February 25, 2025 • 23 mins
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Health Affairs' Senior Deputy Editor Rob Lott interviews Zirui Song of Harvard University and Massachusetts General Hospital on his recent paper that explores how private equity acquisition impacts hospital costs and utilization and what variations were seen throughout 2005–19.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rob Lott (00:31):
Hello, and welcome to A Health Odyssey. I'm your host,
Rob Lott. In recent years,healthcare has found a new
villain of sorts in the form ofprivate equity. That's the term
for a particular kind of forprofit ownership structure,
(00:53):
where private firms raise moneyfrom investors to buy or take
control of a company. The goal,typically, is to make
significant targeted changes tothat company, then quickly sell
it for a healthy profit and earna healthy return for those
investors.
This business structure can befound in industries as diverse
(01:14):
as software development, wastemanagement, and professional
sports. But private equity'soutsized role in health care is
particularly notable because ofwhat's at stake. Recent research
offers early signals that whenprivate equity takes significant
stake in a healthcare provider,the long term sustainability of
(01:35):
that organization is likely tosuffer. So too are the quality
of care and even patientoutcomes. Less well known is why
exactly?
What kind of specific changesare private equity managers
making when they take control ofa healthcare provider? And if
there's variation in thestrategies employed, what can we
(01:56):
learn from those differencestoo? That's the topic of today's
health policy. I'm here withdoctor Zeri Song, an associate
professor of health care policyat Harvard Medical School and a
general internist atMassachusetts General Hospital.
Together with coauthor doctorSneha Khanan of the University
(02:17):
of Pittsburgh, he has an articlein the February 2025 issue of
Health Affairs looking at thevariation in hospital salary
expenditures and utilizationchanges after private equity
acquisition from 02/2005 to2019.
It's really fascinating stuff,and I can't wait to learn more
(02:37):
about it. Doctor Zeri Song, I'mthrilled to welcome you to our
latest health policy.
Zirui Song (02:43):
Thank you so much for having me. It's a pleasure
to be here.
Rob Lott (02:46):
So maybe we can start with some background about
private equity in health care.Can you say a little bit about,
the scope of its role in healthcare today? How likely are
patients to encounter a providerthat is being managed in some
way by private equity?
Zirui Song (03:06):
Recent estimates suggest that over 450 hospitals
across the country have beenacquired by private equity
firms, most of them acute carehospitals. In addition, there
are likely over 6,000 physicianpractices by now acquired by
private equity firms. Inaddition, hundreds of nursing
homes, hospice facilities, andother types of outpatient
(03:28):
providers from behavioral healthto primary care clinics to
telehealth to opioid treatmentprograms to other types of
clinics or facilities, have alsoundergone similar types of
acquisitions by private equityfirms. This has grown quite
rapidly in recent years. Sowhereas a few years ago, we
(03:49):
might say that the likelihood ofencountering a health care
provider or facility owned byprivate equity may still be
quite small, by now, that iscertainly more likely.
Upwards of 10% or so physicians,depending on which specialty you
look at, there's quite a lot ofvariation, are now in practices
owned by private equity firms.And depending on which hospital
(04:11):
you go into, that hospital mayalso be similarly owned.
Rob Lott (04:15):
Okay. So that's a pretty significant footprint.
But my understanding is thatacquisitions are not monolithic.
What are some of the differentstrategies that private equity
typically uses to generatereturn for its investors? And
how might those strategiesaffect care and outcomes in
(04:35):
different ways?
Zirui Song (04:37):
Private equity firms typically have several levers at
their disposal in generatingreturns. Those include changing
the prices of the care theydeliver within the facilities.
The prices are often negotiatedwith private insurers. They can
also be reflected through thecharges or asking prices that
(04:58):
are billed to insurersindependent of the negotiated
price. This per unit price, wefound to increase roughly about
10 to 20% after acquisitionamong physician practices, and
around seven to 16%, inhospitals after acquisition.
