Intended for healthcare professionals


US Congress investigates effects of $80bn private equity industry on government healthcare programme

BMJ 2020; 370 doi: (Published 07 September 2020) Cite this as: BMJ 2020;370:m3490
  1. Janice Hopkins Tanne
  1. New York, USA

A US government committee is to examine the role of private equity firms in Medicare, the government health insurance programme that covers 44 million Americans over 65.

Recent research has shown that investments by private equity firms in US healthcare increased from $23.1bn (£17.6bn; €19.5bn) in 2015 to $78.9bn in 2019.1 It found that while takeovers by private equity firms may improve some health outcomes, they can also improve profits—in part by increasing charges to insurers.

The Medicare Payment Advisory Commission is reviewing the evidence, holding public meetings, and interviewing stakeholders on the effects of private equity investments on Medicare after a request from the US House of Representatives Ways and Means Committee. It plans to report to Congress next June.2

The commission is looking at four matters: gaps in Medicare data that make it difficult to track private equity investments; the business models used by private equity firms investing in healthcare; the effect of private equity ownership on Medicare costs, patients, and providers; and the extent of private equity investment in the Medicare Advantage programme. Medicare Advantage provides Medicare benefits through a private insurance company in which participants may be limited in their choice of doctors and hospitals but may receive benefits not covered by standard Medicare.

Interest in the role of private equity firms in healthcare has grown since the demise last year of Hahnemann University Hospital in Philadelphia. The hospital was sold by Tenet Healthcare Corporation to American Academic Health System, an offshoot of Paladin Healthcare, a California hospital management firm that is affiliated with Paladin Healthcare Capital, which invests in the healthcare sector.

Under its new owner, Hahnemann, a 496 bed teaching hospital, went bankrupt and closed, leaving patients to find new doctors and 570 resident physicians to find new hospitals for their training.3

Private equity firms raise capital from corporations or investors such as pension funds to acquire hospitals, physician group practices, laboratories, and medical device companies. They increase the profitability of the acquired organisation by increasing its efficiency or cutting costs, and aim to sell at a profit within three to seven years. The firms project an annual return to their investors of about 20%. The streamlined organisation may be able to demand higher payment rates from insurers, such as Medicare.

Advocates say that private equity firms bring capital and expertise that enable organisations to improve, grow, better deal with regulatory requirements, and standardise patient safety.

But opponents argue that generating high annual returns is incompatible with patient interests and physician professionalism.

Harvard researchers recently compared 204 hospitals acquired by private equity firms between 2005 and 2017 with 532 matched hospitals not acquired by private equity firms in the period three years before and three years after acquisition.1 They reported in JAMA Internal Medicine that the hospitals acquired by private equity firms had increases in annual net income, total charge per patient day, emergency department charges (charges to insurers) per patient day, emergency department charges, and total charges—all compared to costs.

Treatment of acute myocardial infarction and pneumonia improved significantly compared with hospitals not acquired by private equity firms—but the improvement was seen only in hospitals acquired by a subgroup of hospitals owned by HCA Healthcare, which run hospitals and medical practices in the US and UK.

Lawrence Casalino of Weill Cornell Medical College in New York pointed out in an accompanying letter4 that, “For better or worse, the US is moving from a system based on small, independent physician practices to physicians being employed by large corporations (including hospital systems, health insurers, and private equity firms), from small, independent community hospitals to multihospital systems (including hospitals owned by private equity firms), and from small, not-for-profit health insurers to a small number of large national and regional insurers.”

He told The BMJ that, “Hospitals want to fill beds and want physicians who bring in lucrative business.” On the other hand, large medical practices aim to keep patients out of hospitals and thus lower costs because they may gain a bonus from insurers.


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