Private equity firms see considerable profits in healthcare, often at the expense of patients and families. Profit is a crucial driving focus of many businesses. Although private equity investment in health care could lead to improvement by injecting needed capital, a pressing concern is that many private equity firms often operate on the model of buying and quickly selling for a substantial profit within three years.
Private equity companies pool money from wealthy investors to buy their way into various industries, often slashing spending and seeking to flip businesses in three to seven years. While this business model is a proven moneymaker on Wall Street, it raises concerns in health care, where critics worry the pressure to turn big profits will influence life-or-death decisions that were once left solely to medical professionals.
Nearly $1 trillion in private equity funds have gone into almost 8,000 healthcare transactions over the past decade, according to industry tracker PitchBook, including buying into medical staffing companies that many hospitals hire to manage their emergency departments.
Two firms dominate the ER staffing industry: TeamHealth, bought by private equity firm Blackstone in 2016, and Envision Healthcare, bought by KKR in 2018.
These staffing companies have been among the most aggressive in replacing doctors to cut costs, said Dr. Robert McNamara, a founder of the American Academy of Emergency Medicine and chair of emergency medicine at Temple University.
“It’s a relatively simple equation,” McNamara said. “Their No. 1 expense is the board-certified emergency physician. So they will want to keep that expense as low as possible.”
Nursing Homes suffer as well under P/E
Since the turn of the century, private-equity investment in nursing homes has grown from five billion to a hundred billion dollars. The purpose of such assets—their so-called value proposition—is to increase efficiency. Management and administrative services can be centralized, and excess costs and staffing trimmed.
In the autumn of 2019, Atul Gupta, an economist at the University of Pennsylvania, set out with a team of researchers to measure how these changes affected nursing-home residents. They sifted through more than a hundred private-equity deals between 2004 and 2015 and linked each sale to categories of resident outcomes, such as mobility and self-reported pain intensity. The data revealed a troubling trend: when private-equity firms acquired nursing homes, deaths among residents increased by an average of ten percent. “At first, we didn’t believe it,” Gupta told me. “We thought that there was a mistake.” His team reëxamined its models, testing the assumptions that informed them. “But the result was very robust,” Gupta said.
A New York Times investigation from 2007 found that quality often deteriorated at nursing-home chains acquired by large private investors, including top-tier private-equity firms such as Warburg Pincus and the Carlyle Group. Congressional scrutiny heightened, culminating in Affordable Care Act provisions encouraging nursing homes to report ownership relationships and financial ties. Still, this year’s National Academies of Science, Engineering, and Medicine report concluded, “it is clear that such transparency has not occurred.”
Hospice care, once provided primarily by nonprofit agencies, has seen a remarkable shift over the past decade, with more than two-thirds of hospices nationwide now operating as for-profit entities.
According to a 2021 analysis, the number of hospice agencies owned by private equity firms soared from 106 of 3,162 hospices in 2011 to 409 of the 5,615 hospices operating in 2019. Over that time, 72% of hospices acquired by private equity were nonprofits. And those trends have only accelerated into 2022.
With limited oversight and generous payment, the industry is at high risk for exploitation. Agencies are paid a daily rate for each patient — this year, about $200 — which encourages for-profit hospices to limit spending to boost their bottom lines. For-profit hospices tend to hire fewer employees than nonprofits and expect them to see more patients.
According to the Medicare Payment Advisory Commission, for-profit hospices had Medicare profit margins of 19% in 2019, compared with 6% for nonprofit hospices.
There are three critical ways that hospice profits are maximized. These include decreasing visits to hospice patients by professional staff or the use of less-skilled persons for visits, shifting the cost of expensive medications to Medicare Part D, and enrollment of persons who are anticipated to have a longer length of stay and less need of intensive hospice services.
The increasing presence of private equity firms in hospice care concerns how it affects hospice patients and those who care for them. It also relates to how it might affect the next generation of physicians specializing in palliative medicine. Hospices often employ these physicians to provide nonhospice palliative care to patients who choose not to enroll in hospice or are not qualified for hospice under the Medicare hospice rule, often with a prognosis of 6 months and having expected medical care to hospice patients. Because Medicare poorly reimburses nonhospice palliative care services, six hospice organizations must often provide palliative care at a financial loss on the promise that palliative care consults will lead to a referral at that hospice when a patient’s disease progresses. Young physicians and other health care professionals working for hospices owned by private equity firms may well be faced with concerns about the quality of care vs. profits and find themselves in situations in which they feel that to provide care; they need to look the other way, rationalizing that providing some care is better than no care.
To protect people who need hospice care, Congress must urgently provide oversight for this vulnerable population.