In the past decade, private equity investors have spent over $1 trillion in acquiring health care entities — ranging from hospitals and nursing homes to private physician practices. While it may be spun that these firms are infusing much-needed capital into struggling hospitals, the reality is that these investments are detrimental to patient care and are emblematic of the ills of the American health care system, not the cure.
Private equity ownership of healthcare is not new. Physicians or groups of small investors have often been sources of such investment; however, in the past several years, there has been a concerning shift in investment from physician groups and small investors toward large private equity firms.
The acquisition of a health care facility by private equity often involves the firms raising some amount of capital and then taking out a loan, using the health care facility as collateral. Once the private equity firm owns the hospital or practice, the debt is loaded onto the hospital and practice who are now responsible for paying it off. Another strategy used by private equity investors is that the health care organization is essentially sold for parts — with its land, facilities and assets being sold to other investors — and the health care organization must then purchase those assets back through regular payments to the investors. In both strategies, health centers are burdened with debt and almost immediately under financial strain from the moment of acquisition.
The consequences are dire for both patients and staff. A study by the British Medical Journal looking at private equity ownership of health care in eight countries found that private equity ownership was “most consistently associated with increases in costs to patients or payers,” underscoring that private equity ownership has driven costs for patients up and only exacerbated the unaffordable nature of health care in this country.
Moreover, a 2023 study by researchers at Harvard University and the University of Chicago found that Medicare patients at private-equity-owned hospitals had a 25% increase in hospital complications than those at non-private-equity-owned hospitals, including a 38% in bloodstream infections from central lines, despite private equity centers placing 16% fewer central lines. Further, the rate of surgical site infections was found to double at private-equity-owned hospitals, while control hospitals in that same time period saw infections decrease.
The senior author of the study — Zirui Song — attributed the results to staffing cuts, which are often forced on private-equity-owned hospitals that are attempting to repay their debt and also remain profitable to investors. In one particularly infamous case, the Steward Health Care centers in Massachusetts were saddled by rent payments to an investment firm and cut corners whenever it could to make these payments, leading to numerous reports of understaffed emergency rooms and canceled surgeries.
The debt that private equity bestows on health care can ultimately contribute to bankruptcy, leaving patients and staff stranded. In a report by the Private Equity Stakeholder Project (PESP), the organization stated that some of the largest health care bankruptcies in 2023 were health care systems or practices owned by private equity firms, suggesting that private equity ownership is correlated with bankruptcy of health care systems.
To be sure, proponents of the role of private equity in the health care system may argue that private investment can fill critical gaps in patient care, specifically in rural areas, where there is an absence of primary care physicians. It is true that over 80% of rural counties are “medical deserts” and PESP has reported that a quarter of private-equity-owned hospitals serve rural populations.
However, the presence of private equity in rural areas is not as much of an alleviating force as it may seem. Rather, the acquisition of rural health systems by private equity raises concerns precisely because of the lack of alternative facilities. If private equity ownership drives costs for patients up or provides inadequate care (as it has been shown to do), there is effectively no alternative for patients to turn to. If the hospital goes under, as private equity investments that offload their debt onto the health center can do, what benefit did they truly offer to patients?
Private equity in health care seems to be like water on pavement: It finds every crook and crevice. Getting it out of the health care system entirely is highly unlikely and may forestall the rare cases where private equity can be helpful, but there are critical opportunities for reform. For one, the government should limit the percent debt a private equity firm can use to make a health care acquisition, or force the firms to have joint liability for the debt they offload onto a health care center rather than hold only the health facility responsible.
In addition, there must be greater transparency with the acquisition of health facilities by private equity. Currently, only private equity acquisitions over $111.4 million must be reported, which often does not include physician practices being acquired. The government must also pursue strong legal action against predatory private equity firms. Under the Biden administration, the Federal Trade Commission sued a private equity firm that attempted to dominate the market through purchasing health centers and driving up the price of services. Such proactive action by federal agencies is crucial and must be continued during the Trump administration.
There is a palpable and valid frustration in the U.S. with the health care system: It has let too many people down too many times. From health insurance denying millions of claims per year to the existence of “medical deserts,” it is clear that the system is in need of dire reforms. Private investors promote a shiny and alluring idea that by “corporatizing” health care, it can be made more efficient, productive and better serve its patients. But, we should all be cautious of their efforts and finding the “hero” to the ills of our health care system in an industry primarily concerned with profiting and returns on investment.
Private equity is not our savior, and health care is not a commodity to be invested or profited from. At its core, the mission of private equity is to turn a profit for its investors, and this is fundamentally incompatible with the mission of medicine to care for patients without bias and alleviate suffering.
Samhi Boppana is from Columbus, Ohio. She is an Editor-in-Chief for The News-Letter.
