On Patient Safety: The Danger of Private Equity Involvement in Healthcare

Private equity ownership of medical practices and healthcare infrastructure and their ensuing control over medical care in the United States represents a profound and long-term change in care delivery, and it is quickly encroaching on orthopaedic surgery. Medical acquisitions by private equity firms totaled approximately USD 750 billion over the last decade [22]. While the number of orthopaedic buyouts lags far behind specialties like anesthesia and emergency medicine, the number of orthopaedic surgeons entering into purchase agreements with private equity firms is, nonetheless, increasing [5].

Private equity firms typically utilize large amounts of debt financing to purchase medical practices, hospitals, and various components of our healthcare delivery system with a plan to sell out within a 3- to 7-year horizon [2, 13, 26]. During that period, firms use several strategies to raise the resale value of their assets, such as cost-cutting and price increases [5]. While much is unknown about the consequences of this takeover, studies focused on patient safety raise alarm, and constraints should be placed on further private equity investment in healthcare delivery.

Safety Risks Associated With Private Equity

Private equity’s earliest forays into healthcare ownership involved nursing homes. In this setting, the safety record has been poor. In 2020, researchers [14] found that private equity ownership of extended care facilities was associated with 21,000 lives lost in their sample of short-stay Medicare patients who were sent for skilled nursing following a hospital stay, such as a hip fracture. This resulted in an estimated 205,000 life-years lost. Other researchers [15, 20] found that private equity ownership correlated with worsening patient mobility, increased use of anti-psychotic medications, declines in nursing staff, and decreased compliance with federal and state standards of care.

Patient safety data in private equity–owned hospitals are likewise quite concerning. Private equity takeovers have once again been associated with reduced nursing staff [8] and more frequent in-hospital complications, with one study [16] finding a 27% increase in falls, a 38% increase in central line–associated bloodstream infections, and a doubling of surgical site infections from 11 to 22 per 10,000 hospitalizations.

Data on mortality are harder to interpret. Investigators looking at private equity–ownership and mortality from acute medical conditions [8] found that ownership structure was not associated with most health endpoints studied, with the exception of acute myocardial infarction, where they found a slight improvement in in-patient and 30-day mortality. As a possible explanation for this finding, the authors posited that current hospital regulations “prevent drastic cost-cutting measures that result in worse clinical care.” Similarly, Kannan et al. [16] found a slight decrease in in-hospital mortality, which subsequently disappeared at 30 days postdischarge. However, they also found a 12% increase in patient transfers compared to control hospitals and a 36% increase in transfers for sepsis, and theorized that reduced in-hospital mortality was achieved through transferring these patients—who were at high risk for complications—to other facilities. Kannan et al. also discovered that private equity–owned hospitals admitted and cared for patients whose comorbidity profiles suggested that they were at lower risk for serious in-hospital complications. In light of these findings, I believe the most likely explanation for relatively better performance with regard to mortality is explained by both cherry-picking lower risk patients and transferring patients who are doing poorly.

Unbiased safety information on private equity ownership of physician practices is difficult to obtain. Access to negative information about patient safety often is curtailed by nondisclosure agreements and the financial incentives of practice physicians to obtain the highest possible return on their investments in secondary buyouts of their practices (physicians typically receive a share of any profits on those sales) [13, 22, 23]. Despite these hurdles, some information is available both from academic studies and whistleblower lawsuits. A large systematic review [5] evaluating private equity ownership of physician practices and other related healthcare settings found that private equity ownership is “associated with harmful impacts on costs to patients or payers and mixed to harmful impacts on quality.” Additionally, they identified “almost exclusively negative impacts on patient satisfaction, daily functioning, and general quality scores” [5]. These results are backed by studies of both private equity–owned dermatology [21, 23] and cardiology practices [22]. Private equity–owned dialysis centers also have lower staffing levels and poorer survival rates [27].

