Private equity’s intrusion into US healthcare

Bad things can happen when capitalism meets medical care, writes Joanne Silberner

In his 2022 state of the union address, US president Joe Biden claimed that more and more private financing had been flowing into nursing homes, degrading the quality of care and increasing costs. “That ends on my watch,” he promised.

Biden was referring to private equity. That is, money gathered from high level investors for the purpose of buying up companies and maximising profits with the aim of selling the company in 3-10 years at a large profit. In 2021 private equity firms owned 11% of nursing homes, according to an independent agency that provides information to the US Congress on Medicare.1

And it’s not limited to nursing homes. Private equity firms have been buying up physicians’ practices, hospitals, health systems, clinics, obstetrics units, even veterinary clinics. According to an insurance company trade group, private equity firms spent $750bn in healthcare from 2010 to 2019, jumping from $41.5bn in 2010 to $119.9bn in 2019.2

In a recent webinar hosted by the National Institute for Health Care Management, a non-partisan healthcare research foundation, director of research Cait Ellis complained about the lack of regulation as well as the mystery surrounding private equity investments. “While private equity investment in healthcare may improve operational or technological efficiencies,” she said, “there are growing concerns about the impact on cost, quality, and use of care.”

Yet this situation has been made possible by the capitalism that is at the core of the US health system.

The argument in favour of private equity in healthcare is that the firms improve the company they buy, since they hope to sell it at a profit, and invest capital to do so, buying high price items like medical equipment and bookkeeping systems that other healthcare providers might not be able to afford.

Arguments against include that they raise prices, don’t prioritise quality of care, and increase an institution’s debt by taking out loans.

What it means for nursing homes and their residents

For nursing home owners in the US, being bought up by a private equity firm means new expenses. Often, the firms sell off the land the nursing home sits on, so that the home now has to pay rent. The homes also have to pay management fees to the new owner. The purchasing firm may look to save money by reducing staff and reducing staff salaries.

Older studies of nursing home quality and costs were a mixed bag, but a large 2021 study paints a poor picture of private equity. In a paper published in JAMA, physicians and economists from Weill Cornell Medical College in New York combed through government databases holding information on more than 300 nursing homes owned by private equity firms and nearly 10 000 for-profit homes owned by nursing home companies. They found patients at private equity homes were 11% more likely to visit an emergency department and 9% more likely to be admitted to hospital. Healthcare costs were almost 4% higher.3 (The JAMA authors’ prescription for a better situation was pretty much what the White House has come up with—making nursing home ownership information readily available for potential patients and their families.)

A systematic review4 published in The BMJ in July evaluated 55 published studies of private equity buyouts in eight countries (mostly from the US, since most of the studies were done there). They found that in the eight countries in the study, private equity resulted in higher costs and mixed to harmful impacts on quality. Health outcomes were mixed, with numbers too low for firm conclusions. Overall, they didn’t find any consistent benefits.

In the UK, private equity ownership of care homes has been blamed for the fall of Four Seasons Health Care, which once owned 500 sites in England, Scotland, Jersey, and Northern Ireland with 20 000 residents before passing through a series of British, German, Qatari, and American owners.5 And an investigation published by the Guardian earlier this year blamed private equity firms, including one from the US, for unsafe and inadequate services in care homes across England.6

What this means for physicians

For group physician practices in the US, a buyout by a private equity firm can mean hundreds of thousands of dollars or more for the founders of the practice. Insurers or hospitals that use the doctors from these practices face higher prices for physician services. “A well known physician practice or marquee hospital can demand whatever price they want,” says Atul Gupta, an economist and assistant professor at the University of Pennsylvania.

Private equity is a hot topic among American physicians. Dermatologist Jack Resneck, former president of the American Medical Association, warned in a JAMA article that private equity could lead to a “radically different specialty” in the future.7 Dermatologists, he wrote, could lose autonomy as private equity firm managers press them to see more patients in less time or replace them with lower salaried physicians’ assistants. He was also concerned that dermatologists would be pressed to keep pathology analyses within the group, be pressured to hard sell cosmetic procedures to their patients to generate income for the private equity firm, and sign non-compete clauses to stop them from joining another practice or establishing their own.

