The acquisition of U.S. hospitals by private equity (PE) firms often comes with the rationale of rescuing struggling health care facilities. If not for the PE acquisition, this argument goes, hospitals would have shuttered their doors. Although this could be true in some cases, PE firms typically buy hospitals with substantial borrowed money and place this new debt on the acquired facilities, a model that suggests it may be better for PE firms to acquire financially healthier entities that can take on the new debt and still generate revenue -- as opposed to struggling ones that cannot. Evidence on whether this is true had to date been lacking.

A recent study in JAMA Internal Medicine by Sneha Kannan, MD, Assistant Professor of Critical Care Medicine at the University of Pittsburgh, and Zirui Song, MD, PhD, Associate Professor of Health Care Policy and Medicine at Harvard Medical School, addresses this gap in knowledge. The study compared PE-acquired hospitals before their acquisition to a matched control group of non-PE hospitals in the same period. The study focused on financial metrics (earnings, revenue, equity ratio, operating margin) and clinical outcomes (mortality, adverse events).

Results showed that while PE and non-PE hospitals had similar earnings and operating margins, PE hospitals on average carried significantly less debt before acquisition. This indicates that PE firms on average target financially more stable hospitals rather than more distressed ones. Both groups of hospitals exhibited similar clinical outcomes prior to acquisition.

The findings challenge the notion that PE firms primarily acquire struggling hospitals. Instead, they suggest that PE firms likely target financially healthier facilities better positioned to absorb increased debt and potential cost reductions often associated with PE ownership.

These results also motivate the need for further research to understand the longer-run implications of PE ownership on hospital operations, patient care, and community health.