The healthcare industry attracts numerous investors seeking lucrative opportunities. Whether a physician considering an opportunity to invest in an ambulatory surgical center or an entrepreneur interested in investing in a home health or hospice facility, entering the healthcare market is not without its challenges. Investors must complete thorough due diligence before moving forward with an opportunity. Two specific areas of concern in the current market are high operational costs and stringent federal regulations.
Risk #1: The high cost of labor in healthcare
Labor costs in the healthcare sector are significantly higher than in many other industries. This is due to several factors:
- Demand for specialized skills: Healthcare professionals such as doctors, nurses, and technicians require extensive training and certifications, which commands higher wages.
- Staffing requirements: Hospitals and clinics must maintain adequate staffing levels to ensure patient care and meet regulatory standards, which increases labor costs.
These factors make labor a major expenditure in the healthcare industry, impacting the profitability and financial stability of investments. The cost of staffing requirements experienced a surge during the pandemic, with many hospital systems needing to use expensive nurse staffing agencies. Although the reliance on these agencies has lessened, hospital systems continue to face increased labor costs.
Risk #2: Federal regulations in healthcare
Investing in the healthcare sector also requires a thorough understanding of the federal regulatory environment, which is designed to ensure patient safety and privacy. A physician considering an investment opportunity in an ambulatory surgical center, for example, could run afoul of the Antikickback Statute or Stark Law This issue was discussed in more detail in a previous post, available here. Investors must also make sure their target entity’s practices are not in violation of these or other applicable federal regulations.
Investing in the healthcare market offers potential rewards but comes with substantial risks. Successful investors in this sector typically possess a deep understanding of these challenges and engage with legal and financial experts to mitigate risks. Awareness and strategic planning are key to capitalizing on the opportunities in healthcare while managing the associated risks effectively.
Attorney John Rivas is responsible for this communication.