Private equity firms — billion-dollar Wall Street investment groups — are buying hospitals, emergency rooms, and healthcare practices at alarming rates.
Their aim is to maximize profits then self-off the practices and deliver major returns to shareholders. This is driving up costs and negatively impacting quality and safety.
In 2019, private equity's health care acquisitions reached $79 billion. 2018 was the first time ever in the US that more doctors were employees than owners of their practice. And since 2010, private equity investment firms have spent more than $580 billion to acquire health care practices.
Why Private Equity is Bad for Healthcare
The biggest problem with private equity’s involvement in medicine is that the best health care and the biggest returns are often at odds with each other.
In order to deliver the high returns demanded by investors prices have to be raised and costs have to be cut.
That’s why, for example, treatment from a private-equity-owned freestanding emerging room (ERs) can be 22 times more expensive than at a physician’s office, according to the Harvard Business Review (HBR).
The profit-driven focus of private equity firms can also impact quality and safety.
Zirui Song, MD, Ph.D., assistant professor of healthcare policy at Harvard Medical School told Medical Economics that private equity’s “need to derive a large financial return… could change the way patients are diagnosed or treated if those decisions are influenced by the need to generate a financial return.”
Dr. Song also worries that there may be incentives for doctors to use certain services that are costlier or to refer to providers or labs that are also owned by the private equity firm.
Private equity also causes insurance premiums to rise. Not only do premiums have to cover the increased costs demanded by these investors, private equity groups can buy up multiple practices in a region, merge them into a large conglomerate, and then use their market power to extract bigger payments from insurers. Those bigger payments are passed on to policy holders in the form of higher premiums.
Because of private equity’s involvement in health care, patients are paying more and potentially receiving worse care while investors maximize their returns.
More can and should be done to curtail the role of Wall Street investors in health care. That starts with removing the incentives – like the billion dollar surprise billing epidemic – that causes private equity to get involved in health care in the first place.