A study published in the journal JAMA showed that after a private equity firm bought a hospital, problems like infections and bed sores went up by 25% for Medicare patients compared to hospitals that weren’t bought by these investment companies.
There was a significant increase in inpatient complications like infections and falls, even though there was no rise in patient death rates. Specifically, the research revealed a significant 38% increase in central line infections—a severe type of infection that doctors believe should never occur. Furthermore, there was a 27% uptick in patient falls within the hospital setting.
Private equity firms usually raise capital for investments into a fund, usually in the form of a limited partnership, which is a kind of fund that gives control and a disproportionate share of the profits to the general partners, even though most of the capital in the fund tends to come from external investors.
Researchers analyzed the outcomes of nearly 5 million hospitalizations, which were available through Medicare claims data. Researchers had at least three years of data on each hospital included in the analysis.
Researchers said they did the study because, while there has been some evidence to show the economic outcomes after private equity firms purchase hospitals, such as increased billing rates, there’s been little understanding of how this business model may impact patient care.
“We were not surprised there was a signal,” said Dr. Sneha Kannan, a health care researcher and physician at the division of pulmonary and critical care at Massachusetts General Hospital, who was the paper’s lead author. “I will say we were surprised at how strong it was.”
In addition to its findings on patient outcomes, the new study also highlighted a slight shift in patient demographics at private equity-owned hospitals over the study years.
In general, there was a trend at these hospitals toward treating fewer patients who were eligible for both Medicare and Medicaid benefits, a sign of patients with lower incomes.
Private equity hospitals also shifted to admitting slightly younger patients and were more likely to transfer patients to other acute care hospitals.
Over the last two decades, private equity firms have become major players in health care, purchasing not just hospitals but also a growing number of nursing homes, physician practices and home health care companies.
The firms pool money from institutional investors and individuals to form investment funds, often buying hospitals and other entities through high levels of debt, with an eye to reselling them in a few years.
Most private equity firms are in the business of managing private equity funds on behalf of investors. The management of these funds, usually structured as limited partnerships, involves a complex, staggered and years-spanning flow of cash from the investors to the general partners to the portfolio companies, back to the general partners and ultimately back to the investors.
The long-term and illiquid nature of private equity funds makes it difficult to measure their performance while they are active. And because these partnerships are usually strictly private, it is difficult if not impossible for outsiders to access meaningful information on individual funds. Private equity is therefore often described as an opaque, non-transparent asset class.
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