Private equity ownership of American health care facilities has grown massively in the last few decades. A 2021 study of U.S. hospice agencies found private equity ownership more than doubled, to 7%, between 2011 and 2019 while in 2021, 63% of deals in hospice and home care were with private equity. Twice as many companies providing fertility care were bought between 2017 and 2019 than in the previous seven years combined, according to a 2020 study. The trend of accelerating acquistion stretches overseas, as well, with international health care buyouts by private equity firms totaling $240 billion in 2021 and 2022, compared to $245 billion over the previous five years.
This has all taken place without any clear answers about what such buyouts mean for the skyrocketing number of patients who rely on private equity-owned facilities for care. A new review of dozens of international studies, however, shows the first large-scale evidence that private equity takeovers are associated with rising costs and sinking quality of care. The findings, published July 19 in the journalThe BMJ, effectively synthesized the results of 55 existing studies in a so-called meta analysis, bridging difficult gaps between variations in study design, including a handful of studies from countries outside the U.S. with similar private equity activity.
“Our most unequivocal evidence is that private equity is associated with increased costs,” says Alexander Borsa, a Ph.D. candidate in sociomedical sciences at Columbia University and a lead author on the study. Of the 12 studies included that looked at the cost of care, nine found that those costs increased after private equity takeover.
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As private equity absorbs a larger and larger share of the U.S. medical system, ownership of facilities becomes more concentrated and less accountable to patients and regulators. The rate of these takeovers is far outpacing the creation and enforcement of laws that can reign in their potential downsides.
Vulnerable patients and high costs
The pursuit of profit by private equity firms is driving the sorts of facilities they acquire, says Borsa. “Places where there are a lot of particularly vulnerable patients with particularly high costs are particularly attractive,” to private equity firms, he says.
Take, for example, nursing homes and fertility treatment centers, where out-of-pocket costs for patients are often much higher than in other forms of medicine. There, says Borsa, firms “can squeeze people for a lot of money.” Between 2017 and 2018, private equity firms collectively acquired more than five times the number of fertility treatment centers as they had the previous year, with investments continuing to increase each year since then. And those facilities generate fees: Borsa and Bruch have found that despite accounting for just 14.7% of fertility treatment practices in 2018, private equity-backed facilities provided 29.3% of the total assisted reproductive technology services U.S. patients received that year.
Nursing homes in particular have been popular targets for firms in recent years. In 2021, 5% of nursing homes in the country were owned by private equity firms and 90% of those were a part of multi-facility chains, which are associated with higher profits and lower quality. In New Jersey, for example, the coronavirus infection rate in private equity-owned chain homes was 24.5% higher than the statewide average in the early months of the pandemic, during which time they also accrued 50% more violations than non-profit facilities.
Nursing homes are attractive to PE firms because they often contract with state and federal agencies, says Borsa, “which is a sort of guaranteed pool of money that PE firms can count on.” Borsa also believes the continued need for these types of facilities, even during the COVID-19 pandemic, played a role in making nursing homes appear more lucrative to investors. “They learned that if there’s a major catastrophe or major funding issues, the government will step in,” says Borsa.
But some players, including many doctors who sell their practices to big firms, see upsides in these deals that stretch beyond just the financial—including what they say is an increased focus on patient care. Buyouts can theoretically free up patient face time for doctors by allowing them to offload non-care tasks and gain access to better administrative systems.
Declines in patient care
In addition to costs, the researchers also looked at data on care quality in private equity-owned facilities from across the 55 studies. These results were a bit more varied. Some metrics, like patient satisfaction scores, indicated patient-care quality declined after takeover across all studies where it appeared. Others, like communication between providers and patients (which was evaluated in five studies), showed fairly mixed outcomes. Though the sample size for each metric was small, “the results skewed a little more toward mixed or harmful,” says Borsa.
The exact factors that contribute to any quality changes are complex, but “one thing we see consistently is that private equity-owned clinics often have turnover or shifts in the amount of nursing that they staff or in the skill level of nurses that they employ,” says Borsa. Particularly in nursing homes, lower staffing levels often directly correlate to worse patient outcomes.
Despite the increasing role of private equity in health care, government policies haven’t kept pace. At the very least, “the primary thing that needs to happen before anything else is greater transparency of these deals,” says Joseph Dov Bruch, an assistant professor of public health sciences at the University of Chicago and an author on the study. While some such regulations do exist in certain states, “and their intentions are good,” Bruch says, “they frequently are underutilized.”
At the federal level, where there aren’t really any private equity-specific policies, private equity purchases in health care are subject primarily to antitrust policies like the Hart-Scott-Rodino act, which requires that acquisitions above a certain threshold ($111.4 million in 2023) be reported to the Federal Trade Commission. Most individual acquisitions in health care, however, just aren’t that large—even if, over time, a private equity firm can easily spend twice that amount on facilities in a given area. Mapping out who owns what is difficult even for researchers, which means it’s nearly impossible for patients, who could theoretically live in a town where every dermatology clinic nearby is owned by the same company and never know it. When ownership of a practice changes hands it often bringing new priorities into play, and patients deserve to be informed, says Bruch.
Regulations are not enforced
While the study’s authors advocate for amending the Hart-Scott-Rodino act with either a lower reporting threshold or other redefined requirements, states also have the opportunity to extend or enforce their own regulations. These include laws covering the corporate practice of medicine, which restrict the influence companies like private equity firms can have on how physicians and clinics operate. More than 30 states have these laws, but even in states like California and Texas, where they’re strictest, “they have tons of exemptions, and are often not enforced,” says Bruch.
As private equity’s buyout of health care continues, possible new federal regulations are in the works at a few different levels. In February, the Centers for Medicare and Medicaid Services proposed a new rule, currently being worked on, that would require qualifying skilled nursing facilities to disclose any private equity ownership. And in March, U.S. Representative Pramila Jayapal, a Democrat from Washington state, proposed a Healthcare Ownership Transparency Act that would require similarly broad disclosures, as well as create a task force within the U.S. Department of Health and Human Services dedicated to advising Congress on future related legislation.
The Biden Administration has also played a role in increasing ownership transparency in national health systems, and last year published a spreadsheet sharing ownership information for Medicare-certified hospitals. Transparency makes it possible for states to identify negative trends as private equity ownership grows and try to eliminate loopholes that firms regularly use to build monolithic portfolios.
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