Is Private Equity Ruining Health Care? It’s Complicated

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode above!

Dan Gorenstein (DG): Private equity firms have bought up nearly 8000 doctors offices, hospitals and nursing homes over the last decade. 

These companies are known for buying up a business, overhauling it and looking to quickly resell it for a big profit.

This business model can have disastrous results.  

Elizabeth Warren : One example: when private equity firms buy up nursing homes they cut costs to the bone, they reduce staff and suck money out the door to boost investor profits.   

DG: Often for good reason, these firms are among lawmakers’ favorite health care bad guys.

But a recent study out of Berkeley on private equity’s impact in fertility clinics is leading some to slow down the hate.

Ambar La Forgia (AF): I think it’s really easy to, vilify, corporate entities, and that can make it difficult to tell and to publish a more nuanced story.

DG: Today, private equity’s track record in health care and how to – potentially – safeguard patients from investors’ worst abuses.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein, this is Tradeoffs.

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DG: Examples of private equity running amok in health care are easy to find. 

News clips: Steward health care is filing for bankruptcy….   

DG: This just happened last week. Steward Health Care  with its 33 hospital system and 30,000 employees across nine states filed Chapter 11. 

News Clip: Millions of patients and tens of thousands of employees are in limbo tonight after one of the largest hospital bankruptcies in history. 

 DG: Cerberus Capital Management is a private equity firm – a so-called PE firm that bought Steward Health did what PE often does to its acquisitions … load them up with debt and sell off the valuable parts.  

In this case they sold hospital buildings to another company that then turned around and charged Steward rent. Cerberus pocketed the profit from the real estate deals.  

Massachusetts Governor Maura Healey: “This situation stems from and is rooted in greed, mismanagement and lack of transparency.”

DG: Now Steward, a shell of itself, lacks the money to pay its landlord or basic bills. 

According to the Boston Globe: vital medical equipment was repossessed, surgeons were forced to buy their own instruments, some patient meals had been reduced to crackers.

DG: Stories like this are obviously damning. And there’s a fair amount of evidence that PE acquisitions lead to price hikes. But it’s been difficult to say if PE directly helps or hurts patient care. Enter Atul Gupta. 

Atul Gupta (AG): I’m an assistant professor at the University of Pennsylvania’s Wharton School of Business.

DG: Back in 2021, Atul and his colleagues published a working paper that made a massive impression. The New Yorker, The New York Times, the Wall Street Journal, President Joe Biden even talked about it in his state of the union address.  

This groundbreaking paper found striking and definitive evidence that drew a direct line between PE behavior in nursing homes, bad care and bad outcomes.

AG: We were completely shocked.

DG: Atul explains the team analyzed 4 million patient records over 12 years for more than 1,600 nursing homes bought by PE. To squeeze out profits the economists found these facilities cut corners. For example slashing staff who provided basic care to patients. 

AG: The type of nurses that would do showers, taking the patients to the bathroom, helping them move around in the rooms, making sure that their beds were clean. It’s a big deal because most of the direct patient care is actually done by these types of nurses.

DG: Instead, Atul says, the facilities gave patients more antipsychotic drugs to sedate them.  The jaw dropping result: 20,000 more deaths at PE nursing homes over the 12 years of the study. 

Rachel Werner (RW): Everybody wondered if this was just the tip of the iceberg. 

DG: That’s Atul’s colleague at the University of Pennsylvania Rachel Werner…she’s studied nursing homes for almost 20 years. And she now leads the Leonard Davis Institute of Health Economics, which financially supports Tradeoffs. 

RW: It was the first really solid piece of evidence that quality substantially suffers when private equity enters nursing homes. And so that really caught people’s attention. Because it was really the first time that we saw this effect in nursing homes from private equity.

DG: The paper spurred policy action. Federal health officials began requiring nursing homes to reveal if they’re owned by private equity firms. And starting in 2026 the facilities must increase staff so each patient gets more nursing care.  

RW: But it also made everyone take a step back and realize that we need to dig deeper on the effects of private equity across health care.

DG: Over the past few years researchers and policymakers have used this study as confirmation that PE is bad for patients.

But what seems to be true for patients at the end of life, may not be true at the beginning.  A working paper published last fall found that care at fertility clinics improved after PE-backed companies entered the picture. 

The woman behind that study is Berkeley economist Ambar La Forgia  

AF: I was really nervous. 

DG: Ambar was backstage at the University of Chicago last September. 

AF:  it was probably one of the biggest audiences I think, I’ve ever presented in front of.

DG: Ambar had been invited to give a talk about her paper.

She started to explain her findings that patients at fertility clinics that were part of corporate chains – often backed by private equity –  had a better chance of getting pregnant and having a baby.  

AF: And all of a sudden I heard like a [gasp sound] and some murmurs in the audience. 

DG: Economists don’t tend to gasp. 

AF: I almost paused and like, was was really taken aback and like, had this little moment where I had to recompose myself before I could continue with the presentation. 

DG: But she understood the shock.

Even to her, her results had initially seemed like an outlier.

