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Each week, Health Affairs' Rob Lott brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
Hello, and welcome to A Health Odyssey. I'm your host, Rob Lott. In recent years, healthcare has found a new villain of sorts in the form of private equity. That's the term for a particular kind of for profit ownership structure, where private firms raise money from investors to buy or take control of a company. The goal, typically, is to make significant targeted changes to that company, then quickly sell it for a healthy profit and earn a healthy return for those investors.
Rob Lott:This business structure can be found in industries as diverse as software development, waste management, and professional sports. But private equity's outsized role in health care is particularly notable because of what's at stake. Recent research offers early signals that when private equity takes significant stake in a healthcare provider, the long term sustainability of that organization is likely to suffer. So too are the quality of care and even patient outcomes. Less well known is why exactly?
Rob Lott:What kind of specific changes are private equity managers making when they take control of a healthcare provider? And if there's variation in the strategies employed, what can we learn from those differences too? That's the topic of today's health policy. I'm here with doctor Zeri Song, an associate professor of health care policy at Harvard Medical School and a general internist at Massachusetts General Hospital. Together with coauthor doctor Sneha Khanan of the University of Pittsburgh, he has an article in the February 2025 issue of Health Affairs looking at the variation in hospital salary expenditures and utilization changes after private equity acquisition from 02/2005 to 2019.
Rob Lott:It's really fascinating stuff, and I can't wait to learn more about it. Doctor Zeri Song, I'm thrilled to welcome you to our latest health policy.
Zirui Song:Thank you so much for having me. It's a pleasure to be here.
Rob Lott:So maybe we can start with some background about private equity in health care. Can you say a little bit about, the scope of its role in health care today? How likely are patients to encounter a provider that is being managed in some way by private equity?
Zirui Song:Recent estimates suggest that over 450 hospitals across the country have been acquired by private equity firms, most of them acute care hospitals. In addition, there are likely over 6,000 physician practices by now acquired by private equity firms. In addition, hundreds of nursing homes, hospice facilities, and other types of outpatient providers from behavioral health to primary care clinics to telehealth to opioid treatment programs to other types of clinics or facilities, have also undergone similar types of acquisitions by private equity firms. This has grown quite rapidly in recent years. So whereas a few years ago, we might say that the likelihood of encountering a health care provider or facility owned by private equity may still be quite small, by now, that is certainly more likely.
Zirui Song:Upwards of 10% or so physicians, depending on which specialty you look at, there's quite a lot of variation, are now in practices owned by private equity firms. And depending on which hospital you go into, that hospital may also be similarly owned.
Rob Lott:Okay. So that's a pretty significant footprint. But my understanding is that acquisitions are not monolithic. What are some of the different strategies that private equity typically uses to generate return for its investors? And how might those strategies affect care and outcomes in different ways?
Zirui Song:Private equity firms typically have several levers at their disposal in generating returns. Those include changing the prices of the care they deliver within the facilities. The prices are often negotiated with private insurers. They can also be reflected through the charges or asking prices that are billed to insurers independent of the negotiated price. This per unit price, we found to increase roughly about 10 to 20% after acquisition among physician practices, and around seven to 16%, in hospitals after acquisition.
Zirui Song:In addition to prices, there is also volume of care or the number or quantity of services delivered that we have also found to increase after physician practice acquisitions, less so after hospital acquisitions. And thirdly, there are cuts to the costs of delivering care. Costs include staffing, supplies, other resources that are the inputs to care delivery. And if you take a step back and think about what a typical profit function, if you will, look like looks like or a profit equation, typically, it's the prices of the services delivered multiplied by the number of services delivered minus the total costs of delivering those services. So on all three of those levers, prices, quantities, and the costs of delivering care, we've seen that private equity acquisition leads to some fairly significant changes depending on the setting.
Rob Lott:Okay. Well, you're taking me back to, econ one zero one here. I appreciate it. But what I hear you saying basically is that there's, despite that sort of fundamental equation, there's a the there are variables in that equation. And, part of what you sought to discover with this research paper is sort of, what that variation looks like.
Rob Lott:What did you find out?
Zirui Song:We found that for salary expenditures in these hospitals, private equity acquisition led to anywhere between a 13% to 27% reduction in salary spending compared to a matched control group of hospitals that did not get acquired by private equity firms. This variation between 13% to and 27% reductions in salary expenditures can be thought of as large or small depending on how you look at it. The variation extended down from the overall hospital level to the departmental level, where we saw that across most clinical departments, there were some noticeable degree of salary expenditure cuts across most of these firms. With that said, the departments that were affected and the degree to which they were affected did vary both across departments and across the hospitals, based on which firms acquired the hospitals.
Rob Lott:Essentially, these firms are paying doctors less or maybe they're, you know, paying new doctors less compared to in past years or they're not rehiring as many doctors. Overall salary expenditures are lower. What does that how does that translate to utilization?
