Private equity firms are health care guppies: Vanguard managers

One study the analysts cited showed private equity-owned nursing homes had lower COVID death rate.

Credit: AP

Two Vanguard managers scoff at the idea that private equity-backed firms dominate the U.S. health care provider sector.

Private equity-backed companies will generate only about 3% of U.S. health care provider revenue this year, and private equity firms have not made a large investment in a U.S. hospital or health care system since 2018, according to a midyear private equity review by Michael Rabinovich and Matt Schweitzer.

Today, “PE deal activity in hospitals and skilled nursing homes is near zero,” Rabinovich and Schweitzer write.

Rabinovich is a senior product manager for private equity. Schweitzer is a product manager for private investing.

The managers suggest that media organizations have exaggerated how much influence private equity investments have on health care organizations and how different private equity owners are from other types of owners.

Private equity basics: Private equity firms use capital from institutions and rich, sophisticated investors to invest in companies that are not registered to sell with the U.S. Securities and Exchange Commission to sell stock to the general public.

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The theory is that institutions and sophisticated individuals need fewer reports and less protection than ordinary investors because they know more about investing and have more influence over companies’ managers.

The research: Rabinovich and Schweitzer contend that academic research has shown no significant differences between health care outcomes when private equity firms or other types of owners own a health care organizations.

Infection rates and death rates were lower at the homes with private equity owners, and there were no statistically significant differences in staffing levels associated with ownership type, the managers conclude.

What it means: For employers and their brokers, one takeaway is that private equity players feel understood. Private equity players believe they play a small but constructive role in the U.S. health care system.