Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes

Abstract

The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered forprofit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes. With administrative patient-level data, we use a within-facility differences-in-differences design to address nonrandom targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

Comparative Performance of Private Equity–Owned US Nursing Homes During the COVID-19 Pandemic

“…One of these studies, 9 in addition to 3 others, 20 , 21 , 22 examined PE ownership and nursing home staffing levels; 3 studies 9 , 20 , 21 found little evidence of changes in staffing and 1 study 22 identified declines in staffing. Two recent working papers 3 , 15 also had mixed results. The first 15 found PE ownership to be associated with declines in staffing levels, increased rehospitalization rates, and worse CMS Five Star Ratings.…”

“…Two recent working papers 3 , 15 also had mixed results. The first 15 found PE ownership to be associated with declines in staffing levels, increased rehospitalization rates, and worse CMS Five Star Ratings. Conversely, the second working paper 3 found that PE firms tended to increase staffing levels and improve the Five Star Ratings of nursing homes.…”

“…However, we found a similar number of nursing home acquisitions as 2 other studies. 3 , 15 Third, 1232 nursing homes (8.6%) reported data that did not pass validity checks in the Nursing Home COVID-19 Public File. There may be differences between facilities that reported confirmed data and those that did not.…”

“… 12 , 13 , 14 PE-owned nursing homes might also attempt to attract more profitable patients, such as postacute patients covered by Medicare, which has high reimbursements compared with those for Medicaid patients, ie, for custodial care. 15 …”

Lessons for the Age of Consequences: COVID-19 and the Macroeconomy

“…That is, they believe that there exists a tradeoff between 'efficiency' (which is taken to mean the 'maximization' of real GDP) and 'equity' (which refers to how GDP is distributed). 17 If the trade-off holds, a more unequal distribution of 15 Recent research by Gupta et al (2021) shows that private-equity (PE) ownership increases the shortterm mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over the 12-year period of investigation. This is accompanied by declines in other measures of patient wellbeing, such as lower mobility, while taxpayer spending per patient episode increases by 11%.…”