According to a recent JAMA (Journal of the American Medical Association) research letter private equity firms invested $505 billion in healthcare acquisitions from 2018 to 2023. These financial infusions can enhance resources for care. However, these firms have occasionally sold the land and buildings of acquired hospitals, using the proceeds to repay investors and leaving hospitals to pay rent for facilities they previously owned. The JAMA study is available here: jama_schrier_2024_ld_240049_1721856946.29875
The research the authors conducted involved looking at the asset values of private equity purchased/acquired hospitals post-acquisition, comparing the same to a like group of hospitals that were privately owned, across the same timeframe.
The data for the analysis came from Medicare cost reports between 2006 and 2021. The study evaluated the total capital assets of hospitals, including land, buildings, equipment, and health information technology, along with the year of last acquisition, the proportion of Medicaid inpatient discharges, rurality, teaching status, bed count, and regional location. Large hospitals via asset value (95th percentile) and small were excluded as were HCA hospitals, non-typical in structure when private equity investment was involved.
The research paired hospitals that were acquired with 10 non-acquired counterparts, employing precise matching based on the year, region, and bed size category, as well as nearest-neighbor matching according to total capital assets in the year of acquisition. The analysis focused on comparing the assets of the acquired and control hospitals over a period of two years before and after the acquisition, utilizing a difference-in-differences approach.
The study found that after private equity acquisition, hospital assets decreased by 24% relative to that of the control group during the 2 years reviewed.
The research indicates that private equity acquisitions tend to deplete hospital assets instead of enhancing them. While it’s possible that the funds from these asset reductions could be used to improve care or efficiency, earlier studies imply that this is often not the case. Therefore, the financial impact of private equity acquisitions on hospitals and their implications for patient care necessitate additional investigation.
Data released in late 2023 by the Commonwealth Fund revealed that private equity investors allocated over $200 billion to health care acquisitions in 2021, totaling $1 trillion over the past decade. Historically, private equity firms have been involved in hospitals, nursing homes, and home care settings. However, there has been a recent surge in the acquisition of physician practices, particularly in high-margin specialties such as dermatology, urology, gastroenterology, and cardiology. A recent study indicated that in 13 percent of metropolitan areas, a single private equity firm controls more than half of the market for certain medical specialties. Private Equity’s Role in Health Care | Commonwealth Fund
As I have written the past few days, private equity investment in health care continues to draw regulatory attention. Reports across the past two plus years have pointed to concerns regarding the investment and the resulting changes in care outcomes, access, and financial condition (as discussed herein) post investment.
In January, I took a look at another JAMA study on hospital private equity connections and patient care outcomes. That study reviewed 662,095 hospitalizations at 51 private equity-acquired hospitals along with 4,160,720 hospitalizations at 259 private equity-controlled hospitals using 100% Medicare Part A claims data. The research analyzed stays between 2009 and 2019, for three years before and three years after acquisition.
Per the study, private equity owned hospitals experienced a 25.4% increase in hospital-acquired conditions. This figure encompassed a 27.3% increase in falls and a 37.7% increase in central line-associated infections. For some reason, private equity-acquired hospitals placed 16.2% fewer central lines than non-private equity hospitals. Surgical site infections doubled after a private equity acquisition, despite the hospitals having an 8.1% reduction in surgical volumes. Access to the study and more information is available via my post in January https://rhislop3.com/2024/01/02/jama-study-private-equity-ownership-and-hospital-outcomes/
There is no question that as long as traditional financing sources/sources of capital remain constrained due to high interest cost and tighter lending conditions, that private equity will remain an active player in the provision of investment capital. Even as capital markets and banks re-balance and return (to conditions) closer to pre-inflationary periods (lower rates, improved borrowing terms), private equity investment will remain a strong option, particularly for larger capital needs or for acquisition financing. Suffice to say, scrutiny of private equity investment will remain as well.