Private equity firms continue to invest in healthcare as they look to generate quick and substantial profits through acquisitions and sales. But increasingly, these investments appear to come at a cost in lower quality of care and an increase in the bills footed by the American taxpayer.
Private Equity Increase Healthcare Investment
According to a report from PwC, 2022 private equity health services acquisitions increased from 2021 levels. Year-over-year deal volumes increased in each quarter through the third quarter, though some pullback has been seen in the fourth quarter.
Private equity firms argue that they bring value to healthcare businesses through improved management techniques and investment in newer technologies. Private equity firms also provide business advice, hiring and supply chain assistance, and guidance on mergers and acquisitions. In some cases, they become even further involved in management and operations of their portfolio companies, with a keen eye on maximizing their return on investment.
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Private Equity in Healthcare Hurts Patients
But critics say the drive for quick profits puts patients at risk because the firms cut staffing and borrow money, committing the resources of acquired companies to pay back loans and interest, diverting money from patient care.
For example, being admitted to a private equity-owned nursing home increases the short-term probability of death by about 10 percent, Sabrina T. Howell, an associate professor of finance at New York University, said during a congressional hearing last year, citing her research.
“Nurse staffing declines after buyouts, while rates of antipsychotic medications and pain intensity increase,” Howell said, suggesting a decline in attention to patients. “Meanwhile, the amount billed to Medicare increases by 11 percent. Finally, we show that fees charged by the parent company, lease payments after real estate is sold, and interest payments all increase dramatically. This all suggests a systematic shift in the operating costs away from patient care.”
Instead of focusing on providing quality care, the PE-owned healthcare portfolio company must now pay back debt and deliver profits.
“Private equity’s business model involves buying companies, saddling them with mountains of debt, and then squeezing them like oranges for every dollar,” Rep. William J. Pascrell, Jr., D-N.J., said at a 2021 congressional hearing about private equity firms’ healthcare operations.
Healthcare Fraud Lawsuits and Private Equity
The number of anti-kickback and fraud cases related to private equity have escalated. Cases often involve schemes in which private equity firms cause their portfolio companies to bill the government for services that patients weren’t eligible for, didn’t receive, or received from unqualified providers.
For example, the private equity firm H.I.G. Capital and its subsidiary, H.I.G. Growth Partners—along with other defendants—agreed to pay $29 million to resolve a case alleging false claims were submitted by their portfolio company to Massachusetts’ Medicaid program for mental health services provided by unlicensed, unqualified staff without the required licensed clinical supervision.
The case was prompted by a whistleblower employee who raised concerns about unqualified and inadequately supervised clinicians. She was then fired. Her lawsuit was filed in 2015 by Waters, Kraus & Paul.
“The whistleblower is a person of tremendous integrity, and her courage and persistence in taking on not only her former employers but a private equity company in what became a long and trailblazing case, resulted in the recovery of $29 million in taxpayer money,” said Waters Kraus & Paul attorney Caitlyn Silhan. “Her efforts brought a large mental health provider into compliance with regulations designed to ensure the quality of care for services provided to an extremely vulnerable population. Representing her was an absolute privilege.”
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