Bargaining with Private Equity: Implications for Hospital Prices and Patient Welfare

Abstract

This paper studies how changes in hospital ownership after private equity (PE) buyouts impact hospital–insurer price negotiations and patient welfare. Estimating an empirical model with proprietary insurance claims data, I find PE buyouts lead to an 11% increase in healthcare spending, driven by higher prices at PE-owned hospitals and price spillovers to local rivals. PE's superior bargaining skills and financial engineering account for 83% of the price increase. Counterfactual simulations imply that patient-surplus gains are equivalent to 10.7% of health expenses if restricting PE ownership and that regulators might underestimate the impact of hospital mergers if ignoring PE-owned acquirers' features.

Note:

Funding: None to declare

Conflict of Interest: None to declare.