How Do We Curb the Harms of Private Equity in Healthcare?

Ashish Jha: 00:00:05

Ashish. Hey everybody. Ashish Jha, here from another beautiful, sunny afternoon in Providence, Rhode Island, where it's always sunny, always always sunny. No, it's not always sunny, but it has been sunny for a while. So it's pretty exciting. Welcome back to the to the podcast, a moment in health, where today we are going to talk about one data point. We're gonna talk about a study, and then we will answer a question. And the data point I want to begin with today is $1 trillion as a very large amount of money. What is a trillion dollars? Well, what do I Why am I bringing that up? A trillion dollars is the estimated investment by private equity firms into healthcare acquisitions over the past decade. It's an estimate, because we don't actually track this stuff all that well, but several people, several organizations that have tried to track this based on publicly available data, have guessed, or more than just guessed, I think, an educated guess, that private equity firms have spent about a trillion dollars buying hospitals, nursing homes, physician practices and so forth. So big number trillion dollars. That's your data point of the week.

Ashish Jha: 00:01:15

Okay, let's talk about study of the week. And here, the study of the week comes from the Annals of Internal Medicine. Recently published paper called hospital staffing and patient outcomes after private equity acquisition, and it was published in the September 23 issue. So let's talk about what the paper looked at and what it found. The paper looked at what happens to hospitals, particularly focus on emergency departments, but also ICUs what happens after a private equity firm comes in and purchases it and they use controls similar hospitals that were not purchased. And what they found was that private equity hospitals reduce salary expenditures in the emergency department by about 18% and in the ICU by about 16% ICU length of stay got shorter, and overall hospital wide reductions. There were hospital wide reductions in full time employees by about 12% after private equity acquisition. And then here's the kicker, private equity acquisitions were associated with a 13% increase in mortality on average for Medicare beneficiaries who ended up in the emergency department. So let's take a step back and think about what this all means. This is just one more study and a line of studies that have found something similar. When private equity firms come in and buy a hospital. They are there to make money. And how do you make money? You either increase revenue or cut costs. And increasing revenue is hard. Sometimes they find ways of doing that, but one of the things that they do is they cut costs. Now there are plenty of hospitals with lots of problems with efficiency, and so one way to do it is you could definitely become more efficient. The other thing you could do is you could cut hospital staffing. Now, again, there may be some times where hospital staffing cuts are fine, but what we have seen in many, many instances is that a lot of those cuts are really harmful. And what this study does is it finds that the staffing cuts are happening in the emergency

Ashish Jha: 00:03:17

department in the ICU, and it is leading to worse patient outcomes. So it is not to suggest hospitals can't become more efficient, but it is to suggest that on average, when they looked at what happens to patient outcomes after private equity acquisition, they find that indeed, hospitals get leaner, but patient to patients do worse.

Ashish Jha: 00:03:40

All right, and now for the question of the week, and for the question of the week, I have a colleague and friend, an assistant professor, here at the Brown School of Public Health. Yashaswini. Singh, thank you so much for joining me, and I'm really excited about our conversation.

Yashaswini Singh: 00:04:00

Thank you so much for having me. All right,

Ashish Jha: 00:04:02

so here is your question. Now, there's been lots of stuff about private equity in healthcare, and I often think about a line I think I heard from you once first, which is, once you've seen one private equity transaction, you've seen one private equity transaction, that they all vary, but there is increasing amounts of evidence that they can be harmful to patients, not always, not consistently, but often, can be harmful to patients in terms of worse patient experience, adverse events, patient safety, quality issues. So if you were advising policymakers, which I know you do all the time, what are the top three strategies you think policymakers should be using right now to reduce the harmful effects of private equity acquisitions in healthcare? What would you advise policymakers?

Yashaswini Singh: 00:04:55

Sure, such a great question, and to go back to that quote, If you've seen one. PE transit. Action in healthcare, you really have seen just one. And so I would start by saying, you know, it's really important to be very specific about the policy concern we're trying to address with policy levers. And so, for example, private equity in healthcare, as you mentioned, in nursing homes and in hospital settings, we've seen that to lead to a lot of adverse outcomes for patients, high mortality in nursing homes, and so if the concerns are more related to adverse patient outcomes and staffing cuts, then I think the policy remedy lies in having better guardrails that protect healthcare workers and patients. Now this can take the form of minimum staffing standards at nursing homes. It can also take the form of patient protections, whistleblower protections for physicians who bring light or shed light on some of the practices that lead to undesirable outcomes. Now the reason why I highlight the importance of being very clear about the policy concern being addressed is PE materializes in different forms, in different settings. So another contrasting example is in the case of physician practices, a lot of what we've seen PE firms do is tied to increasing market consolidation, which then leads to the policy concern of higher prices for healthcare services. So if we're concerned more about healthcare prices increasing as the main policy outcome of interest, then the policy remedy there lies in greater antitrust enforcement. And generally speaking, we've seen federal antitrust authorities like the FTC and DOJ take the lead here. But increasingly, in the last year, we've seen several states, State Ag offices, healthcare commissions and so on, do more as well. So I'll just emphasize again, I guess that policy levers top three would be one guardrails for healthcare workers and patients, which can take different forms depending on the setting we care

Yashaswini Singh: 00:06:47

about. Two, greater antitrust enforcement. And three, my favorite, you can't really solve a problem. You can see and so sort of critical to this conversation is a desire for greater ownership transparency. And so anything that sheds more light on the trends that we're concerned about would go a great ways. Great.

