By Dana Jacoby
A Strategy for Balanced Growth in Healthcare Investments
All good investors know diversification is critical when it comes to building a sound, and hopefully profitable, portfolio. When investing in medical practices, this remains the same. But what does a diversified physician practice portfolio look like?
Here we look at how investment firms can assess whether to invest in medical practices, the different practice types to invest in, and the benefits of diversifying.
Understanding the Need for Diversification
Diversification in investment is a tried-and-true strategy to mitigate risk and enhance potential returns. In the context of healthcare, diversifying investments across various physician practices can help balance the portfolio against market fluctuations and changes in healthcare demand.
This approach reduces the risk associated with focusing on a single specialty, while also tapping into the growth potential across different areas of medicine.
Assessing Investment Opportunities
When evaluating potential investments, consider factors like the practice’s financial health, location, market demand, and the potential for growth and innovation. Practices that are well-positioned to adopt new technologies and treatment methods, as well as strategically located to treat more patients, may offer higher returns.
It’s also crucial to assess the management team’s expertise and the practice’s reputation in the community before investing. Meeting with management and visiting the practice can aid in assessing this effectively.
Benefits of Diversification in Healthcare
Investing across different medical specialties provides a buffer against sector-specific risks. For instance, while elective procedures in dermatology can be highly profitable, they may fluctuate with economic cycles, whereas the demand for essential treatments in oncology or cardiology tends to be more stable. This balanced approach ensures steady growth in the portfolio, even if one sector faces challenges.
Types of Practices for Investment
A well-rounded medical practice investment portfolio includes a variety of specialties, each catering to specific healthcare needs. Some of the physician practices to invest in include:
- Dermatology: Dermatology practices cater to a wide range of services from medical to cosmetic procedures. The rise in skin health awareness and cosmetic treatments driven by social media trends positions dermatology as a potentially lucrative area for investment.
- Orthopedics: With an aging population and increasing demand for joint replacements and orthopedic care, investing in orthopedic practices offers significant growth potential. This specialty faces a looming shortage of surgeons, and in turn demand outweighing supply, making it an attractive investment opportunity.
- Oncology: Cancer care is an essential and ever-evolving field, and rates of cancer incidences are rising in the US, increasing demand. Investment in oncology practices aligns with the continuous need for advanced cancer treatments and research, presenting a sustainable investment opportunity.
- Cardiology: With heart disease being the leading cause of death in the US, cardiology practices are critical. The increasing need for specialized heart care, especially in an aging population, makes cardiology a vital part of a diversified portfolio. You can read our deep dive on ‘Cardiology: Private Equity Investment in Healthcare’ here.
Balanced for Success
In 2020, PE healthcare deals reached a record-breaking $78.9 billion, a 21% increase from the previous year. These statistics indicate there is significant opportunity for growth. Having a diversified physician practice investment portfolio is a strategic approach to achieving this growth in a balanced and sustainable manner. By investing in a variety of medical specialties, firms can mitigate risk and capitalize on the potential of different areas of medicine.
As the industry continues to evolve, a diversified investment approach will remain critical for success in healthcare investing.
*Disclaimer: The information contained in this website is not intended to constitute, and should not be construed as, investment advice.