Private Equity is an investment strategy that firms use to pool capital from investors to assist in purchasing a stake in another company that is not publicly traded. In simple terms, the plan is for the private equity firm to actively manage the company to increase its profits.
This post can cover many areas that private equity touches in our lives, but I’m going to focus on health care. I will share that some of the information contained in this post includes input from my son Ryan Koski-Vacirca, MD. Ryan is an ER doctor and has completed countless hours of research & published a few papers/articles on public health funding, rural hospitals and single payer healthcare.
During the management of the company, the equity firm works with the company’s management team to improve operations, cut costs, develop new products, expand markets, sometimes restructure and turn a profit. At that point they can sell the company for more profit. Why not, they invested their own money to do so. That is capitalism. But (you knew that was coming), in some cases, arguably most, they increase profits to maximum capacity, then they start cutting expenses. At that point they pillage the company for profits until there is no more to gain and then close the doors.
Below is a list of recent hospital closures/mergers that were operated by private equity firms or accounts.
Steward Health Care – Carney Hospital, Nashoba Valley Medical Center (MA) closed 2024
Prospect Medical Holdings – Taylor Hospital, Crozer Chester Medical Center (PA) closed 2025
Lifepoint Health – Ottumwa Regional Health Center (IA) acquired through merger 2016
American Academic Health System – Hahnemann Hospital (PA) closed 2016
Once obtained by private equity, some hospitals showed declines in care & staffing shortages. (U.S Senate on the Budget). In a case like Hanaman (A teaching hospital connected to Drexel University), the pain was deep. There were 550 residents (Patients) who had to be moved to new facilities and 2,000 physicians, nurses & staff who lost their jobs. Not quite fair for those who have paid for and scheduled care & schooling. While the folks invested in the private equity cashed out. The closures highlight a sizeable disconnect between the financial priorities of private equity and the mission of academic & professional medicine.
Some quick facts:
- Approximately 488 US hospitals are owned by private equity firms. That represents:
- 8.5% of all private hospitals
- 22.6% of all proprietary for-profit hospitals
- At least 27.7% of private equity-owned hospitals serve rural populations
What seems to bother me the most, and most physicians, is a good majority of the hospital closures are occurring in rural areas where care is scarce to begin with. When a hospital or care facility in a rural area close, it exacerbates a patient’s ability to obtain critical care in a timely manner. Closing a rural hospital or care facility can add in excess of 45 minnutes travel time to care. It could be the difference between life or death. You can’t say, “well that’s what you get for living in the middle of nowhere”. That isn’t a fair statement seeing that not everyone can afford the expense of living in an urban/suburban setting, unless housing is established appropriately (development laws). That is an entirely different conversation, but you can see how many things are tied together.
Justin Klawans in The Week US cited a study in his article that stated; “After a private equity firm acquires a hospital, its emergency room death rate increases by 13.4%, or about seven additional deaths per 10,000 patients, according to research in the journal Annals of Internal Medicine. This data was based on “1,007,529 emergency department visits and 121,080 ICU hospitalizations across 49 private equity hospitals” from 2009 to 2019, said the journal. This was compared to data from 293 hospitals that were not acquired by private equity……… The study also concluded that hospitals under the control of private equity firms have “reduced salaries and staffing relative to nonacquired hospitals,” said the journal. This could “explain the increased patient transfers to other hospitals, shortened ICU lengths of stay and increased emergency department mortality.”
I’ve been watching a show called The PITT on Hulu. The PITT is the shortened name for the emergency room in Pittsburgh Trauma Medical Center (fictional). The series follows the emergency department (ED) staff (Attending Physician, Residents, Interns, Nurses) during their 15-hour shift in the PITT. The ED staff has to navigate the hectic pace of the ED while dealing with staff shortages, budget cuts, management oversight and patient satisfaction, also while focused on their core responsibility; Patient Care & Saving Lives! I’ve spoken to some medical professionals who say it is realistic for what it shows. Maybe the number of daily cases is exaggerated, but not the physical & mental toll it takes on these folks. I have to applaud the attending physician and how they have portrayed him (and it could also be her) and how he balances, teaching, guidance and leadership in a crazy environment. The care you would want if you ended up in the ED.
But isn’t that what physicians are taught? Isn’t that what they take an oath to uphold. Unfortunately, it is the administration that adds the burden ladled on it by those who hold the purse. It is the administration, board or equity partners who put profit above performance. Maybe this is an area where we need to remove the pull of the bottom-line profit and focus on the patient outcome. Maybe this is the reason so many physicians wouldn’t turn their back on single payer care or a national health care system. In his book PRICED OUT – The Economic and Ethical Cost of American Health Care, Uwe E. Reinhardt argues that “the United States appears to have three stark choices: the government can make the rich help pay for the health care of the poor, ration care by income, or control costs.” He goes on to propose another option: “that by age 26 all Americans must choose either to join an insurance arrangement with community-rated premiums, or take a chance on being uninsured or relying on a health insurance market that charges premiums based on health status”.
Doubly, in his most famous paper (I did not read it), titled “It’s the Price, Stupid: Why the United States Is So Different from Other Countries”, he showed that while America spends much more on health care than any other country, it doesn’t actually get more care – it just pays higher prices.
A healthier society, means a more productive society, means a more productive nation. Then we wouldn’t have private equity trying to kill us to get there.
I will leave you with this simple question as posed by Uwe Reinhardt; “Should the child of a poor American family have the same chance of avoiding illness as does a child of a rich American family?” I would go further to say should anyone of any socio-economic background receive better care, than any other.