Zirui Song:Most of these hospitals with the salary reductions also exhibited a reduction in the total volume of services delivered. We interpret that as suggesting that fewer hands on deck, if you will, in the hospitals, a decrease in staffing, is generally reflected through a reduction in the amount of services delivered. In other words, a decrease in the bandwidth in the hospital's ability to deliver care. You could think of this as fewer people working in the clinical staff. You could think of this as perhaps fewer hours of work per clinical staff member.
Zirui Song:But in terms of a total, global sense, we believe there's a reduction in the ability or bandwidth to deliver care that is reflected through a reduction in the total volume of billing that these hospitals were able to submit. Interestingly, there was one notable exception to this trend, was the Hospital Corporation of America large group of hospital acquisitions, from the mid two thousands. In the Hospital Corporation of America group of acquisitions, those hospitals tended to not cut their salary expenditures, but rather generate returns for their investors through increased charges or increased prices on their services. And that illustrated another layer of variation, if you will. So in addition to the size of the salary spending cuts varying, we also found that some firms or at least some hospitals belonging to a certain group of firms that acquired them did not go down that path, but rather used a different path of increasing prices to generate the returns.
Rob Lott:Wow. Okay. So to the extent that you might have a sense of what's going on behind the boardroom doors here, what do you think HCA knows that the other firms don't know? Or why would one firm choose a path, to go in one direction while the rest would choose the path going the other direction? Do you have a sense of what's behind that variation?
Zirui Song:It's a great question. We, obviously, were not in those boardrooms. There are several different strategies for generating returns, including raising prices, raising quantities or the volume of care, and cutting the cost of care, including staffing. So it could be the case that earlier on in initial acquisitions, as private equity firms entered health care in the mid two thousands, there was more perhaps of a growth strategy in mind of using the acquired hospitals to generate revenue through increased prices, but not necessarily cutting the cost of care quickly in the short run before selling the acquisition. That may have led to, follow on acquisitions by other firms that perhaps and this is a hypothesis, not something we're able to show, with the data at this point.
Zirui Song:Perhaps subsequent private equity firms saw health care as a potentially profitable area of investment, and use perhaps more classic or additional, known strategies of private equity acquisitions, notably cutting staffing to arrive at their goals of generating returns. Cutting staffing is something that's doable in the short term. Soon after acquisition, there could be staff layoffs, there could be cuts in salary expenditures. It is a rather quick way of generating returns, perhaps quicker than making investments in care delivery, perhaps quicker than negotiating for higher prices from commercial insurers, and indeed, perhaps quicker than increasing the volume of care delivered.
Rob Lott:Some very interesting hypotheses there. In a moment, let's talk about what that means for policy makers. We'll get to that when we come back. And we're back on a health policy. We're talking to doctor Zeri Song about his, recent paper about the, variation among strategies employed by private equity firms in health care.
Rob Lott:Doctor Song, put all this in the context of recent research on private equity, is there anything surprising or unexpected about the results of this study that, maybe caught you off guard compared to some of your previous research?
Zirui Song:We were not necessarily surprised by the finding of variation in firm behavior across the acquired hospitals. But we were struck by the magnitude of this variation. The 13 to 27% reduction in salary expenditures can be interpreted as a quite large variation. Although one might take a step back and also say, well, staffing cuts were generally moving in the same direction and generally on the same, order of magnitude. So it depends on the eye of the beholder, how large the variation is.
Zirui Song:But this was striking also because it occurred across most clinical departments and, in generally a sizable to a sizable degree. So, the fact that this was paired with reductions in total utilization, was further striking because it was a data point that supported a previous hypothesis that with fewer staff members available to deliver care, within the hospital, if you think about, staffing intensive areas like the ICU or emergency departments or various inpatient floors, that this reduction in bandwidth to deliver care may be one of the explanations for the patient harms, the reductions in patient satisfaction that other studies, have found.
Rob Lott:Okay. Let's talk about the policy response. Can you describe some of the proposals that have aimed to address the negative impacts of private equity's role in health care? And how might the findings of this paper, shape our understanding about those potential approaches?
Zirui Song:There has been recent activity in many state capitals around the issue of private equity in health care. A number of states have taken up bills or have had robust discussions about how to bring about more transparency around private equity acquisitions and how to potentially regulate those acquisitions for the purpose of protecting patient outcomes, community access to care, and societal resources. In many of the states so far, the legislative efforts have focused on increases in transparency, notably allowing lawmakers and public officials to find out who got acquired, where, and when, and by whom. That has generally been seen as a first step towards the policy response because without knowing who was acquired, when and where and by whom, states have a tougher time figuring out what to do with those acquisitions. So the first step seems to be shining a light on the acquisitions and improving the transparency aspect.
Zirui Song:Currently, at the federal level, there have been similar discussions. Although at the federal level, there remains a threshold of a relatively high amount for the transactions, notably a hundred and $19,000,000 as of this past year, where any acquisition below that amount need not be reported to federal authorities. Because of that, many private equity acquisitions fly under the radar, and clinics and facilities can be acquired without the public knowing, and they could be sold again in a few short years also without the public or policy makers knowing. Beyond transparency, is the harder work of figuring out how to protect patient access. For example, making sure that hospitals that are the only source of access in a community, do not close their doors, making sure that physician practices remain accessible and affordable for communities.