AF: I was like, wow, we better make sure these results are right.

DG: Private equity, she knew, had a reputation for cutting corners, like in that nursing home study.

But with these clinics, they were seemingly doing the opposite: pulling out all the stops to improve care.

AF:  And so we like triple checked. And the results continued to hold. And then the big question became, well, okay, what are these chains doing to help clinics improve their outcomes? 

DG: The answer seemed to be two fold. 

After clinics got scooped up by the PE backed chains Ambar saw the offices improve their medical equipment and – importantly – standardize their care.  

AF: We thought that, okay, if they’re getting access to new resources and this new clinical knowledge, then that could certainly explain this growth and improvement in outcomes. 

DG: And those outcomes improved most for older women, which made Ambar confident that the clinics were actually upgrading care, not just cherry picking younger, more fertile patients.

Next, Ambar wanted to understand why investors in this sector act so differently from PE companies in other sectors, like nursing homes. As an economist one of her first instincts was to look at what distinguishes the fertility market from other health care markets.  

AF: fertility clinics seemed to operate a lot more, uh, more similarly to the retail and service sector than they do more traditional health care settings.

DG: When you are buying clothes or picking a restaurant you look at reviews or pictures, the price and then make a choice. 

Fertility care is kind of like that. Patients can easily shop around and get prices up front. 

AF: When it comes to fertility clinics, most patients are paying out of pocket. They’re paying a lot out of pocket. And then they have these report cards that they can use in order to find the highest quality provider in their area.

DG: And success is pretty clear: you have a baby or you don’t. 

AF: At least in competitive markets where consumers have a choice of fertility clinics, from the corporate owner’s perspective, like they might have more incentive to want to invest in quality just to establish the reputation of their chain and to attract patients to to their clinics.

DG: It’s not like that for lots of medical care like broken bones or treating diabetes. There’s much less consumer shopping because patients often go to the doctor or hospital that’s covered by their insurance. Unless they want to pay out of pocket.

And that makes it hard to find good care even as a savvy shopper. It gets infinitely harder for frailer, older Americans, especially those with low incomes says Rachel Werner. 

RW: The consumers of nursing home care are very vulnerable and can’t be their own watchdogs. And so it just opens the door for private equity to be able to come in and prioritize revenue over everything else.

DG: Over the last five years, state and federal officials are taking a harder look at PE in health care. Congress is holding hearings. Regulators scrutinize plans to buy physician groups. 

There’s even a bill in the Senate that would give health officials power to block private equity deals. These actions are fueled by a simple assumption: private equity prioritizes profit over patients, and the businesses they acquire. 

But, Ambar says, she thinks her paper raises questions about how certain we can be about those conclusions.  

AF: I think that in general, um. It can be hard to publish something that goes against what what other research shows or believes. More broadly, there is a lot of negative media attention on corporate entities. And so that can really make it difficult, I think, to tell that more nuanced story.

DG: Ambar hopes telling a more nuanced story is exactly what this research does. 

This paper, she says, is driving her to figure out how PE firms are changing care at the doctors’ practices they buy.   

AF: Like, what are they directing physicians to do? What are they changing about technology? What are they changing about, like monitoring and incentives. I think that can help us understand what is contributing to positive versus negative outcomes.

DG: Ambar says better insight into patient outcomes could theoretically help state and federal officials enhance safeguards.    

After the break a health economist who studies private equity helps us understand the three steps policymakers are taking to protect businesses and patients from investors’ worst practices. 

MIDROLL

DG: Welcome back. Today, we’re talking about private equity in health care … and new research that challenges – at least a little – the narrative that PE is ruining health care.

A working paper published last fall shows that care seems to improve for patients after PE invests in fertility clinics.  

To help us put this study into context, and hear how regulators are trying to protect patients from investors’ worst abuses, we talked to Yashaswini Singh. 

Yashaswini Singh (YW): I’m a health economist and assistant professor at Brown University.

DG: So look, Yashaswini we focused in the first half of our episode on a couple of areas where private equity investors have been active – nursing homes and fertility clinics specifically. 

But we also know private equity firms have their hands in lots of pots. For example, they own more than 400 of the country’s hospitals, and they oversee like a third of the country’s emergency room docs. 

What’s one number? Uh, or a couple of numbers that. Leave you feeling concerned about private equity in health care.

YW: Yea, I have a couple of numbers for you. So the first is in 2000. We had about 5 billion with a B invested in health care by private equity firms. By 2018, this increased to 100. And just in the past decade we’ve seen over a trillion with a T dollars invested in health care.  

DG: I’m so sorry to interrupt you. $1 trillion. 

YW: $1 trillion with a T. And so if folks are asking questions about where are these investments being made, what sectors, what geographies, how is it affecting the physician workforce and patient health and patient well-being? I think we’re right to be asking those questions because there’s a lot of money at stake.

DG: And as we heard earlier in the show some of the effects of private equity can be disastrous.

The situation with the hospital chain Steward Health and the nursing home study showing a higher mortality rate.