In 2022, doctors and economists from several US universities published a study comparing 578 private equity physician practices in dermatology, gastroenterology, and ophthalmology to 2874 practices that had not been bought out. They found bills increased an average of 20% and the practices saw 26% more patients.8

Amol Navathe, an associate professor of health policy and medicine at the University of Pennsylvania, thinks there is a place for private equity in healthcare. He sympathises with US doctors in private practice concerned about the increasing role of private equity firms. “It can make what seemed like a very safe profession quite volatile,” he said.

The situation in hospitals

In the March 2023 issue of Harvard Business Review9 a group of doctors and economists published an article looking at 42 private equity purchases of hospitals. They found that after private equity buyouts, hospitals on average became more profitable, mostly by cutting operating costs and boosting revenues. They saved money by decreasing staffing, especially nurses. Purchased hospitals tended to shift focus from outpatient services, which pay less, to inpatient care. And they added in technology intensive services.

The authors noted that studies have not shown worse clinical outcomes for Medicare patients admitted for pneumonia or strokes, and showed lower mortality for those with heart attacks. But the review ducked the question of overall quality and costs, saying there was little research to date.

Private equity is blamed for the shutdown of Hahnemann University Hospital in Philadelphia, which went bankrupt in 2019, a year and a half after being purchased by a private equity firm. The closure meant 570 resident physicians had to find new hospitals to complete their training and patients in the area had to find a new place to go to for healthcare.10

Good or bad?

Private equity has its defenders—it’s seen by some economists as a way of bringing needed capital into healthcare services. “There was a prevailing feeling that private equity was bad for American healthcare,” said Atol Navathe, the physician and economist who partly endorses private equity. “No doubt some low value care is being provided. I worry about that.”

Navathe and two colleagues wanted to examine the relation, so they analysed two well regarded primary healthcare programmes owned by private equity firms. Both systems provided care to elderly or disabled patients in the federally funded Medicare programme, and Navathe found they did a good job, including with vulnerable populations usually not well served by Medicare.11

He ascribes their success to the way they were paid by the government. In traditional Medicare, the government pays providers for each service. The two private equity owned systems studied by Navathe and colleagues had “value based payment models,” where payments are often per person rather than per procedure, and include bonuses for meeting quality and value standards.

Meanwhile, patients are pretty much in the dark about the role of private equity in the healthcare system, Gupta said. Healthcare delivery isn’t like a restaurant, where high prices or low quality will send customers elsewhere. Insured patients feel price increases only indirectly, through higher insurance rates and co-payments, and they have no real way to judge the quality of care being delivered. “When a doctor or hospital recommends a procedure or pill or care home, most are not in a position to judge whether it will be well delivered, or is needed,” he said.

Private equity has inadvertently led to one benefit for patients—the end of “surprise billing.” Understanding what changed takes an understanding of how health insurance works in the US. Many health insurance policies charge members higher co-payments or refuse to pay if members go to doctors or hospitals not included in the insurance policy. Patients sometimes carefully went to member hospitals only to get large bills that their insurers wouldn’t help them with because the hospital provided anaesthetists or surgeons or other doctors who were not employees of the hospital, but instead part of physicians’ groups owned by private equity firms. The practice has since been made illegal.

Fixing the problems that private equity can bring won’t be easy. “There’s not a quick fix policy,” Navathe says. He thinks it will take a switch away from fee-for-service medicine and its incentives for more care, whatever the quality, to value based payments, and says it’s happening as more and more patients sign up for private health systems within Medicare.

There’s a consensus among economists that a blanket prohibition on private equity in healthcare wouldn’t work. After the president’s state of the union address, the Department of Health and Human Services began working on a plan to require full disclosure of nursing home ownership. It’s not a flashy move, says Gupta, but it would help people know what they were getting into. “I wish they would do it for all kinds of healthcare providers,” he said.

But doing that could take some time—the nursing home disclosure rules Biden promised last year have yet to be released in final form, and some think the rules will not be enough to control private equity.


  • Commissioned, not externally peer reviewed.

  • Competing interests: None.


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