Private equity ownership is bad for a hospital’s health

Private equity has pumped over $1 trillion in the US healthcare sector in the past decade, with more than 8,000 transactions finish. But it doesn’t work well for patients. A new study led by researchers from Harvard Medical School (HMS) finds this care tends to decline at hospitals after private equity firms took over.

Patients are 25% more likely to fall, acquire new bloodstream infections or experience other forms of harm during a hospital stay at facilities owned by private equity, according to the study room, which was published December 26 in the Journal of American Medical Association (JAMA). The researchers examined insurance claims data for Medicare hospitalizations from 2009 to 2019, including more than 600,000 hospitalizations at 51 private equity-owned hospitals and more than 4 million stays at 259 similar hospitals not owned by private equity.

The economic costs of private-equity ownership — “higher costs, prices and social spending,” as summarized by study co-author Zirui Song, the director of research at the Center for Primary Care at HMS —is often discussedbut the effect on clinical quality of care has so far been understudied.

“Hospital success is measured not only in dollars or the number of patients that pass through the doors, but also in lives saved, complication rates, patient satisfaction and a number of other quality and safety measures,” said the HMS research fellow. Sneha Kannan, a physician in the division of pulmonary and critical care at Massachusetts General Hospital. “We need to make sure we fully understand the costs and benefits of this prominent new force in health care.”

Private equity investment in healthcare, explained

Healthcare has attracted PE investment because the sector is “somewhat economically recession-proof,” according to Lance Beder, a partner in the healthcare practice at tax, audit and advisory firm Grant Thornton recently explained. Innovation and technology in health care are also attractions, he noted.

However, managing healthcare for investor returns introduced more risk. PE firms often take on debt for an acquired hospital, using its physical assets, such as land and buildings, as collateral for the loan. This puts extra pressure on the hospital to generate income to pay off the debt while keeping costs in check, often leading to understaffing and unsanitary conditions which can undermine patient care.

While there is proof that private equity ownership is associated with higher mortality rates for patients in nursing homes, this particular study found that PE-owned hospitals were associated with a drop in patient mortality—but this was not due to the level of care, the researchers said. Instead, they attributed the drop to patient demographics, as PE-owned hospitals tend to admit slightly younger patients and are more likely to transfer patients to other hospitals that offer acute care.

Citable: The impersonal PE business model

“When a private equity firm buys out a nursing home, physician group, hospice agency, or any other part of the health care system, their goal is to restructure the business and sell it for a profit within a few years. The simplest way to do this is to raise prices and lower costs, which is hardly a winning proposition for patients or healthcare workers.”

—Ron Wyden, chairman of the Senate Finance Committee, in June 2023