Private Equity in the Hospital Industry

57 Pages Posted: 20 Sep 2021 Last revised: 8 Oct 2021

See all articles by Janet Gao

Janet Gao

Indiana University - Kelley School of Business

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Yong Seok Kim

Indiana University

Date Written: September 15, 2021

Abstract

This paper studies the growing presence of private equity (PE) acquirers in the hospital industry. We examine employment, operational efficiency and patient outcomes at hospitals acquired by PE firms. While the total employment at target hospitals significantly declines, the proportion of physicians and nurses in the total workforce (skilled worker ratio) increases for hospitals acquired by a publicly traded PE backed hospital. Employment cuts also occur in hospitals acquired by non-PE acquirers, but skilled worker ratio does not increase in those hospitals. PE-backed acquirers, especially publicly traded ones, are also uniquely associated with reductions in overhead costs. Consistent with PE acquirers increasing skilled worker ratio, patient satisfaction scores do not decline at PE-acquired hospitals and even improve along some dimensions. In contrast, patient satisfaction significantly worsens at hospitals acquired by non-PE acquirers. Examining real patient outcomes, we find that PE acquirers are not associated with higher mortality and readmission rates at target hospitals than non-PE acquirers. Overall, our paper provides a comprehensive look at the role of PE acquirers in the hospital industry, and documents nuanced differences between PE and non-PE acquirers, as well as between PE backed acquirers with and without access to public capital markets.

Keywords: Private Equity, Hospital Acquisitions, Employment, Operational Efficiency, Real Patient Outcomes and Satisfaction

Suggested Citation

Gao, Janet and Sevilir, Merih and Kim, Yong Seok, Private Equity in the Hospital Industry (September 15, 2021). European Corporate Governance Institute – Finance Working Paper No. 787/2021, Available at SSRN: https://ssrn.com/abstract=3924517 or http://dx.doi.org/10.2139/ssrn.3924517

Janet Gao (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Yong Seok Kim

Indiana University ( email )

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

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