In addition to prices, there isalso volume of care or the
(05:20):
number or quantity of servicesdelivered that we have also
found to increase afterphysician practice acquisitions,
less so after hospitalacquisitions. And thirdly, there
are cuts to the costs ofdelivering care. Costs include
staffing, supplies, otherresources that are the inputs to
(05:41):
care delivery. And if you take astep back and think about what a
typical profit function, if youwill, look like looks like or a
profit equation, typically, it'sthe prices of the services
delivered multiplied by thenumber of services delivered
minus the total costs ofdelivering those services. So on
(06:02):
all three of those levers,prices, quantities, and the
costs of delivering care, we'veseen that private equity
acquisition leads to some fairlysignificant changes depending on
the setting.
Rob Lott (06:16):
Okay. Well, you're taking me back to, econ one zero
one here. I appreciate it. Butwhat I hear you saying basically
is that there's, despite thatsort of fundamental equation,
there's a the there arevariables in that equation. And,
part of what you sought todiscover with this research
(06:37):
paper is sort of, what thatvariation looks like.
What did you find out?
Zirui Song (06:43):
We found that for salary expenditures in these
hospitals, private equityacquisition led to anywhere
between a 13% to 27% reductionin salary spending compared to a
matched control group ofhospitals that did not get
acquired by private equityfirms. This variation between
(07:04):
13% to and 27% reductions insalary expenditures can be
thought of as large or smalldepending on how you look at it.
The variation extended down fromthe overall hospital level to
the departmental level, where wesaw that across most clinical
departments, there were somenoticeable degree of salary
(07:28):
expenditure cuts across most ofthese firms. With that said, the
departments that were affectedand the degree to which they
were affected did vary bothacross departments and across
the hospitals, based on whichfirms acquired the hospitals.
Rob Lott (07:44):
Essentially, these firms are paying doctors less or
maybe they're, you know, payingnew doctors less compared to in
past years or they're notrehiring as many doctors.
Overall salary expenditures arelower. What does that how does
that translate to utilization?
Zirui Song (08:02):
Most of these hospitals with the salary
reductions also exhibited areduction in the total volume of
services delivered. We interpretthat as suggesting that fewer
hands on deck, if you will, inthe hospitals, a decrease in
staffing, is generally reflectedthrough a reduction in the
(08:24):
amount of services delivered. Inother words, a decrease in the
bandwidth in the hospital'sability to deliver care. You
could think of this as fewerpeople working in the clinical
staff. You could think of thisas perhaps fewer hours of work
per clinical staff member.
(08:45):
But in terms of a total, globalsense, we believe there's a
reduction in the ability orbandwidth to deliver care that
is reflected through a reductionin the total volume of billing
that these hospitals were ableto submit. Interestingly, there
was one notable exception tothis trend, was the Hospital
(09:05):
Corporation of America largegroup of hospital acquisitions,
from the mid two thousands. Inthe Hospital Corporation of
America group of acquisitions,those hospitals tended to not
cut their salary expenditures,but rather generate returns for
their investors throughincreased charges or increased
prices on their services. Andthat illustrated another layer
(09:29):
of variation, if you will. So inaddition to the size of the
salary spending cuts varying, wealso found that some firms or at
least some hospitals belongingto a certain group of firms that
acquired them did not go downthat path, but rather used a
different path of increasingprices to generate the returns.
Rob Lott (09:50):
Wow. Okay. So to the extent that you might have a
sense of what's going on behindthe boardroom doors here, what
do you think HCA knows that theother firms don't know? Or why
would one firm choose a path, togo in one direction while the
rest would choose the path goingthe other direction? Do you have
(10:11):
a sense of what's behind thatvariation?
Zirui Song (10:13):
It's a great question. We, obviously, were
not in those boardrooms. Thereare several different strategies
for generating returns,including raising prices,
raising quantities or the volumeof care, and cutting the cost of
care, including staffing. So itcould be the case that earlier
on in initial acquisitions, asprivate equity firms entered
(10:35):
health care in the mid twothousands, there was more
perhaps of a growth strategy inmind of using the acquired
hospitals to generate revenuethrough increased prices, but
not necessarily cutting the costof care quickly in the short run
before selling the acquisition.That may have led to, follow on
(10:57):
acquisitions by other firms thatperhaps and this is a
hypothesis, not something we'reable to show, with the data at
this point.
