Key Takeaways
- • Private equity health care deals in the U.S. surged from 325 in 2010 to over 1,000 by 2021, representing a more than threefold increase in acquisition activity over a single decade.
- • The leveraged buyout (LBO) model employed by private equity firms increases target organization debt substantially to finance reorganization and expansions intended to boost future sale value—a strategy that raises concerns when applied to patient care organizations rather than traditional manufacturing or retail sectors.
- • Key stakeholders including patients, health care providers, and policymakers express concerns that short-term private equity financial incentives may shortchange patients, drive market consolidation, increase care costs, and potentially worsen patient outcomes.
- • The University of Pennsylvania Leonard Davis Institute convened a March 3, 2023 expert panel including Atul Gupta (Wharton), Sabrina Howell (NYU), Ryan McDevitt (Duke), and Brian Powers (Humana) to assess private equity's impact on patient care delivery and outcomes.
Summary
Private equity investment in U.S. health care has accelerated dramatically over the past decade, prompting serious scrutiny from financial experts and health care leaders regarding compatibility between financial engineering models and patient outcomes. According to the University of Pennsylvania Leonard Davis Institute of Health Economics, private equity deal volume in the health care sector nearly quadrupled between 2010 and 2021, rising from 325 deals to well over 1,000 annually. This surge has intensified debate about whether leveraged buyout strategies—traditionally applied to manufacturing, retail, and other asset-heavy industries—are appropriate for organizations whose core mission is delivering patient care.
The fundamental mechanism driving private equity health care acquisitions involves leveraged buyouts, wherein firms acquire target organizations and substantially increase their debt loads to finance internal reorganization and expansion initiatives designed to enhance future resale valuations. While this strategy has proven effective in manufacturing and retail contexts, application to health care entities introduces significant questions about competing incentives. Short-term financial objectives inherent to private equity structures may conflict with long-term patient care quality and accessibility, creating tension between return maximization and health outcomes.
Rachel M. Werner, MD, PhD, Executive Director of the Leonard Davis Institute, articulated the central concern facing stakeholders: "Patients, health care providers, and policymakers are concerned about what the short-term private equity financial incentives are and how they might shortchange patients, result in consolidation in the health care markets, increase care costs, and perhaps worsen patient outcomes." To address these questions systematically, the institute assembled leading researchers and practitioners, including Atul Gupta (Assistant Professor of Health Care Management at Wharton and LDI Senior Fellow), Sabrina Howell (Associate Professor of Finance at NYU), Ryan McDevitt (Professor of Economics at Duke), and Brian Powers (Vice President for Clinical Strategy at Humana), to evaluate empirical evidence and implications of private equity involvement in health care delivery.
The fundamental mechanism driving private equity health care acquisitions involves leveraged buyouts, wherein firms acquire target organizations and substantially increase their debt loads to finance internal reorganization and expansion initiatives designed to enhance future resale valuations. While this strategy has proven effective in manufacturing and retail contexts, application to health care entities introduces significant questions about competing incentives. Short-term financial objectives inherent to private equity structures may conflict with long-term patient care quality and accessibility, creating tension between return maximization and health outcomes.
Rachel M. Werner, MD, PhD, Executive Director of the Leonard Davis Institute, articulated the central concern facing stakeholders: "Patients, health care providers, and policymakers are concerned about what the short-term private equity financial incentives are and how they might shortchange patients, result in consolidation in the health care markets, increase care costs, and perhaps worsen patient outcomes." To address these questions systematically, the institute assembled leading researchers and practitioners, including Atul Gupta (Assistant Professor of Health Care Management at Wharton and LDI Senior Fellow), Sabrina Howell (Associate Professor of Finance at NYU), Ryan McDevitt (Professor of Economics at Duke), and Brian Powers (Vice President for Clinical Strategy at Humana), to evaluate empirical evidence and implications of private equity involvement in health care delivery.
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