Private equity investments could raise healthcare costs, warns KPMG executive

The growing flow of private equity capital into India's healthcare sector could increase treatment costs for patients unless supported by clear regulations and a framework for cooperation between public and private healthcare providers, according to Alberto De Negri, Head of Advisory for Healthcare for Europe, the Middle East and Africa (EMA) at KPMG.

Hospitals, diagnostic imaging centres and laboratories offer significant opportunities for private equity investors, De Negri told Business Today . However, the expectation of generating returns within relatively short investment cycles could pose risks for healthcare affordability.

"They are expecting a return for the investments they are making. The risk of increasing costs either on the public side or for the patients, the consumers, however we want to see them, can be limited. But in principle, it can be a risk unless there is a clear collaborative model where also those providing the capital can have clarity on what the rules are," De Negri said.

He said private equity investors typically look for businesses with predictable revenues, stable operating conditions and opportunities to expand before exiting their investments.

"They need to have a way out in at most five years and additional upsides for their way out from the investment. So they need to have a stable environment," he said.

Hospitals remain a key investment destination, but De Negri also identified diagnostic imaging and laboratories as promising segments. Medical devices offer opportunities on the healthcare supply side.

"Hospital care in a way is very good, perceived as a very good opportunity, but there are some segments like diagnostic imaging, like laboratory, which are sub-components of care, which are almost as promising and interesting from private equity, not to speak about medical devices," he said.

Investors are also looking beyond individual hospitals to established networks that can serve as platforms for further acquisitions. De Negri said this consolidation strategy is visible in India as well as other healthcare markets, particularly where regulatory requirements and long-term operating conditions are predictable.

A similar trend is playing out in diagnostics, where larger centralised processing facilities can support networks of smaller collection centres. Diagnostic imaging, nursing homes and dental care are also attracting investor attention globally.

However, private equity interest has been more limited in newer models of care connecting hospitals with community-based and home healthcare services. De Negri attributed this to less established business models and regulatory frameworks, which make such investments harder to assess.

Competition could increase treatments without improving outcomes

De Negri cautioned against encouraging excessive competition between public and private healthcare providers, arguing that healthcare markets do not always respond to competition in the same way as other industries.

"Competition in healthcare can be difficult and dangerous, especially between the private and the public sector, because we all know that in healthcare supply can generate demand," he said.

He warned that greater competition could lead to an increase in medical procedures without necessarily delivering better patient outcomes.

"If you have a competition situation, what normally happens is the first result is you increase the number of treatments, and this is not really resonating with improving outcomes," he said.

Instead, he advocated a regulatory approach in which private healthcare providers contribute capital, efficiency and technological capabilities, while governments retain oversight of healthcare delivery.

"The private sector should be able to bring efficiency, to use those artificial intelligence to generate even more efficiencies and outcome improvement, but at the same time maintain the ability to regulate the system and to decide how public and private can cooperate," he said.

For India, the challenge is to attract private investment while ensuring that the expansion of healthcare infrastructure does not compromise affordability. De Negri said clear regulatory conditions would help investors assess the operating environment before committing capital and limit the risk of higher costs for patients.

India must invest in care outside hospitals

While hospital expansion remains important, De Negri said India should give equal attention to strengthening primary healthcare, community services and home-based treatment.

Drawing on Italy's experience following the Covid-19 pandemic, he said healthcare systems across Europe discovered significant weaknesses in their ability to manage patients outside hospitals. The pandemic exposed gaps in coordination between primary care providers, community healthcare services and home-based treatment, prompting several European countries to invest in these areas.

"This has some similarities to the situation in India, where there is still a gap in the number of hospital beds," he said. However, he cautioned against focusing exclusively on increasing hospital capacity.

"Before looking at targets of hospitals, which are probably difficult to achieve and would lag behind the development of care in the community and at home and in primary care, the lesson is let's try to address this in parallel and with as much energy as certainly has been put in the development of hospitals," he said.

On India's relatively low healthcare expenditure as a proportion of GDP, De Negri said additional public spending should be directed towards interventions that deliver measurable improvements in health outcomes.

He pointed out that higher healthcare spending does not automatically translate into better outcomes, citing the United States, which spends substantially more than most European countries but has lower life expectancy than several of them.

He also advocated greater investment in preventive healthcare, particularly nutrition, rather than relying primarily on hospitals to treat illnesses that could potentially be prevented.

AI investments alone will not improve healthcare delivery

De Negri said the rapid expansion of artificial intelligence, digital health records and telemedicine presents opportunities to improve healthcare efficiency, but technology investments alone will not deliver better patient outcomes.

Healthcare systems across the world have invested heavily in data platforms, interoperability standards and electronic patient records over the past five years. However, the benefits depend on whether healthcare providers change how they deliver services.

"The correlation between the enabling factor and the healthcare outcomes is really non-existent or not directly existent," he said, explaining that technology must be accompanied by changes in care delivery.

He identified administrative automation, AI-assisted medical documentation, virtual health assistance and preliminary emergency triage as applications that could reduce pressure on healthcare professionals.

In particular, AI-enabled systems that convert doctor-patient conversations into medical records could reduce administrative workloads and allow doctors to spend more time with patients.

However, he said healthcare providers were slower to change clinical practices than technology developers were to introduce new tools. The challenge was to rethink how and where patients receive care, including greater use of remote consultations and home-based services.

Asked about India's Ayushman Bharat Digital Mission, De Negri said the country faces challenges similar to those in other markets, particularly around integrating health records and ensuring that digital infrastructure delivers practical benefits to patients and healthcare professionals. He clarified that he was not sufficiently familiar with the mission's implementation to assess its specific progress.

Global interest in India's healthcare workforce

Apart from hospitals and diagnostics, De Negri identified medical education, professional training and specialised hospital services as areas attracting international interest.

Healthcare systems across the world are facing workforce shortages, creating opportunities for India to develop partnerships involving doctors, nurses and medical training institutions.

International healthcare organisations are interested in accessing India's trained healthcare professionals as well as establishing a presence in the country to facilitate the movement of patients and medical expertise across borders.

Looking ahead, De Negri said the next important development in healthcare may come not only from new technologies but also from reorganising healthcare delivery to make better use of scarce medical professionals.

"The next innovation that I expect is more organisational rather than any miracle technology, if we exclude pharma and medical devices, of course," he said.

He also identified cancer vaccines as a potentially significant future development in medicine.

"Vaccines for cancer. That is the next step. This is going to revolutionise the whole process of cancer care. This is going to be the most impactful change in the way we see healthcare today," he said.

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