Perhaps subsequent privateequity firms saw health care as
a potentially profitable area ofinvestment, and use perhaps more
classic or additional, knownstrategies of private equity
(11:20):
acquisitions, notably cuttingstaffing to arrive at their
goals of generating returns.Cutting staffing is something
that's doable in the short term.Soon after acquisition, there
could be staff layoffs, therecould be cuts in salary
expenditures. It is a ratherquick way of generating returns,
(11:43):
perhaps quicker than makinginvestments in care delivery,
perhaps quicker than negotiatingfor higher prices from
commercial insurers, and indeed,perhaps quicker than increasing
the volume of care delivered.
Rob Lott (11:56):
Some very interesting hypotheses there. In a moment,
let's talk about what that meansfor policy makers. We'll get to
that when we come back. Andwe're back on a health policy.
(12:25):
We're talking to doctor ZeriSong about his, recent paper
about the, variation amongstrategies employed by private
equity firms in health care.
Doctor Song, put all this in thecontext of recent research on
private equity, is thereanything surprising or
(12:46):
unexpected about the results ofthis study that, maybe caught
you off guard compared to someof your previous research?
Zirui Song (12:54):
We were not necessarily surprised by the
finding of variation in firmbehavior across the acquired
hospitals. But we were struck bythe magnitude of this variation.
The 13 to 27% reduction insalary expenditures can be
interpreted as a quite largevariation. Although one might
take a step back and also say,well, staffing cuts were
(13:17):
generally moving in the samedirection and generally on the
same, order of magnitude. So itdepends on the eye of the
beholder, how large thevariation is.
But this was striking alsobecause it occurred across most
clinical departments and, ingenerally a sizable to a sizable
(13:38):
degree. So, the fact that thiswas paired with reductions in
total utilization, was furtherstriking because it was a data
point that supported a previoushypothesis that with fewer staff
members available to delivercare, within the hospital, if
(13:58):
you think about, staffingintensive areas like the ICU or
emergency departments or variousinpatient floors, that this
reduction in bandwidth todeliver care may be one of the
explanations for the patientharms, the reductions in patient
satisfaction that other studies,have found.
Rob Lott (14:19):
Okay. Let's talk about the policy response. Can you
describe some of the proposalsthat have aimed to address the
negative impacts of privateequity's role in health care?
And how might the findings ofthis paper, shape our
understanding about thosepotential approaches?
Zirui Song (14:36):
There has been recent activity in many state
capitals around the issue ofprivate equity in health care. A
number of states have taken upbills or have had robust
discussions about how to bringabout more transparency around
private equity acquisitions andhow to potentially regulate
those acquisitions for thepurpose of protecting patient
(14:59):
outcomes, community access tocare, and societal resources. In
many of the states so far, thelegislative efforts have focused
on increases in transparency,notably allowing lawmakers and
public officials to find out whogot acquired, where, and when,
(15:19):
and by whom. That has generallybeen seen as a first step
towards the policy responsebecause without knowing who was
acquired, when and where and bywhom, states have a tougher time
figuring out what to do withthose acquisitions. So the first
step seems to be shining a lighton the acquisitions and
improving the transparencyaspect.
(15:41):
Currently, at the federal level,there have been similar
discussions. Although at thefederal level, there remains a
threshold of a relatively highamount for the transactions,
notably a hundred and$19,000,000 as of this past
year, where any acquisitionbelow that amount need not be
reported to federal authorities.Because of that, many private
(16:04):
equity acquisitions fly underthe radar, and clinics and
facilities can be acquiredwithout the public knowing, and
they could be sold again in afew short years also without the
public or policy makers knowing.Beyond transparency, is the
harder work of figuring out howto protect patient access. For
(16:28):
example, making sure thathospitals that are the only
source of access in a community,do not close their doors, making
sure that physician practicesremain accessible and affordable
for communities.
