Hospitals Bought By Private Equity Firms Often Face Decreased Ability to Serve Patients: Study

Stripped of assets and saddled with debt, recently bought private equity hospitals find it harder to provide care for patients, researchers warn.

After private equity firms buy hospitals, the facilities are often stripped of assets and face pressure to pay down the debt that was incurred to make the purchase, which not only increases healthcare costs for patients, but may also endanger lives by reducing the level of care provided.

According to a recent report published in the Journal of the American Medical Association, hospitals bought by private equity firms often face financial cuts soon after the purchase is completed, which can decrease the ability of  hospitals to serve patients.

Private equity firms are investment companies that typically borrow money needed to acquire other companies. The borrowed money becomes debt against the newly acquired facility, which must then generate enough revenue to pay off the debt.

These firms buy companies with the plan to sell them for a profit in a few years. However, leveraged buyouts often lead to more bankruptcies for healthcare facilities because of the debt that must be paid off. This typically results in cuts to operational costs, reduced staffing, and higher costs to patients, according to the study.

Reduced Care at Private Equity-Owned Hospitals

Researchers from the University of California, San Francisco (UCSF), Harvard Medical School, and the City University of New York’s Hunter College, led by Elizabeth Schrier, studied the quality of care provided at 156 healthcare facilities bought by private equity firms from 2010 to 2019. They then compared those with 1,560 hospitals of similar size in similar communities that were not bought by private equity firms.

The data indicates there is a pattern of reduced assets for hospitals acquired by private equity firms, which increased over the five years after the acquisition. Private equity firms spent $505 billion on health care acquisitions between 2018 and 2023, and leveraged acquisitions seem to be an increasing trend in the U.S.

The study focused on assets, including land, buildings, major hospital equipment and information technology. Private equity firms sometimes sell land, buildings and equipment to repay investors with proceeds. This results in a burden to the hospitals in rent payments for facilities they once owned.

Researchers determined that during the two years after a private equity acquisition, total assets at those hospitals decreased by 15%, on average. Comparatively, assets at other hospitals not owned by private equity firms increased by an average of 9%.

The net difference of 24% is equivalent to a loss of $28 million in total assets per hospital, the researchers concluded.

The data indicates that the reduced assets and healthcare worker manpower led to a reduced level of care for patients, which may increase the risk of medical malpractice injuries for patients.

All of the things private equity firms tend to strip–equipment, buildings, technology, employees–are resources critical for quality patient care, the researchers warned.

The researchers emphasized that reduced resources pose serious risks to patients. They noted that after hospitals are sold to private equity firms, hospitals are less equipped to care for patients. This is the first study to analyze private equity purchase data and resulting healthcare quality metrics.

Increased Patient Side Effects

The American Investment Council claims private equity purchases improve healthcare. However, a study published earlier this year by Harvard researchers found that private equity acquisitions often lead to increased patient falls and infections, as well as increased costs. That study found that patients cared for in private equity-owned hospitals face a 25% higher risk of injuries and serious health side effects.

Similar problems have also been seen at nursing homes bought by private equity firms, with other research finding that residents at those long-term care facilities experience a 10% greater death risk than in hospitals owned by other types of companies, opening the door to nursing home neglect. A study published in the JAMA Health Forum indicates nursing homes run by private equity firms experience an increase in emergency room visits and hospitalizations.

In 2021, the U.S. House Of Representatives oversight committee called for a federal investigation into the increasing number of deaths and lack of care among residents in nursing homes bought out by private equity firms.

Researchers warn that private equity takeovers and diminishing business isn’t an isolated situation. It occurs among other businesses as well. But no matter the business, private equity involvement leads to reduced assets, increased costs, and in terms of hospitals, significantly decreased patient care, they concluded.

The study authors called for more transparency in health care, especially among private equity-owned hospitals. They recommended other researchers and policy makers focus on efforts to understand how private equity firms change healthcare outcomes and operations that can lead to consequences not only for the bottom line, but also for the survival for patients.