Private equity’s growing grip on healthcare: a Vermont House Committee hearing examines the risks

On March 25, the Vermont House Committee on Healthcare convened a hearing titled Private Equity in Medicine to introduce members of the committee to the influence of private equity in the healthcare sector. The hearing aimed to shed light on the potential consequences of this trend, bringing together lawmakers, healthcare professionals, and policy advocates. 

A key voice at the hearing was Michael Fenne, Senior Campaign and Research Coordinator for Healthcare at the Private Equity Stakeholder Project (PESP). Fenne’s testimony focused on the private equity business model, its investments in healthcare, and the associated risks. 

PESP’s testimony

Fenne’s testimony outlined how private equity firms often use debt-funded tactics like leveraged buyouts and dividend recapitalizations to extract short-term profits from healthcare facilities. It also discussed sale-leaseback transactions, a real estate tactic used to generate quick cash that leaves healthcare systems with long-term rent obligations.

His testimony also highlighted the case of Steward Health Care, which filed for bankruptcy last year after accumulating significant debt under private equity ownership.

While no Vermont hospitals are currently owned by private equity, Fenne emphasized that private equity’s reach extends beyond hospitals, including outpatient providers, clinical research, and physician staffing companies. He warned against the “stealth consolidation scheme” of serial acquisitions and roll-ups used by private equity firms, which can lead to higher prices and degrade quality of care.

Fenne also pointed out how private equity can still show up in hospitals even when they are not owned by private equity; many non-profit and for-profit hospitals have contracts with private equity-owned physician staffing companies, radiology and imaging services, travel nursing companies, managed services providers, revenue cycle management companies, and other contractors and vendors owned by private equity.

Private equity has invested over$1 trillion in the US healthcare sector over the last decade, and touches virtually every corner of the industry, includinghospitals, physician specialties such asgastroenterology andanesthesiology,emergency medicine,dentistry,travel nursing,durable medical equipment,behavioral health,disability services, andhealthcare services for people in prisons and jails.

PESP’s policy recommendations

Fenne concluded by recommending increased transparency and financial disclosures, regulations on use of debt, and requirements for private equity firms and other investors to have more liability for their healthcare investments as ways to put guardrails in place to protect patients and workers. 

This includes merger review, increased transparency, anti-looting measures, joint and several liability, limits on management fees, minimum staffing ratios, and laws limiting the corporate practice of medicine.

Testimony from Nancy Kane, D.B.A.

The committee also heard testimony from Professor Nancy M. Kane, D.B.A, an adjunct professor of Health Policy and Management at Harvard T.H. Chan School of Public Health, who described the private equity model infiltrating the U.S. healthcare system. 

“Private equity firms prioritize returning investments to their limited partners (universities, pensions, foundations) within a relatively short timeframe, typically less than 10 years. This necessitates an exit strategy, which can sometimes involve detrimental practices,” according to Dr. Kane. 

Additionally, she noted, “private equity firms tend to target hospitals in states with less stringent regulatory oversight, often focusing on high-value deals rather than a large number of acquisitions. They are particularly interested in rehab, psychiatric, and long-term acute care (LTAC) hospitals.” 

Professor Kane further explained that private equity ownership of hospitals is concentrated in about fifteen states, often those with weaker regulatory environments. She cited PESP’s hospital tracker as a source for her testimony. 

Kane also cited a meta-analysis from the British Medical Journal summarizing the impacts of private equity ownership of healthcare operators. The findings suggest that private equity ownership leads to increased costs for patients and payers, while impacts on quality of care were mixed to harmful.