These often involve thinkingthrough the financial incentives
(16:48):
inherent in these private equitydeals. This is harder work
because it requires policymakersto think about how to regulate a
largely free market. So we arenot there yet, if we think about
state level activity and federallevel discussions at the moment.
Although much of the importantwork done by state and federal
(17:08):
policymakers to date have indeedrevealed lots about the scope of
the acquisition, about the,details of these financial
transactions, about whathappened within these health
care facilities, and certainlyabout patient outcomes and
clinician well-being.
Rob Lott (17:25):
Okay. So we're learning more and more every
day, but, a lot still, remainsunknown. What else don't we know
about private equity, and what,obstacles are there to learning
about those things?
Zirui Song (17:42):
The scientific evidence around private equity
in health care remains ininfancy if we take a step back
and think about the last five orsix years. At the moment, we are
still getting a handle aroundthe scope of acquisitions and
various important sectors of thedelivery system. For example,
hospices or women's health orprimary care or behavioral
(18:04):
health or telehealth. In many ofthese areas, the initial
descriptive evidence of how muchacquisition activity there has
been, remains early or, in manycases, still unknown. So the
scientific evidence space stillhas quite a ways to go to
document the scope ofacquisitions.
(18:26):
Then there is also a lot morework to be done in figuring out
the impact of these acquisitionson both patients, clinicians,
employers, and societalresources, notably tax dollars
and workers' wages thatultimately finance health care
spending. In terms of patientoutcomes, there has been
evidence on adverse events inhospitals, on mortality rates in
(18:49):
nursing homes, on patientsatisfaction in hospitals, and
on prices and quantities in boththe inpatient and outpatient
settings. But beyond that, we'vestill got a long way to go in
learning about the impact onfrontline clinicians, many of
whom have been impacted incompelling ways anecdotally, but
(19:13):
in ways that have been lesssystematically studied. We also
still don't know about the fulllife cycle very well of these
acquisitions, meaning whathappens when they are sold, what
happens when a hospital is soldto a second owner, often a
second private equity firm, whathappens when outpatient clinics
or nursing homes are sold to asecond, often for profit owner.
(19:36):
The changing of hands, whichoften happens fairly quickly,
remains somewhat of a mysteryfrom the scientific evidence
based perspective.
And finally, in terms ofinforming the policy response,
many policymakers at the stateand federal levels are looking
for ways to effectively protectpatient access and outcomes and
(19:56):
clinician well-being while atthe same time not totally
shutting off the flow of privatecapital into the delivery
system. Because after all, manyhealth care facilities do need
additional capital investments.And when those are hard to find
from traditional public andprivate payers, private sources
of capital remain an importantconsideration. So there's a lot
(20:18):
of nuance in thinking about howto encourage and nurture more of
the potential good of theseinvestments while protecting
patients and clinicians fromsuffering or experiencing the
known bad outcomes.
Rob Lott (20:34):
You, describe the the research or the science as being
in its infancy. And I'm curious,what has changed in this area of
study, and how has yourunderstanding of the field
changed?
Zirui Song (20:47):
What we've learned over the years is that private
equity activity has not sloweddown. In fact, it has
accelerated quite a bit,especially in outpatient
acquisitions. If we look atphysician practices across the
specialties, acquisitions ofoutpatient procedural
specialties has really picked upspeed. Gastroenterology,
dermatology, ophthalmology,urology, orthopedics are among
(21:10):
the early types of physicianpractices to be acquired. And
more recently, we've learnedthat primary care and behavioral
health have also undergone quiterapid acquisitions.
