One of the first articles I ever wrote was about private equity in healthcare (Private Equity Chases Ambulances, The American Prospect), so I was very excited to get to testify in front of the New Mexico state legislature this week on that very topic.
I wrote about 3700 words on the topic for my testimony, but I’ll spare you from the brunt of it. In short:
The wrong incentives
Private equity firms often present themselves as a solution to struggling providers to bring new investment into the system. However, private equity firms are structured to make a return on their investment as quickly as possible. The incentive is not for long-term community investment but for a quick stripping of the acquired asset to turn a profit within a few years. This often leaves practices and hospitals worse off than before, and it can leave patients with nowhere to turn.
The PE model incentivizes value extraction, rather than value creation. PE shops are not sticking around to make long-term bets about keeping communities healthy. Instead, they’re making money with the most extractive, quickest means possible.
Standard strategies include selling the real estate under which a practice sits — and then leasing the land back to the practice at an exorbitant rate (also known as sale-leaseback), extracting management fees from the practice, consolidating back-office functions, cutting staffing and labor hours, raising prices, and aggressively billing patients.
None of these strategies are intended to make the hospital or physician practice run more smoothly or efficiently, and none of them represent investment in the future of the practice — because again, the PE model is explicitly premised on not being around for the future, but making as much money as possible in the short term.
Investing in healthcare while underinvesting in providers
A major talking point by those in favor of PE acquisitions of hospitals is that it can rescue struggling assets and maintain patient access to care. But a growing body of evidence shows that the care provided by PE-owned hospitals is inferior to that provided by other hospitals. A JAMA study from 2023 found that Medicare beneficiaries admitted to private-equity owned hospitals experienced a 25% increase in hospital-acquired conditions compared to those treated at control hospitals, including a 27% increase in falls and a 37% increase in certain infections.
A common PE tactic is decreasing staffing (which I would speculate is behind the increases in falls and infections). This also makes things worse for providers: a 2024 survey of doctors by the Physicians Foundation found that over two-thirds of respondents said consolidation was impacting patient access in a negative way. Half of physicians reported that a merger or acquisition reduced their job satisfaction.
Hospital closures
Hospitals are regionally interconnected infrastructure. When a private equity-owned system accumulates heavy debt, it can be vulnerable to insolvency or forced asset sales that disrupt continuity of care. Private equity ownership strips health systems of their cash on hand (one study found that nursing homes’ cash on hand declines by an average of 38% after an acquisition) and of their capital assets (a 2024 study in JAMA found that two years after acquisition, 61% of the private equity-owned hospitals in the study had reduced capital assets compared to 15.5% of control hospitals). Because of the sale-leaseback model, nursing home lease payments go up by an average of 75% post-buyout.
Private equity-backed companies have been involved in 7 of the 8 largest bankruptcies in healthcare. Private equity is also behind 21% of all bankruptcies in healthcare in 2024.
Pushback
By my own estimation, many of the members of the legislature were at least receptive to this testimony. Many of them have heard themselves from providers, patients, and hospital leaders who feel like they’re being taken advantage of. The strongest pushback was in two categories:
I work for an advocacy organization that’s anti-PE (I do! I’ve been pretty open about that.)
Health systems are struggling and need investment — any investment.
The latter point is more legit. I did (and would continue) to argue that courting capital for which the incentive is essentially pumping and dumping hospitals is a bad idea. But many health systems are struggling, and PE can seem like an easy way out. I’ve been working on an article (for a long time) about alternate sources of capital, so if you have thoughts, let me know. In the meantime, I’ll leave you with an article about a Wyoming town that banded together to open a competitor after PE destroyed their original community hospital.
Now what?
Oregon is an instructive example. It has had a corporate practice of medicine law on the books since 1947, requiring that clinics be at least 51% owned by licensed medical providers. However, private equity acquirers were using management services organizations, or MSOs, to exercise operational control over professional clinical organizations, or PCs. MSOs are often used to streamline a practice’s administrative functions and can be useful — but private equity firms were leveraging MSOs to take charge of clinics.
This year, Oregon strengthened its corporate practice of medicine (CPOM) law by preventing MSOs from exercising operational control over PCs, or owning or controlling a PC with which the MSO has a contract. Notably, this does not ban private equity investment altogether. Investors are allowed to own up to 49% of a practice — but they cannot hold a controlling stake. This allows investment while preventing some of the more egregious harms.
There are other options that might help too, including state-based site-neutral payments, banning non-competes, and requiring PE firms (or other acquirers, for that matter) to provide assurances that they won’t, for example, raise prices or cut staff for a certain number of years. These are difficult options — but losing a hospital or practice to a consolidator with no incentive to care about the patients or providers, I would argue, is worse.