Zirui Song:These often involve thinking through the financial incentives inherent in these private equity deals. This is harder work because it requires policymakers to think about how to regulate a largely free market. So we are not there yet, if we think about state level activity and federal level discussions at the moment. Although much of the important work done by state and federal policymakers to date have indeed revealed lots about the scope of the acquisition, about the, details of these financial transactions, about what happened within these health care facilities, and certainly about patient outcomes and clinician well-being.
Rob Lott:Okay. So we're learning more and more every day, but, a lot still, remains unknown. What else don't we know about private equity, and what, obstacles are there to learning about those things?
Zirui Song:The scientific evidence around private equity in health care remains in infancy if we take a step back and think about the last five or six years. At the moment, we are still getting a handle around the scope of acquisitions and various important sectors of the delivery system. For example, hospices or women's health or primary care or behavioral health or telehealth. In many of these areas, the initial descriptive evidence of how much acquisition activity there has been, remains early or, in many cases, still unknown. So the scientific evidence space still has quite a ways to go to document the scope of acquisitions.
Zirui Song:Then there is also a lot more work to be done in figuring out the impact of these acquisitions on both patients, clinicians, employers, and societal resources, notably tax dollars and workers' wages that ultimately finance health care spending. In terms of patient outcomes, there has been evidence on adverse events in hospitals, on mortality rates in nursing homes, on patient satisfaction in hospitals, and on prices and quantities in both the inpatient and outpatient settings. But beyond that, we've still got a long way to go in learning about the impact on frontline clinicians, many of whom have been impacted in compelling ways anecdotally, but in ways that have been less systematically studied. We also still don't know about the full life cycle very well of these acquisitions, meaning what happens when they are sold, what happens when a hospital is sold to a second owner, often a second private equity firm, what happens when outpatient clinics or nursing homes are sold to a second, often for profit owner. The changing of hands, which often happens fairly quickly, remains somewhat of a mystery from the scientific evidence based perspective.
Zirui Song:And finally, in terms of informing the policy response, many policymakers at the state and federal levels are looking for ways to effectively protect patient access and outcomes and clinician well-being while at the same time not totally shutting off the flow of private capital into the delivery system. Because after all, many health care facilities do need additional capital investments. And when those are hard to find from traditional public and private payers, private sources of capital remain an important consideration. So there's a lot of nuance in thinking about how to encourage and nurture more of the potential good of these investments while protecting patients and clinicians from suffering or experiencing the known bad outcomes.
Rob Lott:You, describe the the research or the science as being in its infancy. And I'm curious, what has changed in this area of study, and how has your understanding of the field changed?
Zirui Song:What we've learned over the years is that private equity activity has not slowed down. In fact, it has accelerated quite a bit, especially in outpatient acquisitions. If we look at physician practices across the specialties, acquisitions of outpatient procedural specialties has really picked up speed. Gastroenterology, dermatology, ophthalmology, urology, orthopedics are among the early types of physician practices to be acquired. And more recently, we've learned that primary care and behavioral health have also undergone quite rapid acquisitions.
Zirui Song:And what this tells us is that the health care delivery system as a whole, you know, first experienced by hospitals, then by nursing homes, and now by outpatient facilities, still has a lot of inherent fragmentation in it such that private equity activity or private equity investment rather is one way to consolidate these facilities together to increase their market power or bargaining power relative to commercial insurers and garner higher prices, but also stitch the care together across geography, across communities, and hopefully a coordinated way. And so the speed or the pace at which these activities have, or these acquisitions have increased in recent years, has been quite striking to us. And when we learn about staffing cuts, like this paper partially demonstrates, it suggests to us that these short term strategies for generating revenue, really could be at odds with what we typically think about as intrinsic health care delivery, which is a very human centered endeavor, a face to face interaction that requires, a level of trust, a level of presence, hands on deck, resources, supplies, and time, and that cutting those inputs to to care delivery may be quite antithetical to the inherent nature of delivering high quality care.
Zirui Song:So many of us in this community are practicing clinicians, and we sometimes bring a clinical hat to interpreting these these results. They're not just numbers, in terms of dollars or FTEs from a staffing perspective, but there are also implications for patient outcomes that we worry about.
Rob Lott:Well, perhaps a great spot for us to wrap up. Doctor Zaresong, thank you so much for taking the time to chat with us today. Really fascinating stuff.
Zirui Song:Thank you very much, Rob. I really appreciate your time.
Rob Lott:And to our listeners, thanks for tuning in. Please share this podcast with a friend. Smash that subscribe button and, tune in next week.
Zirui Song:Thanks for listening. If you enjoyed today's episode, I hope you'll tell a friend about a healthy policy.