Home Hedge Funds Private equity investments in healthcare are increasing, AHIP says

Private equity investments in healthcare are increasing, AHIP says

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AHIP has released a brief on private equity investments in healthcare, saying the need of these firms to achieve high returns, including through the use of provider consolidation, directly conflicts with the goal of lowering costs.

Over the past decade, there has been a rise in private equity investments in fee-for-service healthcare ventures, according to the brief. 

Private equity acquisitions of healthcare companies have risen from an estimated annual deal value of $41.5 billion in 2010 to $119.9 billion in 2019, for a total of approximately $750 billion over 10 years, the brief said. 

WHY THIS MATTERS

AHIP contends that some private equity firms look to turn a quick profit by acquiring fee-for-service medical providers, such as physician specialties and ambulance services. They then sell their shares within three to seven years with the aim to deliver a 20% to 30% return in profit in that timeframe, the association for insurers said.

At least 70% of physicians in the U.S. are directly employed by a corporate entity or employed by a hospital-owned by a corporate entity, most often a private equity firm, according to AHIP.

Hospitals owned by private equity firms bring in nearly 30% more income than hospitals owned by other entities by using a number of tactics to boost revenue, AHIP said. These include, according to an Arnold Ventures report cited by AHIP, cutting staffing and supplies, pressuring doctors to bill for unnecessary services and up-coding claims.

To fight this trend, AHIP wants to see several policy solutions enacted.

These include: 

  • Requiring public reporting of all private equity or hedge fund purchases of air or ground ambulance providers or facilities, emergency room physicians, and other specialty groups where there is evidence of high levels of concentration or low levels of network participation. 
  • Strengthening antitrust enforcement at the federal and state levels, including additional funding and new FTC and Department of Justice regulations for enforcement of competition in healthcare. 
  • The prevention of all-or-nothing, anti-tiering, and other take-it-or-leave-it contract terms. 
  • Requiring the reporting of small transactions so that the enforcement agencies can track physician practice mergers and hospital acquisitions of physician practices.
  • Advancing site-neutral payments to discourage the use of more expensive sites of care as profit engines. 
  • Advancing policies that limit the proliferation of free-standing emergency departments.

THE LARGER TREND

To increase greater market power in setting reimbursement rates with payers, some private equity firms consolidate smaller entities, according to the brief. 
An estimated 80% of hospitals in the United States are in “highly concentrated markets,” AHIP said.
 
Studies have found, said AHIP, that health outcomes for patients are substantially worse at hospitals in highly concentrated markets, where there is little incentive to compete.
 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org

 
 

 

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