Quality of care declines after private equity takes over hospitals, national analysis shows

Patients are more likely to fall, contract new infections or experience other forms of harm during their hospital stay after it is acquired by a private equity firm, according to a new study by researchers at the Harvard Medical School.

The research, published December 26 in JAMA, is one of a handful of recent nationwide analyzes of how private equity buyouts affect the quality of patient care in hospitals. Increases are seen in conditions or outcomes deemed preventable and are key measures of hospital safety and quality.

These findings come amid growing concerns about the growing role of private equity in the U.S. healthcare sector, with $1 trillion invested over the past decade.

“We had previously found that private equity acquisitions led to higher fees, prices and societal spending,” said Zirui Song, associate professor of health policy and medicine at the Blavatnik Institute and research director at the HMS Primary Care Center. “Now we are learning that there are also downstream concerns about the clinical quality of care provided to hospitalized patients.”

Researchers said the findings are alarming because they could reflect financial incentives overshadowing patient care and safety.

“Hospital success is measured not only in dollars or the number of patients who walk through the doors, but also in lives saved, complication rates, patient satisfaction and a number of other quality and security,” said Sneha Kannan, a researcher at HMS. physician in the Division of Pulmonary and Critical Care at Massachusetts General Hospital. “We need to make sure we understand the costs and benefits of this important new force in health care.”

The economic impact of private equity acquisitions is not a new concern. Previous studies by Song and co-author Joseph Dov Bruch of the University of Chicago indicate that this financial model of for-profit, highly leveraged hospital ownership may also lead to increased expenses and other economic implications. Many have expressed concerns about privately held hospital bankruptcies, which often leave underserved populations with limited access to care. But until now, the effects of private equity deals on patient health and quality of care have remained little studied and poorly understood.

Why private equity is different

“When health systems buy hospitals, they generally don’t use borrowed money,” said Song, who is also an internal medicine physician at Mass General. “In contrast, the traditional private equity buyout uses a small amount of cash, but a significant amount of debt.”

A private equity firm raises part of the capital from investors and borrows the rest, indebting the acquired hospital with its physical assets, such as land and buildings, as security for the loan. The acquired hospital must then generate revenue to repay this debt.

Private equity generates revenue by charging management fees to its investors (typically pension funds, endowments, and other institutions or individuals), as well as by focusing on high-revenue procedures, cost reduction, reorganization and financial engineering.

One argument for private equity investments is that many struggling hospitals need capital and management expertise. However, most private equity buyouts are successful deals. Private equity firms want to buy operating companies that can take on debt and generate short-term revenue. These financial pressures can create perverse incentives favoring profit over patients, researchers say.

Private equity and quality of care

For this study, researchers examined insurance claims data for all fee-for-service Medicare hospitalizations from 2009 to 2019, totaling more than 600,000 hospitalizations at 51 private equity hospitals and more than 4 million hospitalizations in 259 similar hospitals not acquired by private equity. Hospitals not acquired by private equity served as a control group to control for other factors that may have affected the results.

The researchers compared how often patients experienced certain outcomes before and after the private equity acquisition of the hospital. For example, they looked at how often patients fell during their hospital stay or how often they developed an infection after a procedure or surgery. The team also analyzed the composition of patient populations and various other outcomes such as how often patients died, how long they stayed in hospital, and how often they were readmitted after leaving the hospital. hospital.

After a private equity acquisition of a hospital, patients admitted to Medicare had a 25% increase in hospital-acquired complications compared to patients admitted before the acquisition. Patients also had 27% more falls and 38% more bloodstream infections caused by central lines, which are surgically inserted temporary ports that allow easy intravenous access to patients receiving repeated infusions of medications or drugs. other treatments.

This increase was seen despite the fact that private equity hospitals placed 16% fewer central lines than before the buyout. All of these results were calculated considering changes, trends, and patterns over the same period at non-privately owned peer hospitals to isolate differences due to ownership change.

Interestingly, the study found a slight decline in deaths in private hospitals. According to the researchers, this could be due to social and demographic factors: Private equity patients were younger and less disadvantaged than those at non-private equity-owned peer hospitals. It may also be because patients are transferred out of private equity hospitals more often. When researchers followed patients longer after discharge, the slight decrease in deaths dissipated within a month of hospital discharge.

Framework for policy solutions

Policymakers, insurance companies and public sector organizations are increasingly concerned about protecting patients and societal resources from the effects of private equity transactions.

Earlier this year, Song and Christopher Cai, an HMS medicine clinical fellow at Brigham and Women’s Hospital, presented such a policy framework in a JAMA viewpoint article, which included regulating fraud and abuse, increasing antitrust oversight, reducing moral hazard (e.g. by reducing debt used in acquisitions), price protection inflated and transparency in reporting private equity acquisitions.

Currently, only private equity acquisitions over $111.4 million must be reported. This threshold can encompass many hospital acquisitions, but leaves out most medical practice acquisitions.

“Private equity firms have historically operated in the shadows in the health care industry,” Kannan said. “In the future, it is important to lift the veil and increase transparency.”

And researchers and policymakers should be rigorous in their efforts to understand how private equity is changing health care operations and their downstream consequences, the authors caution.

“Patients and providers, investors and taxpayers, employers and insurers all have a stake in this matter,” Song said. “Understanding what it means to corporatize health care delivery is a goal shared by many people in society.”