Private equity firms have increased their investments in healthcare in recent years. While they focus on maximizing profits, many people worry that this may harm patient wellbeing.
Private equity firms are companies that make investments in privately owned businesses. While many invest in startups and small businesses, a growing number of firms are backing the healthcare industry.
Investments in healthcare have
There is an ongoing debate about the risks and benefits of this. When private equity firms fund or purchase hospitals, medical practices, or health systems, their goal is to streamline operations to produce more profit.
Critics worry that this may force health systems to make decisions based on profits rather than patients.
Read more about how private equity in healthcare works, who it affects, and the pros and cons.
Private equity firms have greatly increased their involvement in the healthcare system over the past two decades.
Some facts and figures include:
- Between 2003 and 2017, there were 42 private equity deals to purchase hospitals or hospital systems. These affected 282 hospitals in 36 states.
- Private equity investments in healthcare
increased from $23.1 billion in 2015 to $78.9 billion in 2019. - Projections suggest healthcare spending will increase 5.5% per year through 2027.
Private equity firms pool money from groups of investors. This allows them to accumulate large sums of cash they can invest.
They use this money to purchase businesses — or shares in businesses — then attempt to increase their value. They then sell the businesses and return the profits to the investors.
In healthcare, private equity firms often buy struggling health systems or hospitals. They then try to increase profits.
Strategies these firms use include:
- merging multiple healthcare practices
- reducing staff
- closing down portions of a hospital or healthcare practice’s operations
- focusing on growing a specific aspect of a healthcare practice’s offerings
- renegotiating reimbursement rates with insurers
Private equity firms invest in health systems to make money.
For this to occur, health practices and providers must be willing to sell. This can happen when:
- a hospital or other health practice is struggling to make money
- complying with regulations is difficult
- a practice owner is retiring
- a hospital offers an innovative service or product but needs financial support
The effects of private equity deals on people vary greatly. While no conclusive data shows whether it typically improves or damages care, many people worry it may place profits ahead of patients.
In some cases, a constant drive to generate profits can damage care quality.
A 2021 working paper found that nursing homes owned by private equity firms have 10% higher death rates among patients on Medicare. It also showed a decline in time spent with residents, less staff, and lower quality and training of staff.
Despite this lower quality of care, these nursing homes were associated with an increase in taxpayer-funded Medicare spending.
However, supporters of private equity in healthcare argue that streamlining processes and increasing profits can encourage investment in new technologies. This could boost innovation, potentially improving patient outcomes.
Each private equity deal has a different target — and consequently, different impacts.
They can affect varied groups of people, including:
- Patients: The impact of private equity on patients varies greatly. Costs can increase, and some people may have more difficulty accessing care.
- Communities: Private equity investments can shift the balance of healthcare available in a community. For example, if a firm consolidates a health system, this may mean closing hospitals or medical practices.
- Staff: Healthcare staff may find that their roles shift. Some may lose their jobs, while others may get promotions.
- Practice and hospital owners: When private equity firms take over, business owners may retain ownership. Then, when the business sells, they could receive a portion of the profits.
- Competitors: Private equity firms aim to make health systems more competitive. This may mean that other healthcare providers lose patients and revenue.
- Investors: The goal of private equity investments is to generate profits for investors. In many cases, the annual return is 20–30%. But if the deal fails, investors can lose money.
The specific impact of a private equity deal depends on the business it buys, the changes it makes, and more.
Some potential benefits of private equity in healthcare
- profit for investors
- better management
- closely following hospital guidelines
- better insurance reimbursement rates
Some potential drawbacks
- a decline in patient care
- cost increases for both taxpayers and patients
- staffing shortages
- the possibility for upcoding — when a person is recorded as being sicker than they are
- job loss for some healthcare workers
- possibly placing a strain on medical ethics
Private equity firms are increasingly investing in U.S. healthcare. While supporters argue it increases innovation, critics say that it can harm hospitals and reduce the quality of care.
Healthcare regulations and laws prevent private equity firms from harming patients to earn a profit. This offers some protection — and in some cases, better treatment may actually generate more income.