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Protesters demonstrate against the planned closure of Hahnemann University Hospital, at City Hall in Philadelphia, Thursday, June 27, 2019. (Associated Press/Matt Rourke)
In Pursuit of Profit

Part 1: In Pursuit of Profit, Private Equity Expanded into Health Care. The Results Raise Concerns about Cost and Quality.

Higher costs for patients. Growing prevalence of predatory billing practices. Widespread cuts to staffing and resources. Early evidence shows that the private equity model seems to value profits over patients, exploiting loopholes to make money.

Michael Friedrich contributed to this report.

For 171 years, Hahnemann University Hospital in Philadelphia cared for some of the city’s poorest residents, serving as a vital safety net and a cornerstone of its neighborhood. After years of financial trouble, cash-strapped Hahnemann sought out a financial savior in 2018 — and in stepped private equity. Within 18 months, without having made significant investments in the facility, the private equity firm announced it would close the historic hospital, laying off thousands of workers, erasing much-needed public health resources for tens of thousands of local residents, and drawing accusations that it had treated Hahnemann as a pure real estate deal.”

Hahnemann is just one example of private equity’s rapid expansion into the health care sector over the past several decades — as investors are buying up hundreds of doctors’ practices, hospitals, and nursing homes in pursuit of high profits. In 2018 alone, private equity firms made 855 deals in health care, investing $100 billion in the sector, a historic high and a 20-fold increase since 2000


Amount private equity invested in health care in 2018 alone, a 20-fold increase since 2000.

Private equity has approached various parts of the health care system in distinct ways, with different outcomes. Several sectors have been particularly affected — hospitals, physician practices, and nursing homes, as well as other profitable and less-regulated sectors, like labs and ambulances. Private equity’s expansion into these sectors often comes with the promise of increased efficiencies and improved care — but evidence supporting these claims is limited as the research continues to catch up with private equity’s rapid growth.

In fact, initial evidence suggests the opposite is true in many cases and that private equity’s growing influence in health care has led to higher costs for patients, an increasing prevalence in predatory billing practices, such as surprise medical billing, and disinvestments in health care infrastructure, resulting in strained resources and lower-quality care at the acquired practices, hospitals, and nursing homes.

The COVID-19 pandemic has further exposed bad behavior as private equity companies furlough and lay off staff and engage in predatory billing and other egregious behaviors, all while continuing to lobby against surprise billing protections to protect the status quo and asking taxpayers for more bailout funding.

There’s a mismatch between the private equity business model and the goal of health care,” said Rosemary Batt, a labor scholar who has long studied private equity. They are not in this to invest in health care and create sustainable care providers or organizations. They are here to gain outsized returns and exit.”

In a three-part series, Arnold Ventures examines the impacts of private equity’s increasing investment in health care, beginning with an overview of private equity’s role in hospitals, physician practices, nursing homes, and ambulances. Part 2 specifically outlines the role of private equity in nursing homes, which have become a hotspot for COVID-19 infections, while Part 3 is focused on the role of private equity in the rise in exploitive surprise medical billing practices that pose even greater harm to families now amid a pandemic and economic crisis.

Private Equity: Reshaping Health Care

Private equity investors initially targeted segments of health care most likely to deliver big returns quickly, namely high-dollar specialty providers like dermatology practices. But in recent years, private equity has expanded into other areas, including local hospitals — where investors have sought to gain monopoly power and drive up prices. Four health care sectors have been particularly affected by private equity’s rapid expansion into health care: hospitals, physician practices, nursing homes, and ambulances.

They just do a really good job of finding nooks and crevices and extracting as much profit as possible,” said Zack Cooper, an Associate Professor of Health Policy and Economics at Yale University who has studied private equity’s impact on health care costs.

Private Equity & Hospitals

Private equity firms typically buy up a company that is struggling and/​or has growth potential and invests in it, loading it up with debt and then extracting value when the firm exits by selling the company or taking it public. In recent years, private equity has applied this practice to hospitals and health systems, such as Hahnemann Hospital in Philadelphia.

This can lead to the purchase of hospitals in high-rent areas and then subsequent sale of the assets and real estate for a large profit. Private equity firms also use a number of other tactics to boost revenue including: cutting staffing and supplies; pressuring providers to see more patients, overprescribe tests, and perform low-value procedures; and using inaccurate billing codes to get inflated reimbursements, a tactic called upcoding.”

