After a hospital is acquired by a private equity firm, typically the facilities begin to charge higher rates and see a stark increase in profitability, suggests a new study published in JAMA Internal Medicine.
For the study, researchers from three Boston-based organizations, including Harvard Medical School, the Harvard T.H. Chan School of Public Health and Massachusetts General Hospital, analyzed 204 hospitals owned by PE firms. They examined changes in hospital income, use and quality metrics from 2005 and 2017 and compared those metrics against 532 hospitals that were not operated by PE firms.
Researchers found that the 204 PE-owned hospitals had an average annual net income of $8.5 million prior to being acquired. However, after they transitioned to being run by a PE-firm, their net income rose to an average $12.9 million. During the same period, the other hospitals in the control group that were not operated by a PE firm saw a net income averaging $7.7 million per year.
In addition, the 204 PE-owned hospitals saw the average total charge per inpatient day sit at $5,789 before the acquisition. But after the acquisition by a PE firm, their charges rose more than 34 percent to $7,766.
Emergency care ratios for the 204 hospitals also rose from 3.81 before PE acquisition to 5.25 after the deal closed. Medicare discharges dropped 3.5 percent, and Medicaid discharges dropped 1 percent.
The study also found that relative to the 532 control hospitals, PE firm investment helped improve some quality scores for the 204 hospitals. For example, the aggregate quality score for acute myocardial infarction increased by 3.3 percent, and the aggregate score for pneumonia increased by 2.9 percent for the 204 PE-owned hospitals after they were acquired. The aggregate score for heart failure remained about the same relative to the controls.
"Although further research is needed, our findings suggest that policymakers 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," study authors concluded.