Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes

Abstract

The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes.With administrative patient-level data, we use a within-facility differences-in-differences design to address non-random targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

Association of Private Equity Investment in US Nursing Homes With the Quality and Cost of Care for Long-Stay Residents

“…26 A second working paper found PE firm ownership to be associated with increased mortality rates and higher costs for postacute patients, declines in five-star ratings, and slightly lower levels of direct care staffing, with the exception of an increase in registered nurse staffing. 25 Relative changes were derived from the sample by dividing the adjusted estimates for all outcomes by the unadjusted mean of the outcomes in the preacquisition period (2012).…”

“…20 The results of prior studies of PE firm ownership and nursing home quality have been inconsistent. 2,3,[21][22][23][24][25][26] To our knowledge, there have been no national studies of the association between PE firm nursing home ownership and the quality and cost of care for long-stay residents. We used a national sample of long-stay nursing home residents from 2012 through 2018 to compare changes in the quality and cost of care for those in PE firm-acquired nursing homes with residents in for-profit nursing homes without PE investment.…”

Association Between Hospital Private Equity Acquisition and Outcomes of Acute Medical Conditions Among Medicare Beneficiaries

“…5,7,[29][30][31] Critics assert that PE firms, unlike other for-profit institutions, have an inherent incentive to favor short-term returns rather than long-term investments (eg, information technologies and care redesign) that would otherwise meaningfully improve population health. 29,32 In certain aspects of health care services, the latter view has been bolstered by important research 13,14,33,34 in nursing homes and outpatient clinical practices. Private equity-owned nursing facilities performed comparably, both in terms of equipment shortages and resident outbreaks, during the COVID-19 pandemic.…”

“…Private equity-owned nursing facilities performed comparably, both in terms of equipment shortages and resident outbreaks, during the COVID-19 pandemic. 14,33 However, cost-cutting measures that led to unsafe staffing ratios resulted in worse patient outcomes, 13 and increased market power has made outpatient practices more costly for payers. 34 Concerns about similar impacts in hospitals are therefore justified.…”

“…The American College of Physicians recently disseminated a position paper calling for greater regulatory transparency and "longitudinal research on the effect of private equity investment on physicians' clinical decision making, health care prices, access, and patient care, including the characteristics of models that may have adverse or positive effects on the quality and cost of care and the patient-physician relationship." 12 Recent work by Gupta et al 13 estimated that PE ownership of nursing homes increased shortterm mortality among Medicare patients by 10%, with concomitant reductions in other measures of patient well-being. In contrast, Braun et al 14 estimated that, despite no consistent impact for spending or procedural volume, prices paid to dermatology practices increased by 3% to 5% after PE acquisition.…”