Hospital Service Lines Shift After Private Equity Acquisition

November 02, 2021 - Private equity’s increased involvement in healthcare has raised some questions, but a new study in Health Affairs shows how private equity in healthcare is impacting service lines at acute care hospitals.

Researchers from Duke University and Rice University used a difference-in-differences framework to estimate the impact of a private equity acquisition on the chances that a hospital will offer profitable or unprofitable services. The study specifically looked at hospital acquisitions by private equity firms that took place between January 1, 2006, and December 31, 2015. The data included over 4,700 hospitals, including 228 that were acquired by private equity firms.

Hospitals acquired by private equity firms during the study’s period were more likely to have added certain “profitable” hospital-based service lines compared to non-acquired hospitals, the study showed. Those service lines included d robotic surgery (+6.2 percent), digital mammography (+4.1 percent), and adult interventional cardiac catheterization (+3.8 percent).

Researchers also reported that private equity acquisitions were associated with a greater increase in the probability of providing in-hospital hemodialysis (+3.6 percent), of having a freestanding or satellite emergency department (+2.5 percent), and of having a birthing room or labor and delivery (+2.1 percent).

Only one profitable service—inpatient orthopedic surgery—had a lower probability of being offered after a private equity acquisition.

Overall, the study found that private equity acquisition was linked to a significant increase in the probability of hospitals offering six of the eleven profitable services for which researchers calculated difference-in-differences estimators.

In contrast, hospitals acquired by private equity firms had a lower probability compared to non-acquired hospitals of providing “unprofitable” service lines, like outpatient psychiatric care. Although, private equity acquisitions were associated with a higher probability of a hospital having psychiatric emergency services.

“The results presented in this study show a relationship between private equity acquisition and systematic changes in the central activity of hospitals: providing care,” researchers wrote in the study.

Researchers pointed out that many hospitals—not just those acquired by private equity firms—have invested in more profitable service lines, like robotic surgery and additional emergency departments. However, they stated that private equity acquisitions have accelerated service adoption and have done so “irrespective of the value these services provide for patients.”

Private equity firms have a heightened short-term focus on maximizing revenue at acquired hospitals since the firms plan to eventually sell the facility. But this short-term focus has raised questions about whether the acquisitions are good for patients.

Last year, a study of private equity acquisitions of nursing homes had a negative impact on quality of care. Researchers from the University of Pennsylvania and New York University reported lower CMS-generated Five Star Ratings and a decrease in nursing staff following a buyout by a private equity firm.

Private equity firms have been moving more into healthcare. They are increasingly acquiring physician practices and now, with moves such as the buyout of HCA by Bain/KRR, acute care hospitals.

The Health Affairs study aims to shed light on how acquisitions by private equity firms in other parts of healthcare are impacting the delivery of care.

“Our findings suggest that private equity-acquired hospitals are different from their nonacquired counterparts,” they concluded.

“Not only do private equity–acquired hospitals add profitable services faster, but also the changes they make to hospital operations may have broad implications for policy makers seeking to mitigate the potentially negative impacts of service-line disruptions and hospital market concentration. Policymakers may want to explore regulatory levers for ensuring equitable access and delivery of care in the face of private equity hospital acquisitions.”