Growing private equity influence in healthcare sparks concern due to potential harm to care quality and costs. Despite the evidence, investments persist. Lawmakers debate impacts, seeking transparency. A recent study links private equity to up to 32% cost increases. Uncertainty remains about policy impact. Private equity investments continue, especially in roll-up deals, streamlining administrative tasks. Providers face challenges, but opportunities exist for growth-focused entities. Private equity future in healthcare, outcomes unclear.
The increasing presence of private equity in the healthcare sector has prompted a surge in scrutiny, with concerns about its impact on care quality and costs. Despite mounting evidence of potential harm, private equity investments in healthcare entities continue unabated, even as policymakers deliberate on their role.
Despite mounting evidence of potential harm to care quality and costs, private equity investments in healthcare entities continue unabated, even as policymakers deliberate on their role.
Recent data reveals that private equity’s involvement in healthcare is expanding, despite mounting evidence that it may be detrimental to both care quality and pricing. However, despite increasing attention from government bodies, private equity investments in healthcare providers remain robust.
According to the American Hospital Association (AHA), private equity entities were responsible for a substantial 65 percent of physician practice acquisitions in 2019, dominating the landscape of physician deals. Additionally, private equity entities played a significant role in the acquisition of individual providers.
Although private equity investments have aided struggling practices and hospitals in dire financial straits, their deepening entrenchment in healthcare has attracted the concern of lawmakers. A growing body of research suggests that private equity’s presence has negative implications across various healthcare outcomes.
Amidst intense scrutiny of private equity’s role in healthcare, industry stakeholders are left contemplating the trajectory these firms will follow within hospitals and physician practices.
Emerging Data Highlights Detrimental Effects
The latest study, which contributes to a growing repository of research on private equity’s influence in healthcare, underscores the link between healthcare investments and increased costs for patients and payers. This comprehensive review, published in The BMJ, analyzed 55 previous research studies to explore the impact of private equity on healthcare outcomes, encompassing care quality and patient costs.
Researchers from institutions such as the University of Chicago and Columbia University unveiled a disturbing trend: private equity acquisitions were prevalent across all analyzed healthcare settings and were strongly correlated with up to a 32 percent surge in costs for patients and payers.
Furthermore, private equity ownership of medical facilities exhibited mixed or harmful effects on care quality.
Previous investigations had targeted specific areas within healthcare. For example, data from the American Antitrust Institute indicated that private equity acquisitions of physician practices led to price hikes ranging from 4 to 16 percent. Additionally, a 2021 study exposed diminished care quality in nursing homes following private equity investments.
This new study is groundbreaking as it provides the first systematic global overview of private equity’s engagement in healthcare environments.
Joseph Dov Bruch, Ph.D., the senior author of the study and an assistant professor of public health sciences at UChicago, remarked, “This study is intended to fill that gap [in research].”
Although the review did not uncover consistent positive effects of private equity ownership in healthcare, the study authors acknowledged that their analysis focused on short-term outcomes. Consequently, the broader ramifications of private equity on healthcare operations, costs, and clinical outcomes remain uncertain.
Private Equity in Healthcare: A Subject of Legislative Debate
Amidst mounting concerns regarding the escalating cost of healthcare, the Office of the Actuary at CMS projected a swift acceleration in national healthcare spending, set to surpass $7.2 trillion within a decade. This growth can be attributed to rising prices within hospital and physician services, placing an increased financial burden on both Medicare and Medicaid programs.
Numerous studies have identified consolidation in healthcare as a driver of price hikes. In recent discussions surrounding healthcare mergers and acquisitions, private equity’s name consistently surfaces.
In response to these trends, the Senate Finance Committee convened a hearing centered on healthcare consolidation and corporate ownership. During this hearing, lawmakers and industry experts deliberated on the repercussions of consolidation and corporatization on healthcare costs and quality.
Private equity, often described as a practice where investors purchase a stake in a company to enhance its financial value by restructuring or altering its operational strategies, featured prominently in these deliberations. Senator Ron Wyden (D-OR) expressed concern about these practices potentially favoring mega-corporations over patients and taxpayers.
Furthermore, recent discussions during a markup session of various healthcare bills witnessed lawmakers from both sides of the aisle addressing the topic of private equity ownership. While Democratic lawmakers sought greater transparency regarding private equity’s role in healthcare, Republican opposition hindered efforts to enforce stringent regulations on provider ownership disclosure.
Despite these debates, the driving forces behind soaring healthcare costs remain ambiguous. Concerns persist over government oversight and competition within the healthcare sector, areas acknowledged by industry leaders as lacking and contributing to inflated prices and limited healthcare access.
The Future Trajectory of Private Equity Investments
Private equity’s burgeoning influence in healthcare has generated considerable interest. Whether regulatory policies will be introduced to curb these investments remains uncertain. Meanwhile, private equity entities are actively seeking opportunities across diverse healthcare domains.
Jim Clayton, private equity national co-leader at BDO, emphasized the persistence of investment volume and interest. He foresees future investments focusing on “roll-up” deals, where private equity firms aggregate providers such as specialists, urgent care centers, and nursing homes to achieve operational efficiencies and scale. Opportunities abound for streamlining administrative functions within healthcare, offering a substantial return on investment potential through revenue cycle optimization.
Clayton explained that private equity’s entry into healthcare is relatively recent, and these investors may not fully comprehend the nuances of the healthcare revenue cycle, which operates differently from other industries.
While acknowledging that roll-ups have at times underperformed due to challenges related to payer contracting and revenue cycle lag, Clayton maintained that private equity’s learning curve is steep, and the healthcare market still holds significant potential for investors.
Additionally, providers are demonstrating substantial interest in private equity investments. Traditional avenues for accessing capital often require arduous processes, making private equity a more attractive and accessible alternative for providers seeking growth.
Navigating Private Equity Investment: Considerations for Providers
Private equity investment can be an advantageous option for providers embracing a growth-oriented mindset. This alignment between private equity firms and providers stems from the current emphasis on top-line growth over immediate profitability.
This cycle of growth followed by operational optimization is typical in industries undergoing private equity investments. As entities secure a larger market share, they subsequently fine-tune their cost structures to enhance profitability.
Providers, especially those in the process of growth or aspiring to grow, can access capital more readily through private equity investments during this phase. However, providers must be mindful of the unique challenges associated with private equity involvement.
The expectations that accompany private equity investment are substantial. Providers must adhere to meticulous reporting, analysis, and forecasting standards, often exceeding those required by traditional investors. Thus, providers should be prepared to enhance their operational capabilities to meet these heightened demands.
In preparation for potential private equity engagement, providers should conduct thorough due diligence. This includes a comprehensive assessment of their cost structure. Involving financial experts to analyze an organization’s financials can prove invaluable, identifying areas for improvement before entering into a deal.
Ultimately, the future implications of private equity investments in healthcare remain uncertain. As research and regulations lag behind these investments, private equity firms and providers have ample room to explore opportunities. The potential outcomes, encompassing access, quality, and cost, await further exploration.
