Private Equity in Health Care: Barbarians at the Gate?

Abstract

Private equity investment in health care has increased dramatically over the past several years, reaching 1,171 transactions worth a total of $105.3 billion in 2020. However, this growing investment strategy comes with its disadvantages. Private equity acquisitions follow a different business model than traditional for-profit ownership in health care. As a result, investors claim that they inject needed funds into financially struggling facilities, while critics see a grab for short-term profits that often strips facilities of resources, compromises quality care delivery and leaves many of them bankrupt. Moreover, private equity firms have been subjects of fraud enforcement actions under the federal False Claims Act. Ultimately, research indicates that private equity in health care often leads to underfunding of facilities, reduced staffing, and poorer overall quality.

The long term care sector, 70% of which is already under for profit ownership, has been a particularly common target for private equity acquisition. Nursing homes, which serve a predominantly frail and elderly population, are especially vulnerable to these effects. The complexity and opacity of the corporate structures can be difficult for quality regulators to oversee. This Article builds on the perspectives of speakers at a conference on private equity in health care held at the Drexel University Thomas R. Kline School of Law in April 2022 to describe the issues involved and to recommend reforms. This Article proposes that reforms should include federal requirements for greater transparency of ownership structures, tying Medicaid reimbursement more directly to direct care costs, and imposing minimum staffing levels. A more effective measure might be to ban private equity ownership of nursing homes altogether.