And what this tells us is thatthe health care delivery system
as a whole, you know, firstexperienced by hospitals, then
by nursing homes, and now byoutpatient facilities, still has
(21:34):
a lot of inherent fragmentationin it such that private equity
activity or private equityinvestment rather is one way to
consolidate these facilitiestogether to increase their
market power or bargaining powerrelative to commercial insurers
and garner higher prices, butalso stitch the care together
across geography, acrosscommunities, and hopefully a
(21:56):
coordinated way. And so thespeed or the pace at which these
activities have, or theseacquisitions have increased in
recent years, has been quitestriking to us. And when we
learn about staffing cuts, likethis paper partially
demonstrates, it suggests to usthat these short term strategies
(22:17):
for generating revenue, reallycould be at odds with what we
typically think about asintrinsic health care delivery,
which is a very human centeredendeavor, a face to face
interaction that requires, alevel of trust, a level of
presence, hands on deck,resources, supplies, and time,
(22:40):
and that cutting those inputs toto care delivery may be quite
antithetical to the inherentnature of delivering high
quality care.
So many of us in this communityare practicing clinicians, and
we sometimes bring a clinicalhat to interpreting these these
results. They're not justnumbers, in terms of dollars or
(23:01):
FTEs from a staffingperspective, but there are also
implications for patientoutcomes that we worry about.
Rob Lott (23:08):
Well, perhaps a great spot for us to wrap up. Doctor
Zaresong, thank you so much fortaking the time to chat with us
today. Really fascinating stuff.
Zirui Song (23:18):
Thank you very much, Rob. I really appreciate your
time.
Rob Lott (23:21):
And to our listeners, thanks for tuning in. Please
share this podcast with afriend. Smash that subscribe
button and, tune in next week.
Zirui Song (23:35):
Thanks for listening. If you enjoyed
today's episode, I hope you'lltell a friend about a healthy
policy.
Hello, and welcome to A Health Odyssey. I'm your host,
Rob Lott. In recent years,healthcare has found a new
villain of sorts in the form ofprivate equity. That's the term
for a particular kind of forprofit ownership structure,
(00:53):
where private firms raise moneyfrom investors to buy or take
control of a company. The goal,typically, is to make
significant targeted changes tothat company, then quickly sell
it for a healthy profit and earna healthy return for those
investors.
This business structure can befound in industries as diverse
(01:14):
as software development, wastemanagement, and professional
sports. But private equity'soutsized role in health care is
particularly notable because ofwhat's at stake. Recent research
offers early signals that whenprivate equity takes significant
stake in a healthcare provider,the long term sustainability of
(01:35):
that organization is likely tosuffer. So too are the quality
of care and even patientoutcomes. Less well known is why
exactly?
What kind of specific changesare private equity managers
making when they take control ofa healthcare provider? And if
there's variation in thestrategies employed, what can we
(01:56):
learn from those differencestoo? That's the topic of today's
health policy. I'm here withdoctor Zeri Song, an associate
professor of health care policyat Harvard Medical School and a
general internist atMassachusetts General Hospital.
Together with coauthor doctorSneha Khanan of the University
(02:17):
of Pittsburgh, he has an articlein the February 2025 issue of
Health Affairs looking at thevariation in hospital salary
expenditures and utilizationchanges after private equity
acquisition from 02/2005 to2019.
It's really fascinating stuff,and I can't wait to learn more
(02:37):
about it. Doctor Zeri Song, I'mthrilled to welcome you to our
latest health policy.
Zirui Song (02:43):
Thank you so much for having me. It's a pleasure
to be here.
Rob Lott (02:46):
So maybe we can start with some background about
private equity in health care.Can you say a little bit about,
the scope of its role in healthcare today? How likely are
patients to encounter a providerthat is being managed in some
way by private equity?
Zirui Song (03:06):
Recent estimates suggest that over 450 hospitals
across the country have beenacquired by private equity
firms, most of them acute carehospitals. In addition, there
are likely over 6,000 physicianpractices by now acquired by
private equity firms. Inaddition, hundreds of nursing
homes, hospice facilities, andother types of outpatient
(03:28):
providers from behavioral healthto primary care clinics to
telehealth to opioid treatmentprograms to other types of
clinics or facilities, have alsoundergone similar types of
acquisitions by private equityfirms. This has grown quite
rapidly in recent years. Sowhereas a few years ago, we
(03:49):
might say that the likelihood ofencountering a health care
provider or facility owned byprivate equity may still be
quite small, by now, that iscertainly more likely.