Now, though, Yashaswini, here comes this paper on IVF clinics. And it suggests PE may be improving care for people. What do you make of that study?

YW: So this is really striking, right, and important for us to consider, because a lot of the media coverage and a lot of the policy attention on the effects of private equity, or even the effects of corporatization more broadly tend to focus on the bad actors or the horror stories. But as researchers, it’s so important that we take this sort of agnostic approach towards these questions and just let the data tell our story.

DG: That tees out my next question perfectly. Yashaswini. Thanks. I mean, in your own mind, how much does the IVF study challenge that pervasive narrative that’s out there that bankers are basically villains running all of health care.

YW: So I like to say, if you’ve seen one private equity transaction, you have only seen one private equity transaction. And what I mean by this is the private equity playbook is so different across different types of settings, where care is provided. It’s really hard to generalize the findings from one area, for example, fertility care to another, for example, long term care. So in order to generalize to other settings, I think we would need a lot more data. we need a better understanding of how private equity operates. And to have this understanding, we need better data.

DG: So what you’re talking about there is transparency. And that is the first of three steps that regulators are taking to try and protect patients and health care businesses. Let’s talk about this for a minute. The federal government is now requiring hospitals and nursing homes to disclose their owners. 

But it can still be hard to know, for example, if PE firms invest in your doctor’s practice. Yashaswini, why is getting more transparency from PE so important in your mind? 

YW: It’s important for a lay person, let alone researchers and patients and policy makers, to track who are the entities that ultimately shape the way medicine is practiced. At present, there are no systematic reporting requirements. And as a result, we are at a situation where we have an incomplete picture of PE and we are likely underestimating its effects. So first and foremost, I think we need to agree on the magnitude of the problem and to agree on the magnitude of the problem. We need better data on ownership.

DG: The second step that policymakers are taking right now is more closely scrutinizing mergers and acquisitionsThis is not so relevant for nursing homes anymore, because that wave of consolidation happened in the early 2000s. But PE firms’ newer interest is in physician practices.   

So, Yashaswini, what is this focus on keeping markets competitive signaling to private equity firms?  

YW: The signal that the regulatory focus by antitrust authorities sends is, you know, private equity, you better watch out, because the growth model that has been so successful across so many physician specialties radiology, emergency medicine, anesthesia, primary care, cardiology, behavioral health, you really name it. It’s from cradle to grave. That growth model is no longer going to escape the scrutiny of the authorities. 

DG: When I hear that policy fixes are trying to block future deals and greater transparency – that still leaves me feeling pretty vulnerable, at least as a patient.

I’m still thinking about skeleton crews working in nursing homes and patients missing out on basic care like getting bathed. What is being done now to safeguard patients from PE firms’ aggressive moves that have led to bad care? 

YW: One policy action that has great potential to help patient care or the patient experience is to regulate PE firm’s ability to cut staffing in ways that can harm patient care. And we’ve seen the Biden administration do just that in the setting of nursing homes. So potentially having minimum staffing standards or paying closer attention to adequate staffing is something that can be expanded on in other areas of care as well. 

DG: Ok, there’s still a lot that is unknown, uh, around this rapidly evolving trend in health care around private equity and private investment really more broadly. You’re the researcher. What’s the next question you are hoping to answer?

YW: So we’ve spent a lot of time today talking about private equity, but it’s certainly in no means the only type of corporate investor in health care these days we’ve seen acquisitions of physician practices by health systems for decades but also more recently health insurers and retail companies like Amazon and Walmart and so on. So the key question is should we be concerned about private equity any more or less than these types of, um, traditional entities and health care like health systems? I think the jury is still out. And we need, again, a lot of better data to get to the heart of these questions.

DG: Here’s the final question, Yashaswini. All of the steps you’ve outlined that policymakers are taking – antitrust, transparency, the nursing home staffing numbers – all feel kinda small.

Are we swinging big enough to ensure that we see fewer things like Steward and that nursing home paper?  

YW: That’s a great question, but also a really hard question to answer. And I and I do agree on their own. These policy efforts might seem small and around the periphery, and it might seem like we’re playing a game of whack a mole. You know, we’ve seen PE firms use so many different tactics across settings where care is provided, from surprise billing and out of network billing in anesthesia and emergency medicine, to playing around with staffing levels in nursing homes and using real estate leasebacks and hospitals. The list goes on and on.

If we beef up policy and enforcement along each of these dimensions, I am hopeful that it will make a difference. At the same time, though, I think we do need to be aware that given that PE can be so sophisticated in finding and exploiting loopholes, it’s really important that policy makers are nimble and ready to adapt to whatever the new wave or the new flavor of private equity investments in healthcare might look like.

DG: Yashaswini, thank you so much for taking the time to talk to us on Tradeoffs.  

YW: Thank you for having me.

DG: Federal agencies are trying something new to learn about private equity’s impact in health care. They are asking patients and health care workers to explain how care has changed after PE has entered the picture. 

They say they will investigate any serious complaints. 

I’m Dan Gorenstein, This is Tradeoffs.