What Happens When Private Equity Takes Over a Hospital - Harvard Medical School

A study led by researchers at Harvard Medical School found that hospital acquisitions by private equity firms are associated with worse patient safety outcomes, according to the Harvard Medical School report. The research, led by Sneha Kannan, an HMS research fellow and physician at Massachusetts General Hospital, and Song, an internal medicine physician at Mass General, examined insurance claims data for all fee-for-service Medicare hospitalizations from 2009 to 2019. The dataset included more than 600,000 hospitalizations at 51 private equity hospitals and more than 4 million at 259 similar hospitals not acquired by private equity, which served as the control group.

After acquisition, admitted Medicare patients had a 25 percent increase in hospital-acquired complications. Patients also experienced 27 percent more falls and 38 percent more bloodstream infections caused by central lines. The increase occurred even though private equity hospitals placed 16 percent fewer central lines than before the buyout. The researchers said all results were calculated relative to changes over the same period at peer hospitals not owned by private equity.

The study also found a small drop in hospital deaths at private equity hospitals. The researchers said this may reflect social and demographic differences, as private equity patients were younger and less disadvantaged than those at peer hospitals, and may also reflect more frequent patient transfers out of these hospitals. When patients were followed longer after discharge, the small decrease in deaths dissipated within a month.

The researchers framed the financial structure as a central concern. Unlike health systems, which generally do not use borrowed money to buy hospitals, classic private equity buyouts use a small amount of cash and a large amount of debt, with the acquired hospital's physical assets serving as collateral. Private equity firms generate returns through management fees, high-revenue procedures, cost-cutting, and financial engineering, which the researchers say can create incentives that favor profit over patients.

Earlier this year, Song and Christopher Cai, a clinical fellow at Brigham and Women's Hospital, proposed a policy framework in a JAMA viewpoint article. It includes regulating fraud and abuse, increasing antitrust oversight, reducing moral hazard such as by lowering acquisition debt, protecting against inflated prices, and improving transparency. Currently, only private equity acquisitions above $111.4 million must be reported, a threshold that captures many hospital deals but leaves out most physician practice acquisitions. Kannan said private equity firms have historically operated in the shadows in health care and that increasing transparency is important.