Upwards of 10% or so physicians,depending on which specialty you
look at, there's quite a lot ofvariation, are now in practices
owned by private equity firms.And depending on which hospital
(04:11):
you go into, that hospital mayalso be similarly owned.
Rob Lott (04:15):
Okay. So that's a pretty significant footprint.
But my understanding is thatacquisitions are not monolithic.
What are some of the differentstrategies that private equity
typically uses to generatereturn for its investors? And
how might those strategiesaffect care and outcomes in
(04:35):
different ways?
Zirui Song (04:37):
Private equity firms typically have several levers at
their disposal in generatingreturns. Those include changing
the prices of the care theydeliver within the facilities.
The prices are often negotiatedwith private insurers. They can
also be reflected through thecharges or asking prices that
(04:58):
are billed to insurersindependent of the negotiated
price. This per unit price, wefound to increase roughly about
10 to 20% after acquisitionamong physician practices, and
around seven to 16%, inhospitals after acquisition.
In addition to prices, there isalso volume of care or the
(05:20):
number or quantity of servicesdelivered that we have also
found to increase afterphysician practice acquisitions,
less so after hospitalacquisitions. And thirdly, there
are cuts to the costs ofdelivering care. Costs include
staffing, supplies, otherresources that are the inputs to
(05:41):
care delivery. And if you take astep back and think about what a
typical profit function, if youwill, look like looks like or a
profit equation, typically, it'sthe prices of the services
delivered multiplied by thenumber of services delivered
minus the total costs ofdelivering those services. So on
(06:02):
all three of those levers,prices, quantities, and the
costs of delivering care, we'veseen that private equity
acquisition leads to some fairlysignificant changes depending on
the setting.
Rob Lott (06:16):
Okay. Well, you're taking me back to, econ one zero
one here. I appreciate it. Butwhat I hear you saying basically
is that there's, despite thatsort of fundamental equation,
there's a the there arevariables in that equation. And,
part of what you sought todiscover with this research
(06:37):
paper is sort of, what thatvariation looks like.
What did you find out?
Zirui Song (06:43):
We found that for salary expenditures in these
hospitals, private equityacquisition led to anywhere
between a 13% to 27% reductionin salary spending compared to a
matched control group ofhospitals that did not get
acquired by private equityfirms. This variation between
(07:04):
13% to and 27% reductions insalary expenditures can be
thought of as large or smalldepending on how you look at it.
The variation extended down fromthe overall hospital level to
the departmental level, where wesaw that across most clinical
departments, there were somenoticeable degree of salary
(07:28):
expenditure cuts across most ofthese firms. With that said, the
departments that were affectedand the degree to which they
were affected did vary bothacross departments and across
the hospitals, based on whichfirms acquired the hospitals.
Rob Lott (07:44):
Essentially, these firms are paying doctors less or
maybe they're, you know, payingnew doctors less compared to in
past years or they're notrehiring as many doctors.
Overall salary expenditures arelower. What does that how does
that translate to utilization?
Zirui Song (08:02):
Most of these hospitals with the salary
reductions also exhibited areduction in the total volume of
services delivered. We interpretthat as suggesting that fewer
hands on deck, if you will, inthe hospitals, a decrease in
staffing, is generally reflectedthrough a reduction in the
(08:24):
amount of services delivered. Inother words, a decrease in the
bandwidth in the hospital'sability to deliver care. You
could think of this as fewerpeople working in the clinical
staff. You could think of thisas perhaps fewer hours of work
per clinical staff member.
