Does Private Equity Have Any Business Being in the Health Care Business?

Private Equity (“PE”) has come under increased scrutiny by the press, academics, and policymakers, as well as the public, for its investments in health care delivery. This scrutiny has been exacerbated by recent high profile hospital bankruptcies following PE acquisition. Health care acquisitions include hospitals, physician practices, nursing homes, hospice facilities, and other health care providers. These efforts raise concerns around the consolidation of health care providers run in a “for profit” manner, the potential impact on costs for payers and patients, and the quality and outcomes of care delivered to patients. Adding to years of press coverage of PE, highlighting concerning anecdotes, the academic community has recently systematically analyzed the impact of PE acquisitions of health care providers. Most of these larger analyses have focused on hospital and physician practice acquisitions. Yet for broader audiences, these recent studies have yet to be considered together to derive a more holistic set of conclusions about the impact of PE in health care delivery. This paper reviews these recent studies and draws conclusions regarding changes in costs and quality of care attributable to PE acquisition. It also makes policy recommendations concerning PE investments in the health care industry. The preponderance of evidence indicates that some PE investments have resulted in increased costs of care and some negative changes in quality of care, as indicated by patient harm. Yet the evidence base remains in its nascent stage. The quality of the evidence, based on study design and the strength of causal inference, varies across studies. But at the moment, the policy ramifications of this early evidence are important. We recommend a series of policies for policy makers to address these concerns. First, efforts to protect patients from harm are needed. Although this could take many forms, policy makers should consider reviewing cost cutting measures to protect the level of clinician staffing, reigning in price increases for patients and payers, maintaining access to care for communities, and recognizing and prioritizing patient wellbeing. Second, more research is needed to evaluate the purported benefits of PE investments, such as funding new technologies, medical equipment, or other innovative treatments for patients. A rigorous understanding of both drawbacks and potential benefits of PE investments could better inform policy responses. Ultimately, the US taxpayer and workers incur the brunt of cost increases given that Medicare, Medicaid, employers, and private insurance are ultimately subsidized by taxpayers and wages. Policymakers should review whether and the extent to which taxpayers should fund PE profits. Ultimately in health care, patient wellbeing, both health and financial, should be part of PE firms’ investment analyses so that they follow the medical maxim of primum non nocere or “first, do no harm.”