Private Equity & Physician Practices

Between 2013 and 2016, private equity firms acquired 355 physician practices — primarily high-earning physician specialties such as anesthesiologists, dermatologists, and emergency physicians. Recent evidence suggests that private equity-backed practices – — like private-equity backed hospitals — tend to engage in harmful practices to extract high prices, such as surprise medical billing and predatory debt collection.

Private equity firms have recently been identified as a driver of surprise medical billing. Surprise billing has gained attention in the last several years, as more patient stories and research emerges – indicating that some providers are charging as much as 800% of Medicare for out-of-network services. In one increasingly common tactic that has drawn greater scrutiny from policymakers in the past year, private equity companies purchase groups of ER doctors and then move them out-of-network, a deliberate attempt to extract higher prices from patients who inadvertently see out-of-network providers. Private equity-backed providers also wield the threat of going out-of-network to extract higher payments from insurers. They often target physician groups that patients have no say in choosing and cannot easily avoid, such as ER doctors or anesthesiologists.

These provider groups often work inside in-network hospitals, and patients rarely realize they’ve been treated by an out-of-network doctor until they receive a large surprise medical bill afterward. 


Surprise Medical Billing Remains a Threat to Patients Amid Health, Economic Crisis

As Congress debates another pandemic relief package, it is imperative that they address surprise medical billing. In a new video, Arnold Ventures explores the problem and the bipartisan support for a solution to end surprise bills.

Private equity also likely participates in a phenomenon known as stealth consolidation — where they amass market power by buying up smaller practices in transactions that don’t meet antitrust oversight thresholds. This consolidation likely leads to higher health care prices.

Private Equity and Nursing Homes

Nursing homes have been another target of private equity, with an estimated 10 percent of nursing homes now owned in some way by private equity. Current evidence raises serious questions about whether the private equity business model is the right fit for nursing homes.

Research by Atul Gupta, Assistant Professor of Health Care Management at the Wharton School, and colleagues has shown that private equity’s expansion into the long-term care industry was linked to overall declines in staffing, increases in patient volume, and worse overall quality of care.

Read more: Part 2: Nursing Homes Have Long Been Targeted — and Gutted — by Private Equity

Private Equity and Other Profitable Sectors

Private equity’s entrance into health care tends to be into more profitable sectors. One prime example of this is air ambulances — another sector where patients rarely have a choice in choosing their provider. The Government Accountability Office (GAO) in a 2017 report found that private equity was increasingly investing in air ambulance companies given the potential for profits in the sector. As a result, patients are seeing egregious bills — some ranging from $28,000 to $97,000 per a Kaiser Health News and NPR investigative series — from air ambulance providers, even when insurance covers part of the bill. News stories suggest that air ambulance companies also engage in predatory debt collection practices, such as pursuing property liens in lieu of unpaid bills.

COVID-19 Exacerbates the Impact of Private Equity in Health Care

While the private equity playbook differs by market and by investment, the end goal appears to be the same: maximize profit and fast.

Private equity-backed providers companies have already benefited from the Congressional and Administration response to COVID-19 — receiving at least $1.5 billion in interest-free loans from the Medicare Accelerated and Advanced Payment Programs (AAP) and likely other bailout funds through various COVID-related funding streams. Despite recent attempts by members of Congress to understand how and if private equity companies may have disproportionately benefited from COVID-19 relief actions, private equity’s impact on the health system may only get worse as the industry struggles with the dual blow of a pandemic and financial crisis.

With hospitals and doctors’ practices reporting dramatic declines in revenue following a slowdown in lucrative elective procedures, private equity may seek to capitalize on the weakened sector, ramp up acquisitions of cash-strapped practices, and further tighten its grip on the industry. But additional private equity growth could further inflate health care costs and lower care quality at a time when the United States needs affordable, accessible and high-quality care more than ever.

Private equity’s promise to drive efficiency into health care is not borne out by the initial evidence so far,” said Mark Miller, Executive Vice President of Health Care at Arnold Ventures. We are seeing higher prices from consolidation; surprise bills for patients; and lower quality. Moreover, private equity firms have not been constructive participants in the policy process — furloughing physicians, lobbying against surprise billing protections, and applying for government bailouts while sitting on large assets — all in the midst of a pandemic. We at Arnold Ventures will pursue research and policies to ensure that private equity and provider consolidation result in improved care delivery and not just higher prices.”