(08:45):
But in terms of a total, globalsense, we believe there's a
reduction in the ability orbandwidth to deliver care that
is reflected through a reductionin the total volume of billing
that these hospitals were ableto submit. Interestingly, there
was one notable exception tothis trend, was the Hospital
(09:05):
Corporation of America largegroup of hospital acquisitions,
from the mid two thousands. Inthe Hospital Corporation of
America group of acquisitions,those hospitals tended to not
cut their salary expenditures,but rather generate returns for
their investors throughincreased charges or increased
prices on their services. Andthat illustrated another layer
(09:29):
of variation, if you will. So inaddition to the size of the
salary spending cuts varying, wealso found that some firms or at
least some hospitals belongingto a certain group of firms that
acquired them did not go downthat path, but rather used a
different path of increasingprices to generate the returns.
Rob Lott (09:50):
Wow. Okay. So to the extent that you might have a
sense of what's going on behindthe boardroom doors here, what
do you think HCA knows that theother firms don't know? Or why
would one firm choose a path, togo in one direction while the
rest would choose the path goingthe other direction? Do you have
(10:11):
a sense of what's behind thatvariation?
Zirui Song (10:13):
It's a great question. We, obviously, were
not in those boardrooms. Thereare several different strategies
for generating returns,including raising prices,
raising quantities or the volumeof care, and cutting the cost of
care, including staffing. So itcould be the case that earlier
on in initial acquisitions, asprivate equity firms entered
(10:35):
health care in the mid twothousands, there was more
perhaps of a growth strategy inmind of using the acquired
hospitals to generate revenuethrough increased prices, but
not necessarily cutting the costof care quickly in the short run
before selling the acquisition.That may have led to, follow on
(10:57):
acquisitions by other firms thatperhaps and this is a
hypothesis, not something we'reable to show, with the data at
this point.
Perhaps subsequent privateequity firms saw health care as
a potentially profitable area ofinvestment, and use perhaps more
classic or additional, knownstrategies of private equity
(11:20):
acquisitions, notably cuttingstaffing to arrive at their
goals of generating returns.Cutting staffing is something
that's doable in the short term.Soon after acquisition, there
could be staff layoffs, therecould be cuts in salary
expenditures. It is a ratherquick way of generating returns,
(11:43):
perhaps quicker than makinginvestments in care delivery,
perhaps quicker than negotiatingfor higher prices from
commercial insurers, and indeed,perhaps quicker than increasing
the volume of care delivered.
Rob Lott (11:56):
Some very interesting hypotheses there. In a moment,
let's talk about what that meansfor policy makers. We'll get to
that when we come back. Andwe're back on a health policy.
(12:25):
We're talking to doctor ZeriSong about his, recent paper
about the, variation amongstrategies employed by private
equity firms in health care.
Doctor Song, put all this in thecontext of recent research on
private equity, is thereanything surprising or
(12:46):
unexpected about the results ofthis study that, maybe caught
you off guard compared to someof your previous research?
Zirui Song (12:54):
We were not necessarily surprised by the
finding of variation in firmbehavior across the acquired
hospitals. But we were struck bythe magnitude of this variation.
The 13 to 27% reduction insalary expenditures can be
interpreted as a quite largevariation. Although one might
take a step back and also say,well, staffing cuts were
(13:17):
generally moving in the samedirection and generally on the
same, order of magnitude. So itdepends on the eye of the
beholder, how large thevariation is.
But this was striking alsobecause it occurred across most
clinical departments and, ingenerally a sizable to a sizable
(13:38):
degree. So, the fact that thiswas paired with reductions in
total utilization, was furtherstriking because it was a data
point that supported a previoushypothesis that with fewer staff
members available to delivercare, within the hospital, if
(13:58):
you think about, staffingintensive areas like the ICU or
emergency departments or variousinpatient floors, that this
reduction in bandwidth todeliver care may be one of the
explanations for the patientharms, the reductions in patient
satisfaction that other studies,have found.
Rob Lott (14:19):
Okay. Let's talk about the policy response. Can you
describe some of the proposalsthat have aimed to address the
negative impacts of privateequity's role in health care?
And how might the findings ofthis paper, shape our
understanding about thosepotential approaches?
