Private equity has grown in the U.S. healthcare system, with firms investing in hospitals, physician practices, healthcare real estate and other parts of healthcare organizations. It can be difficult for journalists to understand the impact of those investments and to follow where the money goes.
The Society for Advancing Business Editing and Writing hosted a webinar on September 15, “Private Equity, Public Health: Finding the Balance,” to help journalists understand the growth of private equity and other financial actors in healthcare.
The panel featured Joseph Bruch, assistant professor in the Division of Health Policy and Economics at Weill Cornell Medicine, and Jane M. Zhu, associate professor of medicine at Oregon Health and Science University. Reed Abelson, a reporter for The New York Times who covers the business of healthcare, moderated the discussion.
Financialization in healthcare
Understanding private equity in healthcare requires looking beyond the initial acquisition and examining how financial relationships change after a deal is completed. For journalists, that means tracing not only who owns a healthcare organization, but also how money moves through the organization. Bruch emphasized that following those financial relationships can help reporters understand who ultimately benefits from private equity involvement.
Bruch encourages journalists to investigate what happens to the money within a healthcare organization after a firm becomes involved. This includes dividend recapitalizations, the resale of healthcare real estate, or the subsequent sales of the acquired company.
The spread of private equity firms throughout the U.S. healthcare system has put more emphasis on tracing what happens to healthcare dollars and assets after acquisitions. Rather than stopping at who purchased a healthcare organization, Bruch encourages journalists to follow the financial activity that occurs afterward.
“Where is the money from the healthcare center going? How is this over time? What does it mean that these financial firms will have more and more of the financial assets of our health system? And who really is profiting?” said Joseph Bruch, assistant professor in the Division of Health Policy and Economics at Weill Cornell Medicine.
One starting point for journalists is Medicare data on provider practice and specialty, available through the Research Data Assistance Center. The data can help reporters identify whether an individual Medicare provider is connected to a particular practice by linking providers through their National Provider Identifier and Tax Identification Number. This can be useful when investigating whether physicians who may appear to be independent are actually a part of the same practice and identifying the organizations connected to them.
The Agency for Healthcare Research Quality Compendium of U.S. Health Systems can then help journalists move from individual providers and practices to the larger healthcare systems they belong to. The compendium identifies health systems and connects hospitals, physician groups, nursing homes and other healthcare organizations to those systems. It can help reporters determine whether a healthcare organization involved in a private equity transaction is part of a larger system, rather than treating it as an isolated organization.
Commercial databases such as IQVIA OneKey can provide another layer of information by helping journalists trace corporate parents, affiliations and organizational relationships. These databases contain information on healthcare providers and organizations, including relationships between organizations and their corporate parents. For journalists, that can be useful when ownership is spread across multiple subsidiaries or when the company that appears in a transaction is not the ultimate corporate parent.
Journalists can use the Center for Medicare & Medicaid Services’ Provider Enrollment, cChain, and Ownership System, or PECOS, to investigate ownership information reported to Medicare. PECOS contains provider enrollment information, including ownership, managing employees, billing arrangements and related organizations. Used alongside other sources, it can help journalists compare the ownership that healthcare organizations report to federal regulators with the corporate relationships they find elsewhere.
Tracing ownership is only the beginning. Bruch explained that journalists should also investigate the underlying financial flows rather than assuming what the acquisition means for patients or providers. Even when an acquisition doesn’t immediately result in higher prices or charges for patients, it often results in changes to the business model. A hospital, for instance, may have opportunities to generate revenue through facility fees, while other financial arrangements can involve outsourcing functions such as revenue cycle management, or RCM, to private equity-owned companies. Other mechanisms can relate to the type of treatment patients receive, some of which may generate more revenue than others. Bruch explained that one of the biggest challenges is the lack of data and studies that would give journalists more to cover across different healthcare settings.
Acquisitions in private equity versus non-private equity
Changes can also come on the cost side of the equation. Staffing is one of the first “cost-cutting measures that hospitals sometimes take,” Zhu said, after private equity acquisitions bring interest payments, lease payments, and cash reserves into consideration.
In her presentation, she shared a study that used hospital cost-report data as a proxy for staffing levels to compare the average change associated with private equity acquisitions with non-private equity acquisitions in the emergency department and intensive care units.
The authors found a 12% to 17% reduction in total hospital employees and a 16% to 18% reduction in salary expenditures in emergency departments and intensive care units after private equity buys a hospital, compared with other hospitals. In contrast, non-private equity acquisitions showed an increase in both the number of hospital employees and salary expenditures.
In another study examining whether price effects may be related to consolidation in healthcare within anesthesia practices, economists found the initial acquisition had little effect on prices, but subsequent acquisitions increased prices immediately by 18%.
Abelson later questioned the caution of overgeneralizing within healthcare reporting, meaning private equity’s impact in hospitals compared to physician practices.
Zhu responded that the data is unbalanced when comparing hospitals and nursing homes with physician practices. Referring to a study of hospitals and nursing homes, she explained that outcomes are easier to measure for quality of care because of the greater availability of data. She later mentioned research on physician practices and the challenge of identifying a direct outcome because of the wide range of practices. For journalists, this means we can’t use one study and overgeneralize that information in our reporting.
