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

96 Pages Posted: 17 Aug 2021 Last revised: 30 Nov 2022

See all articles by Tong Liu

Tong Liu

MIT Sloan School of Management

Date Written: November 1, 2022

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.

Suggested Citation

Liu, Tong, Bargaining with Private Equity: Implications for Hospital Prices and Patient Welfare (November 1, 2022). Available at SSRN: https://ssrn.com/abstract=3896410 or http://dx.doi.org/10.2139/ssrn.3896410

Tong Liu (Contact Author)

MIT Sloan School of Management ( email )

100 Main Street, E62-623
Cambridge, MA 02142

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