How AI Is Reframing Private Equity (PE) Healthcare Investing

AI models are reshaping private equity investments in healthcare, offering both transformative opportunities and significant challenges.

Advances in artificial intelligence, particularly generative AI, could have a transformative impact on the healthcare industry, but PE firms must be mindful to separate hype from genuine value-creation potential.

Generative artificial intelligence technology, alongside AI applications more broadly, holds the potential to revolutionise the way healthcare is provided and administered – with significant consequences for how private equity firms assess investment opportunities in the sector.

Even as overall private equity investment volumes in healthcare IT assets have dropped – falling by almost a quarter year-on-year in 2023, according to Bain & Co analysis – dealmakers have remained interested in AI-powered and AI-enabled healthcare assets, with firms recognising the huge potential upside AI can deliver for existing and future healthcare investments.

“AI is one of the few tools out there that can help the healthcare industry to both increase efficiency and reduce cost, and also maintain care quality and patient satisfaction,” says Warburg Pincus managing director Amr Kronfol.

According to Christoph Kausch – managing partner at MTIP, a Switzerland-based growth manager specialising in healthtech – AI and generative AI will impact every aspect of the healthcare industry, with applications of the technology ranging from telemedicine, streamlining patient consultations and transcribing records, to suggesting diagnoses and treatments and bolstering patient engagement through personalised messaging and reminders.

“The growing use of AI in healthcare is evident, with increasing trust from medical providers and heightened interest from investors in AI-enabled healthcare solutions,” Kausch says. He adds that MTIP research estimates that the effective adoption of AI and other digital technologies could reduce global healthcare expenses by 10-20 percent.

In addition to driving efficiencies and bringing down costs on the operational and administrative side of healthcare businesses, AI is also having an impact on more advanced and complex “front office” medical functions such as diagnostics and drug discovery.[…]

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