Private equity investment in health care has markedly increased in recent years. The total disclosed value of private equity deals in health care reached $78.9 billion in 2019, up from $23.1 billion in 2015. Private equity firms use capital from institutional investors and individuals to acquire assets, such as hospitals and physician practices. After acquisition, private equity fund managers use the control offered by their newly purchased ownership stake to increase the value of the asset before selling it generally for a profit, typically in 3 to 7 years. Common strategies to enhance the value of acquired businesses include cutting costs and increasing efficiency.
In North America, the health care provider sector, which includes for purposes of this study hospitals, physician practices, and laboratory services, comprised more than half of all private equity health care deals in 2019. Several factors may explain why health care is attractive to private equity firms. First, demand for health care has historically been relatively stable through economic fluctuations. Second, many healthcare delivery markets are fragmented, presenting opportunities for private equity firms to acquire numerous hospitals or physician practices to consolidate market power and to extract higher payments from payers. Third, private equity fund managers may seek to profit from increasing the efficiency of care delivery in a health care system in which up to a quarter of spending may be waste. To date, private equity acquisitions of physician practices have been noted in specialties such as dermatology, ophthalmology, radiology, and primary care. As practices and hospitals struggle with lost revenue during the coronavirus disease 2019 pandemic, they may become more susceptible to private equity acquisition.
Although prior research has evaluated changes in quality following hospital mergers, little empirical evidence exists on changes in hospital income, use, or quality after a hospital is acquired by a private equity firm, despite the well-documented increase in such acquisitions.
We identified US hospitals acquired by private equity firms between 2005 and 2017 and evaluated changes in hospital income, use, and quality associated with private equity acquisition for 3 years after the acquisition. Because a single acquisition (Hospital Corporation of America [HCA] acquired by Kohlberg Kravis Roberts, Bain Capital, and Merrill Lynch Global) constitutes a significant portion of all hospitals acquired in this time period, we separately analyzed hospitals in the HCA acquisition and those involved in other private equity (non-HCA) acquisitions in subgroup analyses….