Recent Study Suggests Private Equity Ownership Associated with Higher Payer Costs

Sarasota, FL (WorkersCompensation.com) – According to a recent PwC analysis, last year saw an overall 6 percent increase in healthcare costs, and analysts are projecting a 7 percent for next year. Drug pricing and staffing shortages have been a direct contributor in higher medical costs. However, there is some indication that consolidation of providers could play a much bigger role, with potential impact to both patients and payers.

The number of physicians employed by hospitals or corporations increased from 62 to 74 percent the last couple of years. According to a recent Bain & Company report, the number of private equity acquisitions of healthcare providers dropped from 515 acquisitions in 2021 to 350 in 2022. Last year was still strong however, with more than 40 deals valued above $500 million, indicating that healthcare is seen as a lucrative business for investors.

In 2021, the Medicare Payment Advisory Commission (MedPAC) estimated that around 4 percent of hospitals, 11 percent of nursing facilities, and 2 percent of provider practices were owned by private equity firms. The goal on the face of these acquisitions, which are usually have a 5 to 7 year turnaround time, is to make the provider more profitable by reducing costs through pooling labor and resources, and increasing revenue by streamlining service lines. Another tool for profitability is the use of real estate to provide opportunities to reduce corporate taxes through real estate investment trusts.

While all of this may sound good on paper, according to a recent study from researchers at the University of Chicago, private equity deals may actually be increasing costs for both patients and their payers, and the facilities themselves. Published earlier this month in BMJ, researchers found that private equity acquisition was associated with increased negotiated prices between hospitals and private insurers.

esearchers also noted an increase of 26 percent in contract rates for physician management companies.
In addition to increased payments, multiple areas of quality, outcomes, and operating costs were impacted as well. The researchers found that hospitals had declines in quality scores during post-acquisition expansion. While the average cost per patient discharge significantly decreased 2 years post-acquisition, the researchers noted that patient satisfaction scores decreased, and researchers saw a reduction in the number of services that were offered.

Private equity nursing homes were associated with lower RN hours per patient day, but higher LPN and CNA hours per patient day. It’s interesting to note that CNA hours decreased with each year of new private equity ownership. While the nursing facilities owned by private equities were less likely to be reported, those firms had worse scores for quality metrics for bedsores, and restorative ambulation. Additionally, these facilities saw an 11 percent higher operating cost per patient.

Overall, the researchers concluded from their cursory review that private equity ownership has affected almost all healthcare settings, and is often associated with increased costs to payers and patients, as well as harmful impacts on quality. They believe the results of the study call for a closer look into private equity ownership of healthcare entities.

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