Private equity hospital deals surging; is it good for patients?
Hospital acquisitions aim to improve efficiency and cut costs, but do they jeopardize care quality?
A recent study in Health Affairs looked at the impact of private equity (PE) investment in for-profit hospitals in the U.S. The authors of the study said its findings raised questions on whether the goals of PE investors—who seek to create value over a relatively short period of time—align with the goal of providing high-quality health care.
Related: Health-care futurist expects private sector to drive improvements to system
“Despite the increased presence of PE in health care, there’s been little systematic examination of its scope and its effect on health care access and spending,” the Health Affairs editors said. They added that although PE-acquired hospitals accounted for only 7.5% of non-government hospitals in 2017, the number of acquisitions has been growing. For example, the valuation of PE deals in the US health care sector surpassed $100 billion in 2018, which the editors note is a 20-fold increase from 2000, when it was less than $5 billion.
The goals of private equity investment
The article noted that PE investment in the U.S. saw new growth after regulatory changes in the 1980s. These changes allowed PE firms to conduct leveraged buyouts of companies, whereby the firms take financial risks (usually in the form of debt) in order to increase profits at a company, which they then sell for a profit in three to seven years, creating good financial returns for their investors.
The study’s authors noted questions can be raised about whether this emphasis on profits might have an impact on the quality of care delivered by hospitals. They noted there has been relatively little research on this question. For the study, they turned to business analytics platforms and government databases to research PE acquisitions from 2003 to 2017.
In a podcast for HealthAffairs, lead researcher Anaeze Offodile II, MD, MPH, of the University of Texas MD Anderson Cancer Center, said that hospital acquisition is not the only area where PE investment in health care is happening, but that it was a good area for new research.
The report did not find that PE firms were acquiring struggling hospitals and turning them into profit-making juggernauts. Instead, the hospitals tended to be relatively financially strong, with a healthy market share. “We saw that on average, hospitals that were acquired by PE firms tended to be bigger, tended to be situated in urban areas, and were overwhelmingly for-profit,” Offodile said. “Interestingly, they tended to have a better antecedent financial performance compared to non-target hospitals.” In other words, the acquired hospitals were good performers at the start of the study and were slightly better performers at the end of the study.
The acquisition data that Offodile and his team looked at was dominated to some extent by one large deal: a Bain Capital deal in 2007 that acquired the HCA hospitals system—at a cost of $33 billion, involving 162 hospitals. By comparison, the next largest deal (by dollar amount) was a $4.6 billion deal by PE firm GTCR LLC.
Where the savings were found
The study’s findings raised more questions than it answered, Offodile said in the podcast, but one finding was that some financial efficiencies were seen in the area of staffing.
“The net effect of changes in revenues and expenses is best understood alongside changes in the nursing and all-personnel staffing rations in privately equity-acquired and non-acquired hospitals,” the study said. The researchers found that overall staffing for acquired hospitals decreased during the years of the study, while non-acquired hospital saw an increase in their staffing over that same 14-year period.
“Post-acquisition, [acquired hospitals] appeared to continue to boost profits by restraining growth in cost-per-patient, in part by limiting staffing growth,” the researchers wrote.
Offodile said the study should be considered a starting-off point for more research, and added that the dynamics of PE acquisitions of health care businesses would be better understood if there were more transparency around the deals. “A lot of these deals are private, so we have to do a lot of sleuthing to tease [information] out,” he said. “I think more transparency would be key [for further research].”
Related: