Private Equity and Health Care

Health care in the United States was the world’s most expensive even before private equity became involved. Now it’s even more expensive and the quality of care has declined. When private equity enters any sphere of business activity, it’s a given that services and products will be impacted negatively. After all, private equity is a format for wealthy individuals to make more money in new businesses on the backs of workers and consumers. It’s true for health care just as it is for other private equity investments.

There were only 24 private equity firms in the United States in 1980, but their investments have proven to be so successful that the number of private equity firms has soared. About 5000 private equity firms controlling approximately 18,000 companies were noted in 2022 and continued growth can be expected. There is not strict monitoring and regulation by government entities, allowing private equity firms to literally strip companies of whatever value they had.

Initially, private equity firms would buy firms that were financially troubled or borderline. They would then pay themselves a hefty fee to manage these firms and make them appear solvent again. Cutting workers and services were ways to curb spending and make financial spreadsheets look better. Usually, they would accrue debt to pay their management fees and temporarily enhance the company. Then when the time was right, they would sell the firm to other investors at a significant profit, leaving a shell of a company that was buried in debt. But the private equity company did well financially.

For a number of years now, they have used this format to buy up companies involved in health care, particularly nursing homes. There is a manifest conflict of interest between private equity firms whose primary goal is to make money for their investors and health care facilities whose aim is to care for patients and provide them with the best services possible. Doing what is best for patients entails having more than adequate personnel on duty around the clock. In addition, facilities must have the best technology available for medical testing and be able to provide the most effective medications to treat various conditions, even if the meds are expensive.

Nursing homes care mainly for elderly patients, many of them demented and with multiple medical conditions. Because the patients are so fragile and sick and often not capable of lucid complaints, the owners of many nursing homes feel they can get away with stinting on adequate care for them. Personnel may often be cut to a bare minimum at some of these units, appropriate testing not done, nor expensive medications given. And when the Covid-19 pandemic hit, private equity nursing homes were unprepared for the influx of new patients. Mortality in private equity nursing homes has been shown to be over 10 percent higher than in other nursing homes.

Aside from nursing homes, private equity has also been buying urgent care centers, hospital emergency rooms, radiology departments and ICUs. The private equity firms make money the same way they do with nursing homes and other investments. They cut staff, including doctors, nurses, aides and so forth, get patients out quickly, and don’t give expensive medications. For profit entities like private equity should have no roles to play in the delivery of health care in any type of unit. Health care decisions should be made on the basis of necessity, not to generate or save money.

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