Private Equity, Value-Based Payments, and Hollow Promises

Abstract

As private equity (PE) investors have moved into nearly every sector of the health care system, there is growing debate about the financial industry’s role and its impact. In recent years, a number of media stories have exposed seriously concerning behavior of PE-owned health care facilities and companies (O’Grady, 2022; Pomorski, 2021; Sanger-Katz et al., 2019). Critics also point to recent empirical studies documenting rising prices and reductions in quality under PE-backed healthcare companies. For example, a 2021 report documents how PE-backed mergers and acquisitions have contributed to the stark rise in consolidation and increasing prices, especially in the last decade (Scheffler et al., 2021). Evidence documenting reductions in quality-of-care point to PE-backed nursing homes (Gupta et al., 2021), physician management firms related to surprise billing (Cooper et al., 2018), and PE-backed hospitals (Bruch et al., 2021). This is likely because PE began investing in the nursing home and hospital systems in the early 2000s, allowing for sufficient data to now rigorously study the effect of PE ownership.