Is private equity ruining health care? It’s complicated

After fertility clinics were bought by corporate chains that had financial backing from private equity firms, the clinics got better at helping their patients get pregnant and have babies, a recent study found.

That good news runs counter to the common critique that private equity funding is bad for health care.

WHY IT MATTERS: Nationally, over the last decade, PE firms have poured about a trillion dollars into buying hospitals, nursing homes and physician practices and other health care businesses, according to Pitchbook— roughly 8,000 transactions, all told.

• Critics of the PE funding model — which makes money for investors by squeezing businesses to be more efficient, usually for a quick sale — say it prioritizes profits over patient health. 
• Research has found that people being treated in hospitals owned by private equity firms are more likely to fall or get infections, and residents of nursing homes owned by PE firms are 10% more likely to die. In a study of more than 1,600 PE-owned nursing homes that were tracked by researchers for 12 years, that translated to 20,000 premature deaths.

WHAT THE STUDY OF FERTILITY CLINICS FOUND: Fertility care may be an exception to private equity prioritizing profits over medical care, according to the study of in vitro fertilization clinics out of the University of California, Berkeley and Copenhagen Business School. IVF success rates increased by more than 13% after acquisition by a fertility chain. Most of those chains were funded with private equity money.

“I think it's really easy to vilify corporate entities, in part because of a lot of the negative public sentiment, and that can make it difficult to tell and to publish a more nuanced story,” said UC Berkeley economist Ambar La Forgia, who led the study.

THE BIG PICTURE: Fertility care is scheduled in advance and typically paid for by patients out-of-pocket. That means patients are motivated to shop around, based on a clinic’s price and success rate, La Forgia said, which encourages investors to spend more on the best labs, techniques and on standardizing care.

• “Fertility clinics seemed to operate a lot more similarly to the retail and service sector than they do more traditional health care settings,” La Forgia said.
•  The economist suspects that patients of other medical specialties that have similar market dynamics — such as dermatology or physical therapy — might see similar benefits from private equity funding. 

LIMITS TO THE LESSONS: IVF patients tend to be young, healthy and relatively well-off, so they are better positioned to find good care. But other, more vulnerable people — such patients in a nursing home — have much less choice about where they get care, and often “can’t be their own watchdog,” said Rachel Werner who heads the Leonard Davis Institute of Health Economics at the University of Pennsylvania. That vulnerability allows private investors to more easily slash staff and cut corners to extract profit, she said.

WHAT TO WATCH: With an estimated 460 U.S. hospitals now owned by private equity firms, plus hundreds of nursing homes, and more than a thousand physician practices and hospices, federal and state regulators have started taking a harder look at PE purchases of health care organizations.

• U.S. senators are now looking intohow private equity firms are affecting hospital and substance abuse care.
• One recently proposed bill would give the U.S. Department of Health and Human Services greater oversight of health care mergers and acquisitions. 
• Since PE firms have typically not had to disclose which health care groups they own, the effects of such ownership have been tough to track. Some states, including California, Massachusetts and Indiana, are trying to get more visibility into PE ownership with new reporting requirements. Oregon is even stricter, requiring a review of the likely impact on the care’s cost and quality, and a sign-off by state officials. 
• One common PE strategy to amass market power has been to acquire and “roll up” lots of small medical practices over time into a mega-practice. Individually these purchases would be too small to register on regulators’ radar. But last year, the Federal Trade Commission announced it would be investigating these deals, too.
• The FTC targeted this roll-up strategy in a first-of-its-kind lawsuit last September. The agency sued a jumbo medical practice, U.S. Anesthesia Partners, as well as its private equity backer. Regulators alleged the two companies worked together to monopolize the anesthesia market and jack up prices across several large Texas cities.
• This week, a federal judge dropped the PE firm from the case, ruling that it’s just an investor and not on the hook for the anesthesia company’s actions. But the judge is allowing the case against the medical practice to continue. Brown University economist Yashaswini Singh told Tradeoffs the judge’s ruling means the agency will keep targeting the underlying strategy. “Rollups have just gotten riskier,” Singh said, “and PE is on notice.” 

This story comes from the health policy podcast Tradeoffs. Dan Gorenstein is Tradeoffs' executive editor, and Alex Olgin is a reporter/producer for the show, where this story first appeared. Sign up for Tradeoffs' weekly newsletter to get more health care reporting in your inbox.

Side Effects Public Media is a health reporting collaboration based at WFYI in Indianapolis. We partner with NPR stations across the Midwest and surrounding areas — including KBIA and KCUR in Missouri, Iowa Public Radio, Ideastream in Ohio and WFPL in Kentucky.