If you’re on Medicare and you’re going to be treated in a hospital, you might want to think twice before checking into one owned by a private-equity fund. There’s a good chance they’re skimping on hygiene and safety in order to squeeze out every nickel of profit.
That, at least, is the implication of a new study conducted by researchers at Harvard Medical School and the University of Chicago’s department of public health science. They looked at the cases of 660,000 Medicare beneficiaries who were admitted to 51 hospitals owned by private-equity funds between 2009 and 2019. Then they looked at 4.1 million Medicare beneficiaries admitted to comparable hospitals owned by other entities, such as nonprofits, over the same period.
What they found was shocking.
Those who were treated in hospitals owned by private-equity funds were 25% more likely to be injured or to acquire an infection during their stay than the others were.
They were 27% more likely to suffer injury from a fall. They were 38% more likely to pick up a blood infection from a central line into their bloodstream. They were twice as likely to acquire an infection from surgery.
The report has just been published in the Journal of the American Medical Association.
“Private equity acquisition of hospitals, on average, was associated with increased hospital-acquired adverse events despite a likely lower-risk pool of admitted Medicare beneficiaries, suggesting poorer quality of inpatient care,” Harvard physicians Sneha Kannan and Zirui Song and University of Chicago epidemiologist Joseph Dov Bruch write. “After private equity acquisition, Medicare beneficiaries admitted to private equity hospitals experienced a 25.4% increase in hospital-acquired conditions compared with those treated at control hospitals.”
This isn’t the first report to raise concerns about private-equity ownership of an entity that provides care. Two years ago, a study found that checking into a nursing home owned by private equity increased a person’s chances of dying quickly by about 10%.
The American Investment Council, the trade organization and lobby group for the $4.5 trillion private-equity industry, responded furiously.
It dismissed the research report, called Arnold Ventures, one of the three organizations that funded it, was “an agenda driven organization.”
Arnold Ventures, a nonprofit founded by a retired hedge-fund billionaire from Texas, describes its mission as seeking “evidence based solutions” to problems. Its honchos include a former aide to Paul Ryan, the conservative Republican former speaker of the U.S. House of Representatives.
The new report “fails to reflect private equity’s role in bolstering healthcare delivery in hospitals across the country, leaving readers to draw inaccurate conclusions about private equity’s limited investments in the sector,” the AIC said.
“The private equity industry plays an essential role in providing local hospitals with the capital they need to improve patient care, expand access, and drive innovation,” the AIC’s president and CEO, Drew Maloney, said in an emailed statement. “This research doesn’t reflect private equity’s full record of strengthening healthcare across the country.”
The organization also cited other research that contradicted the new report or came to different conclusions, including a report from the nonprofit European Corporate Governance Institute and research published in JAMA Internal Medicine in 2020 that found that hospital takeovers by private equity typically resulted in “improvement in some quality measures,” along with higher prices and bigger profit margins.
What the AIC did not say, but could have done, is that hospitals run by private-equity funds are probably a mixed bag, and that there are plenty of bad hospitals run by nonprofits. I happen to be writing this article from Great Britain, where the hospitals are run by the government — including the one that let killer nurse Lucy Letby run amok for years.
That said, the people running private-equity funds face a special challenge that gives them a huge incentive to slash costs as much as possible. In order to keep attracting money from investors — including state and local pension funds — they have to produce overall investment returns that are competitive with what someone can earn from simple, low-cost stock-market index funds. But unlike the managers of those index funds, private-equity managers deduct enormous fees.
To square this circle, they have to earn gross returns that are spectacular — beating the market by as much as 50% per year. So if they end up slashing hospital costs to the bone, no one should be surprised.