The expansion of private equity (PE) in healthcare has been a significant development over the past decade, and it’s important to consider its impact on healthcare delivery and its potential in shaping future healthcare policies.
Private equity in healthcare refers to the investment by private parties in healthcare facilities, which can range from physician practices to hospitals and other healthcare services. The key characteristic of these investments is their for-profit nature, distinct from public, investor-owned organizations that trade on stock exchanges and are subject to more stringent regulations.
There are several important shifts in the nature of these investments. Traditionally, healthcare facilities might have been owned by physicians or small groups of investors. However, in recent times, large PE firms have started to invest in the sector. These firms manage funds for large groups of wealthy individuals or institutions, often with limited knowledge of healthcare, viewing it as just another market opportunity. Their investment strategies often involve taking out loans against acquired healthcare facilities, selling their assets, or flipping the assets to other buyers for quick profits.
The impact of PE on healthcare costs, quality, and access has been a subject of much debate. There’s evidence suggesting that private equity tends to increase healthcare prices and utilization, thus raising overall costs to patients and society. However, there are also instances where such investments have led to innovations and efficiency improvements in healthcare delivery. Nonetheless, the evidence on systematic improvements in quality due to private equity ownership is not robust.
Regulatory oversight of these transactions is limited. About 90% of private equity transactions are exempt from federal regulatory review, and regulatory agencies are often understaffed and under-resourced to provide adequate oversight. The healthcare sector’s inherent characteristics, like fragmented practices and predictable third-party payments, facilitate PE entry into this market.
Furthermore, private equity firms are highly incentivized to consolidate healthcare providers to maximize profits. This consolidation can have anticompetitive effects, leading to increased prices and potentially lowered or stagnated quality of care.
The role of private equity in healthcare is multifaceted, with potential benefits in terms of innovation and efficiency, but also significant concerns related to costs, quality, and market competition. The need for more research and better regulatory frameworks to monitor and manage these investments is evident. As we look to the future, the influence of private equity in shaping healthcare policies and delivery methods will likely continue to be a critical area for policymakers, healthcare providers, and patients alike.
- Commonwealth Fund. (n.d.). Private Equity’s Role in Health Care. Retrieved from Commonwealth Fund.
- Grant Thornton. (2023, September 26). The growing role of private equity in healthcare. Retrieved from Grant Thornton.
- NIHCM Foundation. (n.d.). The Growth of Private Equity in US Health Care: Impact and Outlook. Retrieved from NIHCM Foundation.