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

81 Pages Posted: 17 Aug 2021 Last revised: 28 Dec 2021

See all articles by Tong Liu

Tong Liu

University of Pennsylvania - Finance Department

Date Written: July 30, 2021


I use proprietary health insurance claims data covering over 60% of privately insured individuals in the United States to study the impact of private equity (PE) hospital buyouts on hospital–insurer price negotiations, health spending, and patient welfare. I apply a novel structural approach that exploits state-level regulation changes as PE entry shocks. I find that PE buyouts lead to an 11% increase in total healthcare spending for the privately insured in affected markets, driven mostly by higher bargained prices at PE-backed hospitals and price spillovers to local rivals. PE investors' superior bargaining skills account for 43% of the price and spending increases, while financial engineering and bankruptcy threats contribute 40%, changes in patient demand contribute 10%, and reduced focus on social objectives contributes 8%. Operational efficiency gains reduce spending, but only by 1%. A counterfactual ban on PE hospital buyouts would increase patient surplus by an amount equivalent to 10.7% of health expenses. If antitrust regulators who conduct merger reviews ignore PE-backed acquirers' unique features, they risk greatly underestimating the impact of hospital mergers.


Funding: None to declare

Conflict of Interest: None to declare.

Suggested Citation

Liu, Tong, Bargaining with Private Equity: Implications for Hospital Prices and Patient Welfare (July 30, 2021). Available at SSRN: or

Tong Liu (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States


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