Medicine & Health

Studies show less staffing, more surprise bills after private equity takeovers

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Plenty of lawmakers, consumer advocates and others are leery of private equity’s growing presence in the healthcare sector.

They worry investors will cut corners when it comes to staffing, supplies or safety in the name of saving a buck. There have been examples of private equity firms eliminating less profitable service lines after buying providers. On the revenue side, private equity has paid tens of millions of dollars to settle allegations that it fraudulently oversold products or services, including to the government.

Despite the bad actors, some in the private equity world argue such investments can actually boost quality, assuming the buyer has integrity.

One healthcare-focused private equity firm, Archimedes Health Investors, gets to work improving quality and compliance metrics after it invests in providers, said Harry Eichelberger, its founder and managing partner. That’s because Archimedes’ broader goal is to prepare providers for the anticipated transition to paying for value rather than for the volume of services delivered. Archimedes also ramps up its portfolio companies’ reporting and business intelligence functions so they can effectively communicate their quality performance.

Archimedes is working to build a value-based orthopedic platform, for example, that includes a recent partnership with the Anderson Orthopaedic Clinic in Virginia to create M2 Orthopedics.

Eichelberger would counter to critics of private equity in healthcare that his sector offers a cash infusion healthcare providers can’t always muster on their own. Firms have the wherewithal to invest in advanced technologies that can help move practices into the future faster than they’d otherwise be able to, he said.

Another way Archimedes ensures quality is on track is to place members of its executive team on the portfolio company’s board, Eichelberger said. Those leaders enact good governance mechanisms such as a compliance committee and accountability measures, he said.

“Then we try to be informed partners to the management team when we’re working with them,” Eichelberger said.


At the end of the day, though, private equity firms are looking to make a return on their investment. There is only so much savings that can be squeezed from creating efficiencies and boosting compliance, and it’s typically not enough to generate the kind of returns private equity firms are seeking, said Eileen O’Grady, research coordinator with the Private Equity Stakeholder Project, a not-for-profit group that researches the effects of private equity investments.

The limited research that exists to date has shown private equity firms tend to cut staffing in the companies they buy, especially when it comes to nursing homes.

“There are very few levers in nursing homes that private equity firms have to achieve returns just given the structure of these services and the payment structures of Medicare,” O’Grady said. “Most of what they can do is cut expenses. And the No. 1 expense at nursing homes is staff.”

Getting care from a private equity-owned nursing home meant Medicare patients were 10% more likely to die in the first three months because of lower staffing levels and higher use of antipsychotic drugs, a study from the National Bureau of Economic Research, for example, found earlier this year. Not only that, taxpayers paid 11% more for their care compared with facilities that weren’t owned by private equity firms.

A 2017 study in the journal Inquiry found that nursing home chain Golden Living made cuts to staffing after its 2006 acquisition by private equity firm Fillmore Capital Partners. The problems came to a head when Pennsylvania’s attorney general sued Golden Living in 2015 alleging the company used deceptive conduct to lure seniors to its facilities and then provided substandard care.

In the hospital sector, a 2021 Health Affairs study found private equity-owned hospitals charged more than their non-private equity-owned peers relative to their costs and had lower staffing ratios.

When it comes to dermatology, a specialty that’s rapidly getting snapped up by private equity, a pair of doctors argued in a JAMA Dermatology editorial that private equity acquisitions should halt until data is available on how the deals affect quality and affordability.

It’s not just quality that’s found to be affected, either. Yale University researchers in 2018 determined that out-of-network rates spiked more than 80 percentage points after EmCare, part of Envision Healthcare, took over the management of emergency services at hospitals with previously low out-of-network rates.

In O’Grady’s mind, the findings show it’s not just private equity’s increased presence in healthcare that’s drawing the Justice Department’s attention. Rather, the tactics firms have been shown to use—cutting staff, for example—could lead to fraudulent activity.

“I think the DOJ beginning to look at the relationships between private equity’s business model and fraudulent activity makes a lot of sense,” she said.

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