Private Equity-Acquired Hospitals Charge More for Common Services

Hospitals acquired by private equity firms are either charging more for common services, such as inpatient stays and emergency department visits, reducing operating costs, or both after acquisition, according to a recent study from Harvard University.

The study published in JAMA Internal Medicine earlier this week found that hospitals acquired by private equity firms between 2005 and 2017 demonstrated a mean increase of $407 in total charge per inpatient stays three years after acquisition.

After acquisition, the hospitals also experienced an increase of 0.61 in their emergency department charge to cost ratio and a 0.31 increase in total charge to cost ratio.

Overall, private equity-acquired hospitals boost profitability after being bought by the firms, increasing annual net income by a mean of $2.3 million, researchers found.

“Although further research is needed, our findings suggest that policy makers should consider monitoring or thoughtful oversight of changes in care delivery and billing practices in hospitals acquired by private equity firms to ensure proper stewardship of societal resources and the prioritization of patient interests,” wrote lead author Joseph D. Bruch, BA, of the Harvard T.H. Chan School of Public Health, and colleagues.

The healthcare industry has been an attractive target for private equity firms. Hospitals, physician practices, and other provider organizations have a lot of opportunities to increase productivity and lower cost, which can mean big profits for private equity firms that acquired the organizations.

But research is still lacking on whether private equity investments in healthcare benefit patients and their communities.

Bruch’s new study conducted in collaboration with Harvard Medical School’s Suhas Gondi, BA, and Zirui Song, MD, PhD, suggests that they may not.

In addition to high prices for healthcare services, the study revealed that the 204 hospitals acquired by private equity firms during the period also increased case mix index by 0.2 relative to a control group of 532 hospitals that were not bought by private equity firms.

“The increase in yearly case mix index suggests that hospitals saw reportedly sicker patients on average after acquisition. This could be due to selection effects if the composition of patients changed. However, it may also suggest that hospitals are engaging in more complete or aggressive coding. Upcoding can lead to higher diagnosis-related group payments for inpatient admissions and is another possible mechanism to increase net income,” Bruch et al. explained in the study.

Additionally, private equity-acquired hospitals had fewer Medicare discharges relative to the control hospitals, whereas the proportion of discharged Medicaid patients was unchanged during the period, suggesting an increase in the share of discharges for patients who are privately insured or uninsured.

“Patients who are privately insured typically garner higher reimbursements for hospitals than patients with Medicare or Medicaid,” the authors of the study stated.

Private equity-acquired hospitals, however, did demonstrate higher care quality according to a couple of process quality measures.

Researchers found that the aggregate scores for acute myocardial infarction increased by 3.3 percentage points and for pneumonia by 2.9 percentage points in private equity-acquired hospitals relative to controls.

Higher aggregate scores could indicate better care quality, Bruch and colleagues stated, but it may also signal increased focus on compliance or efforts to maximize quality bonuses under pay-for-performance programs.

Researchers said the key takeaway from the study is the need for better oversight over private equity firms in healthcare, especially in light of the recent economic downturn.

“As practices and hospitals struggle with lost revenue during the coronavirus disease 2019 pandemic, they may become more susceptible to private equity acquisition,” Bruch et al. explained.

The American Hospital Association (AHA) projects hospitals to lose at least $323 billion this year because of the pandemic.

An acquisition by a private equity firm could be the lifeline hospitals need to stay afloat as leaders struggle to predict what will happen next. But if the acquisition will benefit patients in the long run is just as unclear.