The difference in assets between private equity-backed hospitals and all other hospitals after two years is stark.
Private equity can often inject much-needed capital into hospitals, but it can also leave facilities in worse shape than before seizing ownership.
According to a recent study published in JAMA, hospital assets decreased by 24% two years after private equity acquisition, highlighting the destructive effect of private equity’s role in healthcare.
Researchers examined 156 hospitals acquired by private equity from 2010 to 2019 and compared them with 1,560 similar, but not private equity-owned hospitals. Capital assets, which included buildings, equipment, and land, were based on Medicare cost reports from 2006 to 2021.
The findings revealed that the total capital assets at hospitals acquired by private equity decreased by 15% on average in the two years after acquisition, while the assets of the other hospitals increased by 9.2% in the same period, resulting in a net difference of just over 24%.
The decline in assets is attributed to ownership selling off land and buildings to repay investors, leaving hospitals less capable of caring for patients.
“Private equity has been incredibly disruptive in the health system space,” Banner Health CEO Amy Perry recently told HealthLeaders.
Another recent report by the Private Equity Stakeholder Project found that 21% of all healthcare bankruptcies in 2023 involved organizations owned by private equity. The 17 instances more than doubled the number of such bankruptcies from 2019 (eight) and easily surpassed the amount from the past three years combined (13).
The good news for healthcare? Private equity involvement in the industry is slowing down. Private equity-owned providers represent just 3.3% of the country’s total healthcare provider spending, while the first quarter of this year saw a significant drop in private equity dealmaking, according to PitchBook.
“Buying a part of healthcare and trying to make it work on its own is extraordinarily difficult and that's where people have kind of failed,” Perry said. “They get in, they are in one little slice, but that one little slice has to work with payers, has to work with pharma, has to work with suppliers, has to work with this crazy reimbursement system we have and I think that’s when the reality of all of that comes together. The complexity, the amount of work it takes to make those deals profitable becomes a little less exciting.”
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Hospitals owned by private equity see their total capital assets shrink by 15% on average two years after acquisition, compared to an increase of 9.2% for hospitals not backed by private equity, according to a study published in JAMA.
Private equity-owned hospitals often have to sell their land and buildings to repay investors, which hurts their ability to provide the same quality of care to patients.