Private-equity reduces hospital assets: JAMA Network
Critics of for-profit medicine analyzed acquired facilities' assets and found a 24% gap after two years.
A new research letter published by JAMA Network has created a wave of headlines this week about the impacts of private equity fund acquisitions of hospitals.
A team of researchers led by Dr. Elizabeth Schrier of the University of California, San Francisco, medical school, compared asset data on 156 hospitals acquired by private equity firms with asset data on 1,560 controls.
Assets averaged $91.3 million for the acquired hospitals during the acquisition year and $96 million for the controls. Before the acquisitions, assets at the hospitals that would be acquired and at the controls grew at similar rates.
In the two years after the acquisitions, assets fell 15% at the acquired hospitals and increased 9% at the controls, creating a 24% gap between asset performance at the acquired hospitals and the other hospitals, according to the researchers.
“Private equity acquisitions appear to have depleted, rather than augmented, hospital assets,” the researchers concluded.
The letter could add fuel to debates in Congress and state legislatures about the regulation of private equity funds and for-profit entities that own hospitals and other health care providers.
Related: New bill could curb private equity health care facility ownership
The researchers who wrote the letter are not neutral observers of private equity involvement in health care. One of the co-authors, Dr. David Himmelstein, described himself in the conflict of interest disclosures as a critic of for-profit ownership of medical institutions.
Dr. Adam Gaffney, another co-author, is a former president of Physicians for a National Program, a group that wants the United States to adopt a single-payer, government-run health finance system.
What it means for benefits professionals
For both fully insured and self-insured plans, hospital menus are under more pressure than ever. Because many hospitals are now really health systems, with large affiliated group medical practices, pressure on the hospital menu means increasing uncertainty about whether plan members can keep their doctors.
Private equity funds
Federal law requires investment funds that use cash from large numbers of ordinary investors to register with the U.S. Securities and Exchange Commission. Registering is expensive, and public investment funds must expose details about how they invest and operate in quarterly and annual reports. Ordinary open mutual funds may have a hard time holding onto cash if quarterly performance is poor.
Managers of a private equity fund can avoid most of the registration requirements by taking cash from a small number of large or sophisticated investors. They can also set rules that can help lock in cash.
Private firms and related firms now have about $7.7 trillion of assets under management in North America, according to Prequin.
Many say the economic forces powering health care mergers and activities have been and continue to be so strong that M&A activity will continue in spite of the current antitrust chill.
Private equity owners may be better for many businesses than ordinary public companies, because they face less pressure to post strong quarterly earnings and may have a longer-term perspective.
Google recently showed that private equity-owned health care providers can have strong appeal for patients and employer plan sponsors by choosing Premise Health, a primary care provider owned by OMERS Private Equity, to run its on-site clinics.
New scrutiny
The recent move by Steward Health Care, a big, private equity-owned hospital company, to file for Chapter 11 bankruptcy court protection has given those who oppose any involvement of for-profit companies, including private equity funds, a boost, by creating bipartisan alarm.
When the Senate Health, Education, Labor and Pensions Committee met July 25 to decide whether to investigate Steward and its executives, Democrats blasted private equity ownership.
Republicans like Sen. Bill Cassidy, R-La. defended the concept of private equity ownership and noted that Cerberus Capital Management, Steward’s owner, had invested heavily in supporting Steward. Yet all but one Republican on the committee voted with the Democrats to approve the investigation.