How does private equity function in the health care industry?
Partnering or selling to private equity can be an attractive option, Fenne said, especially for health providers looking to retire or for smaller practices that need administrative support or better negotiating power for insurance reimbursements.
But economists and health analysts say there’s still a lot to learn about the short- and long-term benefits and risks of private equity investment.
A 2023 study published in the Journal of the American Medical Association found an increase in “hospital-acquired adverse events” like falls and infections after private equity firms acquired facilities. In a 2023 survey of physicians, more than half of respondents considered private equity ownership worse than independent ownership.
Meanwhile, other reports indicate that these investments can lead to the creation of jobs and stabilize care in certain areas. For example, a 2024 report by the American Investment Council, an advocacy and resource organization, showed that private equity investment was used to open urgent cares in rural Appalachia where hospital closures had occurred.
In written testimony to the U.S. Senate Committee on Health, Education, Labor and Pensions, Drew Maloney, president and CEO of the AIC, argued that there needs to be more private equity investment, not less.
“While some may choose to use private equity as a convenient bogeyman, the committee should focus on encouraging American investment and driving innovation,” he wrote.
This kind of business and ownership model isn’t inherently bad, said Atul Gupta, assistant professor in the Health Care Management Department at the University of Pennsylvania’s Wharton School.
In fact, Gupta said it has potential to be a force for good.
“I think we’ve sort of become conditioned into thinking that they’ll do something wrong, but we must remember that it’s just a creative, high-financial powered incentive model,” he said. “And if we can find a way to align their incentives with society’s incentives, actually private equity is much more efficient and much more creative than other forms of organization.”
The problem, Gupta said, is that those incentives don’t always align and the investments aren’t always successful. In the worst cases, clinics have shut down, hospitals have closed services and some systems have filed for bankruptcy.