- Private equity firms are more likely to acquire hospitals with larger operating margins, more beds and in urban areas, according to a new analysis of 15 years of deals.
- Researchers wanted to get a sense of the type of hospital deals private equity firms were interested in by comparing hospitals that were acquired with those that were not. The analysis centered on comparing certain hospital characteristics, including financial and operational performance and local market data.
- Of the 42 private equity deals that included 282 hospitals in 36 states, most occurred in the Mid-Atlantic and Southern regions, according to the report published in the latest issue of Health Affairs.
The study, which provides a clearer picture of what kinds of hospitals PE groups target, and how finances and operations change over time, challenges the notion that private equity firms tend to only target financially distressed hospitals.
Although the researchers did find examples of such buys in the data, the overall trend contradicts the narrative of "financially distressed institutions seeking infusion of outside private equity capital," they wrote.
Instead, the analysis showed that private equity firms were more likely to buy hospitals that were larger and had healthier operating margins.
In 2003, the first year of the dataset, private equity firms acquired hospitals with an average of nearly 226 beds, while hospitals that were not acquired by PE firms had 188 beds on average.
The acquired hospitals also had more discharges and generated higher revenue for each discharge.
While those markers increased by the end of the 15-year period, acquired hospitals ended the period with lower staffing ratios than when first observed in 2003.
"Postacquisition, these hospitals appeared to continue to boost profits by restraining growth in cost per patient, in part by limiting staffing growth," according to the report.
Bain Capital, Cerberus Capital Management and GTCR are the top three PE firms when it comes to acquiring hospitals, by deal value and the number of hospitals.
The largest PE deal over the 15-year period was Bain Capital's buyout of HCA in 2006, which included 162 facilities and was valued at $33 billion.
PE's activity in healthcare has garnered a lot of attention over the years over concerns that what motivates PE firms — a sizable financial exit — is in conflict with patient needs and quality of care.
Reports of the effects private equity has had on the nursing home industry have fueled these worries.