This issue, “Private Equity in Healthcare,” was developed in response to a question posed by MBA students in healthcare management about the role of private equity (PE) in the clinical practice of medicine. Over the last decade, we have seen over $1 trillion in PE investment in healthcare markets. The net impact of those investments remains controversial. We set about to better understand this issue by commissioning a unique series of papers looking at this question from the academic literature, from developing new analyses of investment data, from case studies, and from a new examination of the legal issues surrounding the organization of care that are emerging as a result of these investments. Overall, the picture that emerges is one that really challenges some of the business strategies that have accompanied this investment, highlights the limited transparency we have into specific business practices, and suggests the need to monitor these market practices in real time. Unfortunately, there is significant evidence of clinical and financial harm that has accompanied PE’s efforts in the healthcare market over the last decade. The failures of many of the PE-backed business strategies and enhanced public scrutiny of this segment of the market has resulted in the emergence of a new set of PE-backed “value-based” business models. The impact of this shift in investment strategy is still unknown.
Ingrid Nembhard at the The Wharton School and her three co-authors conducted a systematic literature review of the academic literature addressing the impact of private equity investment on healthcare cost and quality. The authors confirm negative associations across three of the four categories of impacts identified: health outcomes and health quality, cost to patients and payers, and process quality enablers. These negative results are accompanied by measures of cost reduction at the practice level.
The paper by Ma et.al. examines the spectrum of private equity investment in clinical practice over the last decade. The authors show a significant shift in investment patterns after 2020 due to the enactment of the No Surprises Act, the increase in interest rates, and the COVID pandemic. In a second paper, Ma and her co-authors examine three case studies of PE-backed investment models. In two of the three models, the net result was to increase the cost of healthcare to patients and to health plans in order to drive the financial model. These models also led to some spectacular bankruptcies, the result of which is not yet know on patients and communities. The latest model of investing in value-based care models is still emerging, but has the risk of increasing corporate dominance of medical practice.
Oluwatobi Ogbechie-Godec, a Chief Medical Officer at APDerm, examines the impact of private equity investment from the perspective of the physicians in the practice. Access to investment capital can be used to help improve infrastructure and expand access to services. In this practice, physicians retain a key role in practice governance.
Hayden Rooke-Ley and Daniel S. Bowling examine the emerging legal issues surrounding the expansion of the PE model into clinical practice. As a result of state corporate practice of medicine laws, the legal structure of acquired practices is complex. This leads to significant challenges for physician in governance, and in potential unionization efforts.
Wasan Kumar examines the financial challenges of Steward Healthcare, which filed for bankruptcy protection this year. This is a case study of a PE-backed acquisition of a struggling safety-net healthcare system that eventually failed under the weight of billions of dollars in debt. The case study raises questions about the role of management in stewardship of the healthcare system, and the impact on the patients, providers and the community from the financial distress that drove Steward’s demise.
Kevin Schulman, MD, MBA
BAHM President & HMPI Editor-in-Chief
Professor of Medicine, Stanford University