Group of doctors walking in corridor at a medical facility that is a target acquisition for private equity
ComplianceMarch 22, 2023

Healthcare trends and challenges for private equity in 2023

Despite economic disruptions and geopolitical tensions in 2022, the healthcare private equity market experienced its second strongest year on record. Although deals fell between 20% and 30% compared to 2021’s all-time high, last year was still on par with 2020 levels.

Why such resilience? Consolidation in the healthcare industry is driving private equity momentum as firms and corporate entities continue to capitalize on investments despite a challenging financial outlook. Indeed, PWC predicts more divestitures in the sector and a track record of returns will ensure it remains a top priority for private equity firms.
With that in mind, below are six healthcare trends for private equity in 2023, including challenges that impact deal evaluation and due diligence.

FTC proposes non-compete rule

The use of employee non-compete agreements is widespread, particularly in the healthcare industry where larger healthcare systems have acquired doctor practices and hospital staffing agencies with requirements for staff to be bound by broad non-compete clauses.

However, a proposed rule in January 2023 by the Federal Trade Commission (FTC) challenges the traditional structuring of transactions in healthcare. The proposed rule would prohibit employers from requiring employees to sign non-compete agreements, which it considers unfair competition and a violation of Section 5 of the Federal Trade Commission Act. It also requires employers to nullify existing non-competes and notify workers within 45 days of nullification that restrictions will no longer be enforced.

Furthermore, the Department of Justice, state courts, and state attorney generals are also scrutinizing non-compete language and compliance with Corporate Practice of Medicine (CPOM) laws.

As private equity investment in healthcare and management services organizations (MSOs) becomes more common, the likelihood of legislation over widespread non-compete arrangements looms large.

There are the additional complications brought by telemedicine and telehealth practices, which have enabled service providers to practice medicine remotely and which may eliminate the need to move outside the geographic scope of a non-compete clause when looking for new work. Restrictions on practicing telemedicine would have trouble succeeding in court.

In 2023 and beyond, private equity firms must understand how the FTC proposed rule may affect the enforceability of restrictive covenants and to what extent it should be considered when negotiating private equity transaction documents, given the common use of restrictive covenants in these.

Additionally, non-compete agreements — such as those in acquisition documents, equity documents, and employment agreements — should be reviewed to ensure they align with the FTC's stated purposes, as well as other restrictive covenants to determine their enforceability. Firms should have a plan in place if the FTC demands that these agreements be amended.

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Growing FCA liability

In the coming years, healthcare costs and its contribution to the U.S. economy are likely to increase enforcement efforts against healthcare fraud.

Indeed, private equity-owned healthcare companies are increasingly being targeted by the FCA enforcement efforts, as well as private equity investors. The False Claims Act (FCA) provides that any person who knowingly submits false claims to the government is liable for triple the government’s damages plus a penalty that is linked to inflation.

As a result of the failure of private equity firms to act on information about fraudulent actions taken by healthcare providers within those practices, firms with a majority interest in healthcare practices have settled several lawsuits brought by the Department of Justice for millions of dollars.

When investing in healthcare, private equity investors and their portfolio companies should:

  • analyze the target company's operations and sector in depth
  • separate compliance functions from business and financial functions, where possible
  • have direct access to the board and/or the company's decision-makers
  • decide how much direct involvement the PE investors will be allowed to have in the operations of the portfolio company

Antitrust enforcement

Federal antitrust enforcement will accelerate in 2023 and may delay mergers.

Healthcare is a highly regulated industry, so these challenges are not new. As healthcare deals gain traction and size, antitrust reviews may begin to pay more attention to cross-sector convergence with non-traditional players.

The Department of Justice is especially interested in rollup transactions that consolidate market share and, consequently, negotiating power. In addition, the department is concerned about the lack of filings and conflicts of interest involved in the appointment of private equity representatives to boards of competing companies.

Dealmakers must prepare for government agencies to examine transactions closely, particularly related to labor and future competitive impacts.

Cybersecurity threats

Private equity firms and their portfolio companies and targets face a growing number of cyber threats. The risk of more sophisticated attacks — such as ransomware, third-party hacks, and supply chain attacks — can significantly disrupt a portfolio companies' operations, disrupt relationships, and incur reputational harm and value losses. Additionally, PE firms and portfolio companies are being subjected to a torrent of new regulations and privacy laws.

Awareness of cyberattacks is also increasing as firms become more effective at monitoring state filings for each breach. Cyber-related lawsuits are also likely to increase in 2023, while insurers will scrutinize coverage limits.

Investors should be aware of data privacy and security trends, as well as target and portfolio companies' risk profiles and security policies and practices.

Labor and wage pressures

Labor shortages and constantly evolving employment laws continue to challenge employee retention in the healthcare sector. Furthermore, wage inflation only complicates matters, rising by 5% in the U.S. in 2022. Healthcare providers are being impacted disproportionately by this increase since salaries and wages represent 50% of operating expenses (although this can be much higher in the home health, hospice, and personal care sector).

Consequently, buyers are scrutinizing labor market supply and demand. Targets with wage pressures are prime candidates for earn-out based deal structures which allow buyers to mitigate the risk of rising wages.

Addressing climate commitments

Private equity firms are under increasing pressure to integrate environmental, social, and governance (ESG) practices into their operations and investments. A prime ESG concern in the healthcare sector is climate instability, especially how it impacts facilities and supply chains, as well as its effect on the health and well-being of citizens globally. Given this, some providers are tapping into ESG- or sustainability-linked financing, subsidies, and tax incentives.

A commitment to ESG also attracts talent and increases workforce morale.

In addition, regulators are weighing in on the decarbonization imperative. The SEC has proposed a rule requiring companies to disclose their greenhouse gas emissions and potential losses from climate change. The proposed rule applies to publicly traded companies, including for-profit healthcare systems and those that manufacture drugs and health and medical supplies.


In 2023, new challenges are spurring targeted approaches to due diligence and deal evaluation. If economic pressures continue, private equity funds can realize opportunities by being more creative in their strategies and targeting investments that will weather downturns. They should also look to revise the private equity playbook to respond to near-term pressures more effectively.

Purchasing and managing a healthcare practice brings risks and responsibilities. Owners (including private equity firms) must be aware of all of them to help ensure a strong compliance program and prevent unwanted legal consequences.

Learn more

When it comes to closing a deal, there are moving pieces and complex compliance issues you must navigate. CT Corporation offers Deal Support Solutions to ensure that the complex and sensitive work you’re involved with is manageable, accurate, and on time.

For more information on CT Corporation services and how we can help streamline your deals, please contact us or call us at (844) 878-1800.

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Danielle Bennett
Major & Strategic Accounts Associate Director

Danielle Bennett is a major & strategic accounts associate director. She supports a broad range of investment funds and alternative investments customers.

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