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Impact of Private Equity on US Healthcare

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Private equity is increasingly influential in US healthcare, with unclear consequences. Leveraging unique data sources and difference-in-differences designs, we examine the largest private equity hospital takeover in history. The affected hospital chain shifts its advertising strategy and pursues joint ventures with ambulatory surgery centers (ASCs).

Inpatient throughput increases by allowing more patient transfers and capturing more patients through the emergency department. The hospitals also manage shorter, less treatment-intensive stays for admitted patients. Outpatient surgical care volume declines, but remaining cases focus on higher complexity procedures. Importantly, behavior changes persist even after private equity divests.

Introduction to Private Equity in Healthcare

A specific sector of the US economy that has been a prominent and growing target for private equity funds is healthcare. In 2018 alone, $100 billion of private equity funding flowed into the sector—a roughly 20-fold increase compared to two decades prior. Over the past ten years, nearly $800 billion of private equity capital has been invested in US healthcare companies.

The aggressive push by private equity into healthcare is consistent with the industry perception that the opportunities and performance of these assets tend to eclipse non-healthcare companies within many private equity portfolios. However, various industry participants, experts, advocates, and regulators have voiced concerns, noting that private equity’s business objectives could conflict with patients’ best interests.

Private equity’s strong profit motives, coupled with set financial endpoints over relatively short time horizons, create incentives that may encourage rent-seeking behavior and efforts to distort provider agency away from what is optimal for patients. On the other hand, private equity could benefit healthcare firms by providing needed capital infusions and improving business management, potentially strengthening performance over the longer run. Given the ambiguous possibilities for private equity in US healthcare, a nascent literature has emerged to empirically examine their implications.

Hospital Corporation of America (HCA)

A complementary set of studies on private equity investments involves US hospitals. In November 2006, financial history was made when Bain Capital, Kohlberg Kravis Roberts (KKR), and Merrill Lynch Global Private Equity collectively acquired the Hospital Corporation of America (HCA) for $33 billion. HCA, operating as the largest for-profit hospital chain in the US, remained under private equity control until returning to public markets in March 2011. Despite the clear significance of this acquisition, surprisingly little is known about how this massive private equity takeover affected HCA hospitals.


The arrival of private capital and control led HCA to adopt various new business strategies and deploy available financial resources in new ways among its hospitals. The hospital chain transitioned from committing virtually no advertising funds for outdoor mediums to spending over $1 million per quarter during and after its private equity acquisition.

This marketing shift did not come at the expense of other common advertising mediums and contrasted sharply with other major hospitals and health systems throughout the US. Additionally, HCA began actively investing in ASCs, acquiring new ASC ownership stakes consistently year-over-year, with a peak of 41 investments in 2010 alone.

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Our clinical care findings from affected Florida hospitals indicate that, during private ownership and the return to public markets, there was a focus on increasing inpatient throughput, but not evenly across patient types.

The number of non-pregnancy-related admissions steadily rose, peaking at an approximately 25% increase over baseline levels, while pregnancy-related admissions fell by 13-19%. Higher inpatient volumes were partly due to a sharp doubling of the rate of transfer patients leading up to the 2011 IPO. However, the primary driver of greater hospitalizations was drawing more patients through the hospitals’ emergency departments.

Many of these strategic shifts continued even after HCA reemerged as a public company, suggesting that private equity ownership drives corporate-wide changes expected to be profitable over the long run. Although these findings are inherently tied to a single transaction involving one large hospital chain, the observed effects align with expectations in other settings involving private equity management.



Resource: Science Direct, May 29, 2024

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