favor, but they will need to do their homework and show real progress in the clinical, commercial, and regulatory spaces before securing venture capital investment.

Headwinds Slow AI Funding

Posted on by Brian Casey

Venture capital funding of medical imaging AI developers continues to slow. A new report from Signify Research shows that funding declined 19% in 2023, and is off to a slow start in 2024 as well. 

Signify tracks VC funding on an annual basis, and previous reports from the UK firm showed that AI investment peaked in 2021 and has been declining ever since. 

  • The report’s author, Signify analyst Ellie Baker, sees a variety of factors behind the decline, chief among them macroeconomic headwinds such as tighter access to capital due to higher interest rates. 

Total Funding Value Drops – Total funding for 2023 came in at $627M, down 19% from $771M in 2022. Funding hit a peak in 2021 at $1.1B.

Deal Volume Declines – The number of deals in 2023 fell to 35, down 30% from 50 the year before. Deal volume peaked in 2021 at 63. And 2024 isn’t off to a great start, with only five deals recorded in the first quarter. 

Deals Are Getting Bigger – Despite the declines, the average deal size grew last year, to $19M, up 23% versus $15M in 2022. 

HeartFlow Rules the Roost – HeartFlow raised the most in 2023, fueled by a massive $215M funding round in April 2023, while Cleerly held the crown in 2022.

US Funding Dominates – On a geographic basis, funding is shifting away from Europe (-46%) and Asia-Pacific (no 2023 deals) and back to the Americas, which generated over 70% of the funding raised last year. This may be due to the US providing faster technology uptake and more routes to reimbursement.

Early Bird Gets the Worm – Unlike past years in which later-stage funding dominated, 2024 has seen a shift to early-stage deals with seed funding and Series A rounds, such as AZmed’s $16M deal in February 2024. 

$100M Club Admits New Members – Signify’s exclusive “$100M Club” of AI developers has expanded to include Elucid and RapidAI. 

The Takeaway

Despite the funding drop, Signify still sees a healthy funding environment for AI developers ($627M is definitely a lot of money). That said, AI software developers are going to have to make a stronger case to investors regarding revenue potential and a path to ROI. 

Envisioning A Difficult Future

Posted on by Jake Fishman

S&P Global Ratings’ decision to downgrade Envision Healthcare might have been largely overlooked during another busy healthcare news week, but it could prove to be part of one of the biggest stories in healthcare economics.

About Envision – The private equity-backed mega practice employs more than 25k clinicians across hundreds of US hospitals, including roughly 800 radiologists who perform over 10 million reads per year. 

The Downgrade – S&P downgraded Envision Healthcare to ‘CCC’ (from CCC+) and assigned it a ‘Negative’ CreditWatch rating, citing the company’s “inadequate” liquidity, a missed financial filing deadline, and a challenging path forward. Envision owes $700M by October 2023 (and more after that), but S&P expects the company to end 2022 with less than $100M in cash, risking more short-term downgrades and bigger long-term disruptions.

The Background – If you’re wondering how Envision found itself in this situation, a recent Prospect.org exposé has some answers (or at least its version of the answers):

  • When private equity giant KKR acquired Envision in 2018, it burdened the company with billions in debt, including a $5.3B first-lien term loan due in 2025
  • KKR’s initial strategy involved keeping most of Envision’s clinicians out-of-network (and earning higher surprise billing rates), but Envision moved many of its physicians in-network amid public backlash and looming legislation 
  • Ongoing surprise billing legislation spooked investors, causing Envision’s first-lien term loan to trade for 50 cents on the dollar in early 2020, before bouncing back to a somewhat-less-distressed 70-80 cent range later that year
  • The COVID pandemic further strained Envision’s finances, as many of its core specialties saw major volume declines (emergency, anesthesiology, radiology, GI, etc.)
  • Envision avoided bankruptcy thanks to an estimated $100M CARES Act bailout and help from its creditors
  • The final surprise billing legislation turned out to be pretty favorable for Envision, but not as favorable as back in the pre-legislation days
  • As of March 2022, Envision’s $5.3B first-lien term loan was still trading in distressed territory (73 cents), and it has other loans to pay off too

The Path Forward – It’s hard to predict how this will work out for Envision, although Prospect.org suggests that it might involve KKR splitting Envision into two companies. One could be saddled with all the debt and destined for bankruptcy, while the other entity (and KKR) could emerge “unscathed.”

The Takeaway

For many in healthcare this is a cautionary tale about what can go wrong when private equity influences are combined with an over-reliance on a disputed business model (in this case surprise billing) and a global pandemic. It also makes you wonder if other mega practices are in similar situations.

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