Study shows PE-owned hospitals increased charges, profitability while some care metrics improved

Dive Brief:

  • Private equity investment appears to have an impact on the way hospitals conduct business, resulting in significantly higher charges and huge surges in profitability, according to a new study in JAMA Internal Medicine.
  • Researchers from Harvard Medical School, the Harvard T.H. Chan School of Public Health and Massachusetts General Hospital compared the operations of 204 hospitals owned by PE firms against 532 hospitals that were not operated by such firms (although some were also eventually bought out by for-profit firms as well, specifically HCA Healthcare).
  • The researchers also saw an improvement in patient outcomes at PE-owned hospitals for some of the more common ailments treated in the hospital setting, although this may have in part been offset by the fact they treated fewer Medicare patients after PE acquisitions and focused on more privately insured patients to boost revenue and margins, or as the authors observed, “efforts to maximize opportunities for quality bonuses under pay-for-performance contracts.”

Dive Insight:

The amount of private equity money in healthcare deals more than tripled over the past five years, and that sector still sees big bounties ahead.

PE firms have been acquiring not just acute care facilities, but also medical practices and even oncology providers. The JAMA Internal Medicine study tends to confirm that PE-acquired providers become even more laser-focused on financial outcomes.

According to the study, the 204 PE-owned hospitals had annual net income averaging $8.5 million prior to their acquisition. After they were bought, net income rose to $12.9 million, a increase of nearly 52%. By comparison, the control hospitals had average net income of $7.7 million per year.

Total charge per inpatient day at hospitals prior to a PE-acquisition was $5,789 (compared to $5,583 for the control group). However, that rose to $7,766 after the deal was closed, an increase of more than 34%. Ratios for emergency care charges compared to the actual cost of care rose from an average of 3.81 to 5.52. Medicare discharges dropped from 40.3% of patients to 36.8%, while Medicaid discharges dropped to 12.2% from 13.2%.

However, quality of care in some categories improved at the PE-owned hospitals. Before such a deal, 75.2% of heart failure patients received quality care; that rose to 93.6% after an acquisition. Among heart attack patients, it rose from 89.3% to 97.5%; and among pneumonia patients, it rose from 73.7% to 95.4%. The control hospitals all had slightly higher scores compared to the PE-owned group prior to their acquisition.

The study’s authors concluded that “policy makers should consider monitoring or thoughtful oversight of changes in care delivery and billing practices in hospitals acquired by private equity firms to ensure proper stewardship of societal resources and the prioritization of patient interests.”

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