Over the last ten years, a new force has emerged in the healthcare landscape: private equity. The result of this is a world in which Wall Street has a direct influence on the care you receive in a doctor’s office. Private equity firms pool money from groups of investors, accumulating large quantities of cash to invest. They use this money to purchase businesses – or shares in businesses – and attempt to increase their value through an emphasis on greater efficiency. Once value has risen, they sell the businesses and return profits to the investors. In healthcare, private equity firms often buy struggling health systems or hospitals. They try to increase profits quickly by merging practices, reducing the number of staff, and often by shifting a practice’s focus to a specific aspect of healthcare and shutting down their less lucrative operations.
Companies like Blackstone and KKR consolidate wealth from investors and use it to make leveraged buyouts of hundreds of healthcare companies a year. From 2009 to 2019, private equity firms have made deals worth $750 billion dollars – and are poised to increase their capital even further due to the COVID-19 pandemic’s impact on the healthcare sector and its projected growth. The amount of money invested by private equity into healthcare has been trending rapidly upward: in 2009, it was about $40 billion yearly; in 2019, private equity firms made deals valued at $120 billion.
Supporters of private equity in healthcare argue that streamlining processes and monetary investments provide organizations with the stimulus needed to encourage investment in new technologies. Boosting innovation has the potential, they argue, to improve patient outcomes. Moreover, private equity is viewed as a mechanism through which hospitals can be better regulated, with management ensuring that hospitals follow all officially mandated guidelines.
Yet, critics say private equity is hurting patients and driving up healthcare costs. Richard Scheffler of the School of Public Health at UC Berkeley is one such critic, surmising in a 2021 study that, “The private equity business model is fundamentally incompatible with sound healthcare that serves patients.” Private equity firms focus on short-term revenue generation and consolidation; they seek to increase profits as soon as possible, which many believe is a recipe for long-term drawbacks, as it has the potential to undermine competition and destabilize healthcare markets. A constant drive to generate profits can also worsen the quality of medical care. A 2021 working paper found that nursing homes owned by private equity firms have 10% higher death rates among patients on Medicare. Private equity investments are associated with a decline in patient care, cost increases for both taxpayers and patients, and staffing shortages. Despite this lower quality of care, these nursing homes were associated with an increase in Medicare spending. Private equity is transforming our healthcare system; Wall Street investors benefit from this model at the expense of both tax-payers and patients, and this has drastic implications for public health.