The worst words in healthcare

The worst words in healthcare are “a private equity firm has acquired us.” Private equity firms make money by buying, gutting, and selling companies. Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t and they are killing patients in the process.

 In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over 12 years, according to a recent working paper from the National Bureau of Economic Research. Similar tales of woe abound in mobile homesprison health careemergency medicineambulancesapartment buildings, and elsewhere. Yet private equity and its leaders continue to prosper, and executives of the top firms are billionaires many times over.

Why do private equity firms succeed when the companies they buy so often fail? In part, it’s because firms are generally insulated from the consequences of their actions and benefit from hard-fought tax benefits that allow many of their executives to pay lower rates than you often, and I do. This means that firms enjoy disproportionate benefits when their plans succeed and suffer fewer consequences when they fail.


Consider the case of the Carlyle Group and the nursing home chain HCR ManorCare. In 2007, Carlyle — a private equity firm now with $373 billion in assets under management — bought HCR ManorCare for a little over $6 billion, most of which was borrowed money that ManorCare, not Carlyle, would have to pay back. As the new owner, Carlyle sold nearly all of ManorCare’s real estate and quickly recovered its initial investment. However, ManorCare was forced to pay nearly half a billion dollars a year in rent to occupy buildings it once owned. Carlyle also extracted over $80 million in transaction and advisory fees from the company it bought, draining ManorCare of money.

ManorCare soon instituted various cost-cutting programs and laid off hundreds of workers. Health code violations spiked. People suffered. The daughter of one resident told The Washington Post that “my mom would call us every day crying when she was in there” and that “it was dirty — like a run-down motel. Roaches and ants all over the place.”

In 2018, ManorCare filed for bankruptcy with over $7 billion in debt. But that was, in a sense, immaterial to Carlyle, which had already recovered the money it invested and made millions more in fees. (In statements to The Washington Post, ManorCare denied that the quality of its care had declined, while Carlyle claimed that changes in how Medicare paid nursing homes, not its actions, caused the chain’s bankruptcy.)

Pharma, too, can be a victim of VCs. Many biotechs are acquired by VCs who sell off assets to sell the drug in development at a considerable profit.

Right now, VCs are focused on hospitals and long-term care facilities, and in the process, they’re hurting patients and making themselves wealthier. If you learn that a VC firm has acquired your company or institution, run for the exit.