Harm Not Help: Private Equity's Influence on U.S. Healthcare | AHIP 2024

Private equity firms have been buying spree in U.S. healthcare, acquiring hundreds of hospitals and physician practices, especially specialty practices whose clinicians perform highly compensated procedures.

The firms and their advocate say the bolus of capital into healthcare delivery can result in increased efficiency and improved patient care and for struggling hospitals, a lifeline and the difference between shutting down and continuing to serve patients.

Zirui Song, M.D., Ph.D.

But in a presentation Thursday at the AHIP annual meeting Las Vegas, Zirui Song, M.D., Ph.D., an associate professor of health care professor in the Department of Health Care Policy at Harvard Medical School, shared an impressive collection of his and other researchers’ findings that show the opposite: that after they have been acquired by private equity firms, hospitals and physician practices raise prices and have results suggestive of poorer quality care.

“In these evaluations over the past 5 to10 years, it hasn’t panned put,” Song said about the argument for private equity, “and if it were to pan out, the academic narrative around private would change.”

Song said he and other researchers who have published numerous research articles in JAMA, Health Affairs and other top-tier journals have offered many opportunities to private equity firm to partner with academic to study the acquisitions and their consequences and publish the results in peer-reviewed journals.

“Not one has taken the offer. The offer still stands,” Song said.

Song said his research has shown hospitals cut emergency room and intensive care unit staffing and salaries after private equity acquisition and that mortality rates and transfers to other hospitals increase.

“I think staffing is really important,” Song said. “If we were creating widgets, then an assembly line with great efficiency, cutting out the redundancy may be the ideal business model in many industriesin the other 82% the U.S. economy could be much better for that type of thing.” But, Song added, “staffing cuts just may not be the right strategy in health care,” and he suggested that setting a floor of staffing ratios could be one way to deal with the consequences of private equity acquisition.

Song also touched on ideas for regulation and polices to curb the negative consequences of private equity that include affiliation rules that would tie acquired hospitals and physician practices legally and financially to the parent private equity firm. Other proposals Song mentioned include putting percentage limits on the debt that can be used to make acquisitions and increasing transparency by lowering the thresholds at which private equity deals would need to be reported.

In 2024, approximately 460 hospitals in the U.S. are owned by private equity firms, according to data that Song shared during the AHIP session. Proportionally, that is 8% of all private hospitals and 22% of the for-profit ones, his slide showed.

Private equity firms have targeted gastroenterology, ophthalmology, urology, dermatology and several types of specialty practice for acquisition, Song said, citing research from two studies.

Most of Song’s presentation consisted of a rapid-fire review of his and others’ research findings about private equity acquisition. Many of the studies were designed to compare hospitals and specialty groups economics and other outcomes before and after private acquisition and to compare the post-acquisition entities to a control group of similar entities that hadn’t been acquired. When the findings were published and the time periods covered varied. Here are some of the findings that Song shared:

• Relative to a control group hospitals, those acquired by private equity firms increased net income by 27% and charges per day by 7%.
• Hospital adverse events, such as pressure ulcers, falls and central line infections, increased in hospitals acquired by private equity firms relative to a control group of hospitals. The difference was 25% in a composite calculation of adverse events, 27% in falls and 38% in central line infections, despite 16% fewer central lines being placed in patients in hospitals acquired by private equity firms. The research findings also showed by surgical site infections doubled at the private equity-owned hospitals while they declined in the control hospitals.
• The 30-day mortality rate was for COVID-19 patients was 2.3% higher among patients at hospitals owned by private equity firms during the first year of the COVID-19 pandemic relative to a set of control hospitals. Among non-COVID-19 patients, the 30-day mortality rate was 11% higher.
• When physician practices are acquired by private equity firms, their charges increase by 20% and their prices by 11%.
• Compared to hospital-owned gastroenterology practices, those owned by private equity firms increased prices by 28%, professional fees by 78% and patient volume by 23%.
• Compared to control practices, retina practices owned by private equity firms increased Medicare spending by 22% and spending on expensive agents — Eylea (aflibercept) — by 22%.
• Emergency room visits (11%), hospitalizations(9%), Medicare spending (4%) and mortality (10%) increased in private equity firm-owned nursing homes

Song emphasized that the research findings are averages that reflect a distribution that would include private equity firm-owned hospitals and specialty practices that were higher and lower than the average of whatever is being measured. In other words, some individual private equity firm-owned entities might be providing high value care (lower cost and high quality).

But overall, Song said the evidence he and his colleagues have generated suggests that private equity firm ownership has had negative consequences for U.S. healthcare. “At the end of the day, you can put money into a delivery system in good and bad ways. The evidence is leaning one way at the moment but it doesn’t have to be this way.”

Song noted that groups that represent physician interests “often are not super excited” about policies and regulations that might rein in private equity purchases. He said that posture may reflect the fact that private equity purchases are often attractive to older physicians who can get a high price for their practices and wind down their clinical practice as they head toward retirement. In contrast, for younger physicians, working for private equity firm-owned practice may mean working harder and for less money than they would for practices that have other kinds of owners.