Private equity investments ‘shaping the healthcare ecosystem,’ report says

Private equity investors have a growing influence in the healthcare industry, investing more than $1 trillion during the past decade, mostly in skilled nursing facilities, hospitals and specialty physician’s groups, according to a report published last week in the journal Health Affairs.

PE acquired more than $200 billion in healthcare properties in 2021 alone during the instability of the pandemic era, the authors noted. PE investors owned 11% of nursing homes and 7.3% of hospices that year.

By 2024, Health Affairs said, at least 1,049 unique healthcare deals involved at least 676 PE firms. That’s an average of 87 deals per month.

“The outcomes of PE ownership are highly dependent on the type of practice, the market in which that practice is located and the strategies PE firms employ in those organizations,” the authors said. “Nonetheless, as the volume of PE-owned practices continues to increase, there are emerging trends in the landscape that can cut across individual markets and provide meaningful insights into how PE may be shaping the healthcare ecosystem.”

PE ownership can be associated with negative clinical outcomes, the authors noted. For example, residents might have reduced access to care in private equity-owned facilities, as investors might close less profitable service lines. In some cases, however, PE was found to have some positive outcomes, such as a decrease in COVID-19 outbreaks in staff members and residents in PE-owned nursing homes.

“Although there is a scarcity of peer-reviewed studies to support long-term financial benefits of PE for the overall healthcare system, industry observers do note that PE acquisition has the potential to bring positive impacts to individual practices or health systems looking for an injection of capital to remain financially viable, or the management support to reduce the risks and burdens of independent practice,” the authors said.

Regulation of private equity healthcare investments is challenging for policymakers due to the sheer volume of transactions, according to the study. Members of Congress and several federal agencies, including the Federal Trade Commission, the Department of Justice and the Department of Health and Human Services are working to monitor and regulate PE in the healthcare industry, however, the authors noted.

“Despite the challenges, there have been several recent bipartisan efforts to better understand the impacts of PE on healthcare and provide meaningful guidance to industry stakeholders,” the article said.

At the state level, some lawmakers are regulating the commercialization of healthcare by way of corporate practice of medicine laws. Other states have adopted transparency laws requiring enhanced reporting of PE activities or approval of deals from the state attorney general before they occur.

“With PE investment in the healthcare industry likely to continue, the federal government and state governments may consider additional actions to regulate PE activity,” the authors said. “According to industry leaders, these policies will need to address the challenges and opportunities related to finances, regulation, clinical quality and consumer experiences.”