Investors Are Buying Up Hospitals and Medical Practices: What Could Possibly Go Wrong?
While most people are familiar with investing in publicly held companies through the stock market, there are other ways that companies invest in businesses. And recently, one of the fastest growing investment strategies outside of stocks and bonds is private equity.
Private equity is the practice of investing in private companies, where investors purchase a stake in a company, taking an active role in managing the business. The overall goal is to improve the bottom line and then turn around and sell the company to a new buyer for a profit.
Private Equity and Hospitals
As a form of investing, the growth of private equity has been rapid. And more recently, that growth has started to focus on hospitals, clinics and medical practices. Between 2003 and 2017, 282 hospitals in 36 states were acquired by investors (Offodile II 2021).
Once acquired, investors focus on changes to increase profits. On average, hospital staffing is reduced by 5% after acquisition. Billing fees to patients and insurance companies are increased. Estimates suggest that acquired hospitals increase their fees by 11% on average when private equity takes over (Liu 2022).
As private equity continues to grow, concerns have been raised that investors prioritize profits over medical outcomes. And recent research suggests that these concerns may have validity. One study found that acquired hospitals have a 25% increase in hospital-caused conditions, including in-hospital falls and hospital-derived infections (Kannan 2023). The acquired hospitals were also less inclined to take or keep high-risk patients, often transferring them to other hospitals, likely in an effort to reduce costs.
Private Equity and Nursing Homes
Beyond hospitals, another medical sector that has seen rapid growth in private equity investment is nursing homes. And the data on the results raise serious concerns. Estimates suggest that private equity ownership is associated with a 10% increase in short-term mortality: patients have an increased risk of death under private equity management (Gupta 2021). Patients also have decreased wellbeing, including worse mobility when private equity moves in. Similar to hospitals, fees increase, with taxpayers picking up the tab through Medicare or Medicaid expenses. On average, costs per patient increase by 11%.
After acquisition, registered nursing staff is reduced, raising concerns for the level of care available to nursing home residents (Pradham 2014). Private-equity-run nursing homes are also found to have significantly more violations of state and federal regulations, again highlighting quality-of-care concerns (Pradham 2014).
A separate analysis of private equity investments in nursing homes had other troubling findings. Emergency department visits and hospitalizations were increased 11% and 8% respectively with private equity ownership (Braun 2021). Yet costs to Medicare increased by 4% under private equity management.
Private Equity and Surgery Centers
Surgery centers are another medical sector that have seen rapid growth in private equity investments. And while some data suggests that surgical outcomes under private equity are comparable, costs are not. One study found charges growing by up to 50% with private equity management (Lin 2023). The increased costs caused a significant decrease in private insurance cases and dramatically increased reliance on Medicare, again increasing expenses for taxpayers.
Conclusion
Overall, the data on private equity investing in medical care in the United States raises significant concerns. In general, private equity investors jack up costs for patients and taxpayers, making medical care more expensive. Unfortunately, these increased costs do not appear to improve the quality of care, with most studies suggesting mixed or worsening outcomes (Borsa 2023), especially in nursing homes.
In response to the growth of private equity in the medical profession, it’s likely that laws and regulations need to change. Private equity, if allowed to invest in medical facilities, needs to have significant guardrails. Medical outcomes have to be prioritized. When medical facilities have a singular focus on increasing profits, the quality of care often suffers as a result.
