Private equity (PE) acquisitions in the healthcare sector have skyrocketed in the last decade. The number of private equity acquisitions medical practices multiplied by six between 2012 and 2021. At least 386 hospitals They are now owned by private equity firms, comprising 30% of for-profit hospitals in the US.
Emerging evidence shows that the influence of private capital in healthcare demands attention. This is what is in the latest research.
What is private equity?
There are some key characteristics that differentiate private equity firms from other for-profit companies. in a event 2023 Hosted by the NIHCM Foundation, Dr. Atul Gupta, assistant professor of Healthcare Management at the Wharton School of the University of Pennsylvania, explained these factors:
- Financial engineering. Private equity firms primarily use debt to finance acquisitions (which is why they are often referred to as โleveraged buyoutsโ). But unlike other acquisitions, this debt is placed on the balance sheet of the target company (i.e., the doctor's office or hospital).
- Short-term goals. Private equity firms make most of their profits when they sell and expect to exit within 5 to 8 years. That means they typically look for ways to cut costs quickly, such as downsizing or selling real estate.
- Moral hazard. PE firms can make huge profits even if the target company goes bankrupt. This is different from most investments where the investor's success depends on how well the target company does.
The very nature of private equity has serious implications for healthcare, where the health of communities depends on the long-term sustainability and quality improvement of hospitals and doctors' offices. But are these concerns borne out in the real world?
PE acquisition and adverse events.
TO recent study in JAMA of researchers from Harvard Medical School and the University of Chicago analyzed patient mortality and the prevalence of adverse events in privately acquired hospitals compared to non-acquired hospitals. The study used Medicare claims for more than 4 million hospitalizations between 2009 and 2019, comparing claims at 51 PE-acquired hospitals and 249 non-acquired hospitals to serve as controls.
In-hospital mortality was slightly decreased in hospitals with acquired PE compared with controls, but 30-day mortality was not. This may be because the patient mix in PD hospitals shifted more toward a lower risk group and transfers to other acute care hospitals increased.
However, there were worrying results for patient safety. The rate of adverse events in PE-acquired hospitals compared to control hospitals increased by 25%, including a 27% increase in falls, a 38% increase in central line-associated bloodstream infections (CLABSI), and double the rate of surgical site infections. The authors found the rates of CLABSI and surgical site infections in hospitals with acquired PE alarming because overall surgical volume and central line placement actually decreased.
What could be behind these higher rates of adverse events after PE acquisition? in a Washington Post opinion article, Dr. Ashish Jha, dean of the School of Public Health at Brown University, writes that it comes down to two things: staffing levels and compliance with patient safety protocols. "Both cost money, and it is not difficult to link staff cuts and less attention to patient safety with increased risk of harm to patients," he writes.
Impact of social responsibility
Private equity acquisitions may have a negative effect on patient safety, but what about social responsibility? in a recent report of PE Stakeholder on the impact of Apollo Global Management's reach on healthcare, the authors use the Lown Institute Hospital Index to understand the performance of Apollo-owned hospitals on social responsibility. Lifepoint Health, a health system owned by Apollo, was ranked 222 out of 296 systems on social responsibility at the national level. And in Virginia, North Carolina and Arizona, some of the state's lowest-ranking hospitals for social responsibility are those owned by Lifepoint Health, the PE Stakeholder report shows.
Apollo Global Management is the second largest private equity firm in the United States, with $598 billion in total assets under management, according to the report. The PE stakeholder report outlines Apollo's troubling practices, including placing high levels of debt that lower hospitals' credit ratings and increase their interest rates, cutting staff and essential healthcare services, and selling assets roots for quick money. If we care about hospital social responsibility, clearly we should care about private equity acquisitions.
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Private equity buyouts didn't come out of nowhere, so what does this trend tell us about our healthcare system? Private equity buyouts are in many ways a symptom of larger problems in the healthcare sector, such as increasing administrative burdens, tight margins and a lack of consolidation regulation. For private medical practice owners facing a lot of administrative work, deciding to sell to a physical education company to reduce this workload and focus on patient care (not to mention earning a hefty payday) is a tempting proposition.
In it Washington Post, Ashish Jha describes what made his colleague decide to sell his practice to a physical education company: โThe price he was getting was very good and he was happy to outsource the headache of running the business (managing billing, making sure there would be adequate coverage for nights and weekends, etc.).โ
โIn many ways, private equity is both a response and an accelerator to broader trends in health systems, in which consolidation is occurring rapidly, attention is being paid by increasingly larger entities, and corporate influence is growing".
Jane M. Zhu, MD, MPP, MSHP, associate professor of medicine at Oregon Health and Science University, in NIHCM Foundation Event
PE purchases are also indicative of a broader trend, what some researchers call the โfinancializationโ of healthcare. As described by Dr. Joseph Bruch of the University of Chicago and his colleagues in the New England Journal of MedicineFinancialization refers to the โtransformation of public, private and corporate healthcare entities into salable and marketable assets from which the financial sector can accumulate capital.โ
Financialization is a kind of fusion of the financial and healthcare sectors; Not only are financial players, such as private equity, purchasing healthcare providers, but healthcare institutions are also acting as financial companies. For example, 22 health systems have investment arms, including a non-profit system Ascension, which has its own private equity operation valued at one billion dollars. The financialization of healthcare is also reflected in the boards of directors of nonprofit hospitals. A 2023 study of US News The top-ranked hospitals found that a plurality of their board members (44%) were from the financial sector.
What can we do about it?
What can we do to mitigate the damage caused by PE acquisitions? In Vanguard in Health AffairsCommunity Catalyst CEO Emily Stewart and Private Equity Stakeholder Project CEO Jim Baker provide some policy ideas to stop the โmetastatic diseaseโ of private equity:
- Joint and several liability. Currently, private equity firms can put all of their debt on the balance sheet of the company they acquire, freeing them from this debt and making it difficult for the acquired company to succeed. โRequiring private equity firms to share debt responsibility... would prevent them from making huge profits while saddling hospitals and nursing homes with debt that ultimately affects workers' wages and cuts off care for patients,โ Stewart and Baker write.
- Regulate mergers. Private equity acquisitions often go unnoticed because they are small enough not to be reported to authorities. But the US Federal Trade Commission could be more aggressive in evaluating mergers and acquisitions by PE, as they have recently done in Texaswhere a physical education company has acquired numerous anesthesia practices.
- PE ownership transparency. It can be difficult to know when a physical education company buys hospitals. The Department of Health and Human Services could require disclosure of PE ownership for hospitals, as they have done for nursing homes.
- Eliminate tax loopholes. The carried interest loophole allows PE management fees to be taxed as capital gains, which is a lower rate than corporate income. Closing this loophole would eliminate a big incentive that makes private equity acquisitions so attractive to companies.
โIt is clear that the problem is not a lack of solutions but rather a lack of political will to address private capital,โ Steward and Baker write. We must not only stem the tide of private equity takeovers sweeping through healthcare, but also address the financialization of healthcare more broadly, to put patients back at the center of our healthcare system.
