Private Equity and Nursing Home Care: What Policies Can Be Adopted to Address the Growing Problems?

Abstract

Private equity (PE) firms are private entities that recruit investors, such as pension funds and insurance companies, as limited partners (Batt and Appelbaum, 2021). PE firms have been investing in health care for over 20 years (Government Accountability Office [GAO], 2010). By 2020, health care was the second major sector for PE investment, with $750 billion in health investment deals made between 2010 and 2020 (Scheffler et al., 2021). PE has invested in hospitals, nursing homes (NHs), clinical and outpatient services, medical groups, pharmaceuticals, hospices, home health, and others (Scheffler et al., 2021). PE investors have been widely criticized for loading companies with excessive debt, selling off assets and real estate of acquired companies, failing to provide financial transparency, taking advantage of tax loopholes, and charging high management fees (Batt and Appelbaum, 2021). Moreover, PE companies have consolidated healthcare markets, reduced competition, aggressively focused on revenues, increased overall costs, and reduced quality (Scheffler et al., 2021). PE firms generally are oriented to short-term investment with predetermined expiration dates, typically 4 to 7 years. Investors are promised high earnings, which incentivizes financial engineering strategies (Scheffler et al., 2021).