Private Equity in Health Care: State and Federal Hearings

Private Equity in Health Care

On Monday, March 25, 2024, an oversight hearing titled: Examination of the Effects of Private Equity Ownership and Investment in Health Care was held by the Massachusetts Joint Committee on Health Care Financing.

Participants testified on state oversight of the Massachusetts health care market, state policy levers & the role of real estate investment trusts, and private equity investment trends in the health care market, including federal and state action.

Associate Professor of Health Care Policy and Medicine, Zirui Song, MD, PhD delivered oral testimony on the impact of private equity acquisitions on health care quality and costs. Song provided an overview of consolidation in health care, key features of the classic private equity model, and recent studies related to impact. He was joined by colleagues Robert Tyler Braun, PhD, Assistant Professor of Population Health Sciences, Weill Cornell Medical College, and Joseph Dov Bruch, PhD, Assistant Professor of Public Health Sciences, University of Chicago

Private equity firms have increasingly acquired health care facilities, including hospitals, clinics, and nursing homes. Many of these acquisitions have traditionally been financed using a large proportion of debt, with the acquired entities assuming the obligation to pay back the lenders. After a few years, the acquired entity is often sold again. This business model has helped garner short-term returns for investors, often in part as a result of cutting costs or selling the land and real estate soon after acquisition. Other strategies documented in the literature have included a reliance on out-of-network billing, which raises costs for patients and insurers.

As clinicians increasingly practice in this environment, concerns over compromised quality of care have been voiced by patients, nurses, physicians, and public officials. Studies show that private equity ownership is linked to increased health care prices, lower quality of care, changes in patient and clinician labor mix, and increased patient adverse events among Medicare beneficiaries in hospitals, despite a younger and plausibly lower-risk patient pool.

During the Q&A, Song and colleagues discussed several policy options and potential solutions in response to the committee’s questions. This included increased transparency over health care acquisitions and ownership, stricter reporting requirements over finances of such facilities, and examples of regulatory efforts from other countries related to debt-heavy acquisitions. Other colleagues reviewed additional policy levers, including corporate practice of medicine statues. 

While these types of acquisitions offer substantial returns for investors and parent companies, effects on quality of care, clinician morale, communities’ access to care, and societal spending are increasingly important considerations. At times, Song emphasized, a private acquisition can represent a saving grace for a health care facility in need of capital to continue operations. At the same time, however, Song asked the legislators to consider whether that “necessitates or justifies” the staffing reductions or patient harms that researchers have found. 

In a subsequent session, David Blumental, MD, MPP, professor at the Harvard Chan School of Public Health and former President of the Commonwealth Fund, provided a historical overview of the evolution of the U.S. health care system towards its current market-oriented posture. His testimony put the current private equity discussion in the context of the broader trend toward the commercialization of health, and it underscored the need to prioritize patient well-being.

The following week, on April 3, 2024, U.S. Senators Ed Markey (D-MA) and Elizabeth Warren (D-MA) held an additional hearing on the impact of private equity in health care. Oral testimony was provided by frontline clinicians and health care experts, including Don Berwick, MD, MPP, President Emeritus of the Institute for Healthcare Improvement and former head of the Centers for Medicare and Medicaid Services. In several exchanges with the Senators, Dr. Berwick noted the importance of transparency over such private market acquisitions in health care, along with keeping patient well-being at the center of health care. 

Finally, the Federal Trade Commission (FTC) held a public workshop called “Private Capital, Public Impact: An FTC Workshop on Private Equity in Health Care” on March 5, 2024. In testimony, Song provided further details on the current evidence base related to the market penetration and the health and economic impact of private equity acquisitions. The workshop included statements from the leadership of the FTC, Department of Justice, and Department of Health and Human Services, as well as from fellow clinicians and colleagues in academia.