Private Equity Buyouts in Healthcare: Who Wins, Who Loses?

Abstract

Private equity firms have become major players in the healthcare industry. How has this happened and what are the results? What is private equity’s ‘value proposition’ to the industry and to the American people -- at a time when healthcare is under constant pressure to cut costs and prices? How can PE firms use their classic leveraged buyout model to ‘save healthcare’ while delivering ‘outsized returns’ to investors? In this paper, we bring together a wide range of sources and empirical evidence to answer these questions. Given the complexity of the sector, we focus on four segments where private equity firms have been particularly active: hospitals, outpatient care (urgent care and ambulatory surgery centers), physician staffing and emergency room services (surprise medical billing), and revenue cycle management (medical debt collecting). In each of these segments, private equity has taken the lead in consolidating small providers, loading them with debt, and rolling them up into large powerhouses with substantial market power before exiting with handsome returns.

Profiting on Crisis: How Predatory Financial Investors Have Worsened Inequality in the Coronavirus Crisis

“…Patients are less likely to control which physicians treat them at the emergency room, increasing the likelihood that they will be charged high out-of-network and surprise bills ( Appelbaum & Batt, 2014 ; Cooper et al, 2020 ). Eileen Applebaum and Rosemary Batt (2020) found that bills from the health care groups Envision Healthcare and TeamHealth, owned by the private equity behemoths Blackstone and K.K.R., accounted for considerable increases in surprise medical bills. Private equity buyouts also have had negative impacts on patient health and compliance with care standards at nursing homes ( Gupta et al, 2020 ).…”

For-Profit Hospitals Out of Business? Financial Sustainability During the COVID-19 Epidemic Emergency Response

“…11 The PE-owned hospitals are often the most debt-inflated providers. 12,13 Because of their high debt-to-equity ratios, they depend on a constant cashflow. Moreover, PE firms usually have short time horizons: they seek to sell companies with a decent profit after a limited period.…”

“…For example, HCA has a solvency rate of -13% in 2018 and Tenet Healthcare has a rate of -1%, whereas Universal Health Services has a rate of 48%. 5 (This may however be explained by the previous involvement of PE in HCA and Tenet Healthcare 13 ). Due to the pandemic, it will be more difficult for PQ hospitals to raise funds on the stock market.…”

“…This may make the ASC sector relatively vulnerable to financial distress in the forprofit sector. Although it is challenging to obtain data on the ownership status of the different ASCs in each country, we do know that in the United States and Poland a number of ASC chains are PE-owned, 13,14 and this could make these sectors more vulnerable.…”

“…Leverage buyout increased from 5% in 2000 to 14% in 2018%. 13 Although the involvement of PE funds in the UK seems to be more active in the long-term care sector. They are also active in the hospital sector.…”