A recent study led by researchers from Harvard Medical School found that there is a higher risk for patients to experience falls, new infections, or other forms of harm during their hospital stay after it was taken over by a private equity firm.
The study published on December 26 in JAMA is one of the few current nationwide analyses on how private equity takeovers affect the quality of patient care in hospitals. The increases occur in conditions or outcomes considered preventable and are important indicators of hospital safety and quality.
The results come amidst growing concerns about the increasing role of private equity in the US healthcare, with 1 trillion USD invested in the past decade.
We previously found that private equity acquisitions led to higher fees, prices, and societal expenses. Now we are learning that there are also downstream concerns about the clinical quality of hospital patient care.
Zirui Song, Associate Professor of Health Policy and Medicine at the Blavatnik Institute and Research Director at the Center for Primary Care at HMS
The researchers stated that the results are alarming as they may reflect incentives that put patient care and safety in jeopardy.
„The success of a hospital is not only measured in dollars or the number of patients going through the doors, but also in terms of lives saved, complication rates, patient satisfaction, and a host of other quality and safety metrics,“ said HMS Research Fellow Sneha Kannan, a physician in the Pulmonary and Critical Care Division at Massachusetts General Hospital. „We must ensure that we understand fully the costs and benefits of this significant new force in healthcare.“
The economic impacts of private equity acquisitions are not a new issue. Prior studies by Song and co-author Joseph Dov Bruch from the University of Chicago suggest that this highly leveraged, profit-focused financial model of hospital ownership can also lead to increased spending and other economic impacts. Many have expressed concerns over private equity-owned hospitals bankruptcies, which often result in underserved populations having only limited access to healthcare. However, the impacts of private equity deals on patient health and quality of care have been scarcely investigated and scarcely understood.
Why Private Equity is Different
„When healthcare systems buy hospitals, they generally don’t use borrowed money,“ said Song, who also practices as an internist at Mass General. „In contrast, the classical private equity buyout uses little cash, but a lot of leverage.“
A private equity firm takes in capital from investors, borrows the rest, and collateralizes the acquired hospital’s physical assets like land and buildings as security for the loan. The acquired hospital then has to generate revenue to repay this debt.
Private equity generates revenue by charging its investors management fees – typically pension funds, foundations, and other institutions or individuals – as well as by focusing on high-revenue procedures, cost-cutting, reorganization, and financial engineering. An argument for private equity investment is that many hospitals in distress need capital and managerial expertise. However, most private equity buyouts are successful. Private equity firms want to acquire existing businesses that are able to take on debt and generate revenue in the short term. This financial pressure can create perverse incentives that favor profit over patients, according to the researchers.
Private Equity and Quality of Care
For this study, the researchers analyzed data on insurance claims for all paid Medicare hospitalizations from 2009 to 2019, encompassing over 600,000 hospitalizations in 51 private equity hospitals and over 4 million hospitalizations in 259 similar hospitals not acquired by private equity. The hospitals that were not taken over by private equity served as a control group to control for other factors that might have influenced the outcomes.
The researchers compared how often patients experienced specific outcomes before and after the hospital was taken over by private equity. They examined, for example, how often patients fell in the hospital or how often they developed an infection after a procedure or surgery. The team also analyzed the composition of patient populations and various other outcomes, such as how often patients died, how long they stayed in the hospital, and how often they were readmitted after leaving the hospital.
After a hospital was taken over by private equity, there was a 25% increase in hospital-acquired complications, a 27% increase in patient falls, and a 38% increase in central line-associated bloodstream infections among Medicare patients admitted, compared to patients admitted before the takeover. The hospitals placed 16% fewer central lines post-acquisition, despite these increases. All of these results were calculated accounting for changes, trends, and patterns in similar hospitals not owned by private equity during the same period to isolate the differences attributable to the change in ownership.
Interestingly, the study revealed a slight decrease in hospital deaths in private equity hospitals. According to the researchers, this could be due to social and demographic factors. Private equity patients were younger and less disadvantaged than patients in peer non-private equity hospitals. This could also be because patients are transferred more frequently from private equity hospitals. When the researchers looked at patients for a longer period after discharge, the slight decrease in deaths disappeared within a month of leaving the hospital.
Framework for Policy Solutions
Policy makers, insurance companies, and public agencies are increasingly concerned about protecting patients and societal resources from the impacts of private equity transactions.
Earlier this year, Song and Christopher Cai, a clinical HMS medical fellow at Brigham and Women’s Hospital, outlined such a policy framework in a JAMA article, including the regulation of fraud and abuse, strengthening of antitrust oversight, reduction of moral hazard (e.g., by lowering the leverage used in acquisitions), protection from inflated prices, and transparency in reporting private equity acquisitions.
Currently, only private equity acquisitions above $111.4 million must be reported. This threshold may capture many hospital acquisitions but leaves out most physician practice acquisitions.
„Private equity firms have operated in the shadows in healthcare in the past,“ said Kannan. „For the future, it is important to lift the veil and increase transparency.“
Both researchers and policy makers should rigorously seek to understand how private equity is changing the healthcare operation and downstream consequences, the authors warned.
„Patients and providers, investors and taxpayers, employers and insurers all have a stake,“ said Song. „Understanding what corporate-ization of healthcare means is a goal shared by many in society.“
Kannan, S., et al. (2023). Changes in Hospital Adverse Events and Patient Outcomes Associated with the Acquisition of Private Equity. JAMA. doi.org/10.1001/jama.2023.23147.