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How Private Equity Is Raising Health Care Costs For Americans

posted by James Swann

on October 12, 2021

Every American deserves high-quality, affordable health care, and yet health care is becoming unaffordable for far too many families. One driver behind the rising costs is the surge in physician practice acquisitions by private equity firms. The increased private equity purchases are driving up health care costs for Americans.

By 2018 private equity represented 45% of all health care mergers and acquisitions. Private equity firms borrow heavily from banks and others, using the funds to acquire private entities with the goal of turning a profit in a relatively short time. Initial private equity acquisitions targeted specialties like orthopedics, dermatology, urology, and gastroenterology, where potential profits were highest, but the firms are now expanding their targets.

Raising prices has been a common strategy after a private equity acquisition. A study found that hospitals have increased their prices after being acquired by private equity firms.

Poorer Patient Outcomes

The private equity model is also leading to poorer patient outcomes, in addition to raising costs. Research has shown that private equity firms may try to lower labor costs after an acquisition by reducing overall staffing.

Private equity’s involvement in the health care system has correlated with the increase in anti-competitive consolidation and surprise billing practices. When the leadership of a hospital or a nursing home is more focused on financial profits than quality care, it’s the patients who suffer.  Private-equity’s short-term profit-making strategy contrasts sharply with the expectation Americans have for safe, effective, and equitable health care.

Lack of Transparency

The negative effects of private equity acquisitions are compounded by their lack of transparency. There is little information about the extent of private equity investments in physician practices, as not all acquisitions are publicized, and the firms often sign non-disclosure agreements.

Private equity firms are also largely unregulated under state or federal law, and are required to submit very little information to the Securities and Exchange Commission (SEC).

Moving Forward

The COVID-19 crisis gave private equity firms the opportunity to increase their share of physician practices, to the detriment of the public.

Both the House and Senate have introduced legislation to curb the anti-competitive practices of private equity firms, and health insurance providers support more work to challenge anti-competitive acquisitions, increase transparency, and take other actions to ensure lower health care prices for all Americans.