Ashish Jha: 00:07:05

Okay, so those are three great ideas, more transparency, guardrails for patients and potential whistleblowers, and then antitrust. Let's talk about antitrust. Makes a ton of sense. I know that's been hard in some places, especially in the strategies. I think especially if you don't have transparency, then that makes it harder yet, let's talk about the guardrails issue. Now, a lot of places already have minimum staffing standards. A lot of places already have whistleblower protections, and yet, despite that, you still see negative effects on patient outcomes in certain contexts with some PE acquisitions. So if you're a policymaker, let's say sitting in Rhode Island or Massachusetts or wherever, and you're about to see a PE acquisition happen, how do you know that the guardrails you have are going to work? And what else should you be doing? And should PE acquisitions get extra scrutiny? Should they have a longer period of additional evaluation? Do they require a little extra something, or do you just sort of standard stuff should work?

Yashaswini Singh: 00:08:10

Oh, that is such a tricky question, and maybe I'll get into trouble for what I'm about to say. But I personally don't believe that PE transactions should require extra scrutiny. And my thinking there is, it's always, I think, beneficial to scrutinize bad behavior rather than bad actors, because we have examples of bad actors across industry segments. We've seen PE firms engage in bad behavior. We've seen hospitals and health systems and academic medical centers and health insurers engage in bad behavior, and so by focusing narrowly on PE, we run the risk of not having any visibility into bad behavior that's perpetrated by pe 2.0 something that we don't recognize but is still exploiting the same market incentives. Yeah.

Ashish Jha: 00:08:55

Okay. And on the question of why have the guardrails not work quite as well? Or do you just think they need to be strengthened? Do you think we need additional for the person who's skeptical that the current guardrails are not enough? What might you say?

Yashaswini Singh: 00:09:10

So, I would say that some of the guardrails we have in place right now need to be brought into the 21st Century. You know, one example of that is the corporate practice of medicine doctrine, several states on paper, have restrictions on whether corporations can employ physicians and what financial incentives they can bring to clinical decision making. I say on paper because in practice, they haven't either slowed down the pace of corporatization or prevented corporatization from influencing medicine. So some of these guardrails need to be modernized to reflect the current realities of healthcare markets, but then also enforcement is a challenge, I think more so now in a resource constrained environment, both kind of at the state and local levels, but I have hope, and we have examples of states doing more and better to reflect the realities of current market structures. Awesome.

Ashish Jha: 00:09:58

Okay, yes. Anne, thank you. That was very, very helpful. So more transparency in who does this antitrust enforcement for price problems and then go after bad behavior. Don't assume you know who the bad people are going to be, because some of the people who look good on paper end up behaving badly, and some people who look bad on paper end up behaving perfectly fine. So focus on the behavior and other people. Great suggestions. Thanks so much for joining me.

Yashaswini Singh: 00:10:21

Summarized it better than I could have so thanks for having me again. Thanks so much.

Ashish Jha: 00:10:32

All right. There you have it. Another episode of a moment in health where we talked about one data point, a big number, 1 trillion, $1 trillion that's the estimate of how much money private equity has spent on acquiring healthcare organizations over the last decade. We talked about one study hospital staffing and patient outcomes after private equity acquisition. And what this study found was that after PE firms bought out hospitals, staffing levels were cut, staffing spending was reduced. But unfortunately, patient outcomes got worse. There was an increase in mortality average of about 13% and then we asked one question of a brilliant young economist who's a professor here at the Brown School of Public Health, Yashaswini, Singh, who has really been doing some of the best work in America, really on private equity and I asked her, What are your top strategies that you think policymakers should implement, should use to reduce the harmful effects of private equity acquisition? And I thought her answer was super thoughtful, and I want to just remind everybody of what she said. She said you got to remember what is the problem you're trying to solve. Sometimes private equity acquisitions are really meant as market power consolidation to drive up prices. That requires antitrust enforcement, another point that she brought up as a general principle, and even goes back to the estimate of a trillion dollars we're all guessing and estimating because we actually don't have transparency about acquisitions. And she pushed for more transparency that so people know who is acquiring a hospital who is acquiring a nursing home. And I think any policy that brings more transparency to the process is a good thing. And then last but certainly not least, she brought up the idea of guardrails for patients and healthcare workers, minimum staffing standards, whistleblower protections and updating some outdated regulations. And fundamentally, the big picture

Ashish Jha: 00:12:26

point that she made, which I thought was excellent, is it is tempting to make private equity the boogeyman, the bad guy, and sometimes they can be bad, but other people behave badly in healthcare as well, and what we should be doing is going after bad behavior and not assuming that we know who the bad people are. Sometimes academic medical center, sometimes other nonprofit hospitals can behave quite badly and harm patients. And the goal here is put in policies that prevent or reduce the likelihood of bad behavior and not be not a priori decide that certain people are bad and certain people are okay when it comes to healthier acquisitions. So I thought that was a very smart point. All right. Thanks so much for listening. That was another episode of a moment in health. Next week, we will be back with another data point, another study and another question. Have a great week, folks. You I think.