Additionally, information gathered from False Claims Act lawsuits against private equity–owned healthcare concerns reveals that, rather than being passive owners allowing physicians to make all decisions as required by law, private equity managers exert influence over their purchased providers by placing representatives on their company’s board of directors and influencing key hiring and firing decisions [1, 24]. Private equity healthcare firms have paid fines of over USD 500 million since 2014 to settle 34 False Claims Act lawsuits as of this writing [24].

In addition to all of these obvious safety risks to patients, there is also risk to physicians in these arrangements. Over time, these firms show little to no loyalty to hired physicians. They reduce physician hours and benefits [10], unilaterally cut their pay [3], and sometimes actively replace physicians with less-expensive mid-level providers, even when this exposes patients to a reduced quality of care [6, 17, 18, 21]. Many private equity–employed dermatologists report worsening burnout and loss of practice autonomy [19]. A survey of physicians published this year [28] noted physicians in private equity–owned practices were significantly less likely to report high professional satisfaction, reported less autonomy, and were over 30% less likely to remain with their employer compared to physicians not employed by private equity firms. Additionally, private equity firms operate with their goal of “buying to sell” [4]. This means that acquired practices may cycle through multiple owners, all demanding more and more from their employed physicians while devoting fewer and fewer resources to their practices.

Solutions

I believe that orthopaedic surgeons as well as policymakers have several options available that would blunt the harm of private equity on healthcare delivery. An obvious first step is to not refer our patients to private equity–owned hospitals and avoid private equity–owned nursing homes after hospital discharge for our surgical patients, such as those who have hip fractures. With their poor track record on patient safety, including unnecessary deaths and in-hospital complications, we are putting our patients in harm’s way if we send them to private equity–owned institutions and should therefore shun them.

Additionally, there are appropriate responses at the federal level. Several agencies should spearhead efforts to ensure that private equity’s incursion into healthcare does not pose safety risks for our patients or degrade the quality of their care. The current threshold for a premerger report to be filed with the Federal Trade Commission when a private equity firm is in discussion with a medical acquisition target is a transaction of USD 119.5 million [12]. This misses 90% of medical acquisitions, as private equity firms typically gain market share by repeatedly buying many smaller medical practices after entering the market with a larger anchoring practice [24]. The Federal Trade Commission, Department of Health and Human Services, and Department of Justice have opened a joint investigation on private equity’s effects on healthcare delivery [25], with a key question of whether the threshold for their review and approval of private equity purchases should be lowered in order to protect patient interests. If their investigation finds evidence of safety concerns, quality degradation, or predatory pricing upon private equity acquisition, the required threshold should be markedly lowered to USD 10 million to capture the vast majority of medical buyouts and allow federal intervention to stop such transactions or modify their terms when needed to protect the local patient community. Additionally, in order for patients to understand who truly owns their caregiver’s practices, the Centers for Medicare & Medicaid Services should mandate transparency in hospital and medical practice ownership structures, just as it has done for nursing homes [7]. The Federal Trade Commission and Justice Department should also expand their enforcement actions against private equity–owned physicians’ groups for anti-competitive behavior [11]—a practice management strategy that costs all our patients millions upon millions of dollars.

Conclusion

As orthopaedic surgeons, I believe we should be cautious about entering into any agreement that cedes ownership of our practices to private equity firms, the guiding purpose of which is greater and greater profits. We can’t and shouldn’t expect practice owners, answerable to outside investors and focused solely on profit maximization, to have either our or our patients’ long-term best interests as their top priority. I understand that practice sales are a boon to incumbent practice owners who may receive enough income to walk away when things go south, but we should also consider the careers of younger orthopaedic surgeons and the future generations of surgeons to come. As employees of money managers, physicians employed by private equity–owned practices will lose the moral high ground in our dealings with our patients and their advocates. We may move from being trusted medical professionals to scorned agents of private equity in a very short while if we are not careful.