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Private equity investment in nursing homes

February 23, 2021

Topics: Quote of the Day

By Atul Gupta, Sabrina T. Howell, Constantine Yannelis & Abhinav Gupta
National Bureau of Economic Research, February 2021


The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes. With administrative patient-level data, we use a within-facility differences-in-differences design to address non-random targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

From the Conclusion

This paper studies PE buyouts in healthcare, an important sector where PE activity has increased dramatically, generating policy debate. Nursing homes are a useful setting because they have particularly high levels of for-profit ownership and subsidy and have experienced extensive PE investments. In an instrumental variables design incorporating facility fixed effects, we address both targeting and patient selection challenges to identification. We find that going to a PE-owned facility increases 90-day mortality by about 10% for short-stay Medicare patients, while taxpayer spending over the 90 days increases by 11%. Furthermore, we document declines in nurse availability per patient and in measures of compliance with Medicare’s standards of care. We also find a corresponding increase in operating costs that tend to drive profits for PE funds.



By Don McCanne, M.D.

Private equity investment in health care raises some concerns since there can be a conflict between the business interests of the equity investors and the health care interests of the patients.

In this paper, private equity investment in nursing homes was associated with an increase in mortality for short-stay Medicare patients, an increase in taxpayer spending, a decrease in nurse availability, a decrease in compliance with Medicare’s standards of care, and an increase in operating costs that tend to drive profits for private equity funds. Ouch!

It appears that our health care system places a higher priority on business interests than it does on patients. Instead of advocating for a national program of social insurance, maybe we should be thinking about public ownership of the system since the interests of taxpayers and patients are one and the same. Just a thought.

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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