Zirui Song (14:36):
There has been recent activity in many state
capitals around the issue ofprivate equity in health care. A
number of states have taken upbills or have had robust
discussions about how to bringabout more transparency around
private equity acquisitions andhow to potentially regulate
those acquisitions for thepurpose of protecting patient
(14:59):
outcomes, community access tocare, and societal resources. In
many of the states so far, thelegislative efforts have focused
on increases in transparency,notably allowing lawmakers and
public officials to find out whogot acquired, where, and when,
(15:19):
and by whom. That has generallybeen seen as a first step
towards the policy responsebecause without knowing who was
acquired, when and where and bywhom, states have a tougher time
figuring out what to do withthose acquisitions. So the first
step seems to be shining a lighton the acquisitions and
improving the transparencyaspect.
(15:41):
Currently, at the federal level,there have been similar
discussions. Although at thefederal level, there remains a
threshold of a relatively highamount for the transactions,
notably a hundred and$19,000,000 as of this past
year, where any acquisitionbelow that amount need not be
reported to federal authorities.Because of that, many private
(16:04):
equity acquisitions fly underthe radar, and clinics and
facilities can be acquiredwithout the public knowing, and
they could be sold again in afew short years also without the
public or policy makers knowing.Beyond transparency, is the
harder work of figuring out howto protect patient access. For
(16:28):
example, making sure thathospitals that are the only
source of access in a community,do not close their doors, making
sure that physician practicesremain accessible and affordable
for communities.
These often involve thinkingthrough the financial incentives
(16:48):
inherent in these private equitydeals. This is harder work
because it requires policymakersto think about how to regulate a
largely free market. So we arenot there yet, if we think about
state level activity and federallevel discussions at the moment.
Although much of the importantwork done by state and federal
(17:08):
policymakers to date have indeedrevealed lots about the scope of
the acquisition, about the,details of these financial
transactions, about whathappened within these health
care facilities, and certainlyabout patient outcomes and
clinician well-being.
Rob Lott (17:25):
Okay. So we're learning more and more every
day, but, a lot still, remainsunknown. What else don't we know
about private equity, and what,obstacles are there to learning
about those things?
Zirui Song (17:42):
The scientific evidence around private equity
in health care remains ininfancy if we take a step back
and think about the last five orsix years. At the moment, we are
still getting a handle aroundthe scope of acquisitions and
various important sectors of thedelivery system. For example,
hospices or women's health orprimary care or behavioral
(18:04):
health or telehealth. In many ofthese areas, the initial
descriptive evidence of how muchacquisition activity there has
been, remains early or, in manycases, still unknown. So the
scientific evidence space stillhas quite a ways to go to
document the scope ofacquisitions.
(18:26):
Then there is also a lot morework to be done in figuring out
the impact of these acquisitionson both patients, clinicians,
employers, and societalresources, notably tax dollars
and workers' wages thatultimately finance health care
spending. In terms of patientoutcomes, there has been
evidence on adverse events inhospitals, on mortality rates in
(18:49):
nursing homes, on patientsatisfaction in hospitals, and
on prices and quantities in boththe inpatient and outpatient
settings. But beyond that, we'vestill got a long way to go in
learning about the impact onfrontline clinicians, many of
whom have been impacted incompelling ways anecdotally, but
(19:13):
in ways that have been lesssystematically studied. We also
still don't know about the fulllife cycle very well of these
acquisitions, meaning whathappens when they are sold, what
happens when a hospital is soldto a second owner, often a
second private equity firm, whathappens when outpatient clinics
or nursing homes are sold to asecond, often for profit owner.
(19:36):
The changing of hands, whichoften happens fairly quickly,
remains somewhat of a mysteryfrom the scientific evidence
based perspective.
And finally, in terms ofinforming the policy response,
many policymakers at the stateand federal levels are looking
for ways to effectively protectpatient access and outcomes and
(19:56):
clinician well-being while atthe same time not totally
shutting off the flow of privatecapital into the delivery
system. Because after all, manyhealth care facilities do need
additional capital investments.And when those are hard to find
from traditional public andprivate payers, private sources
of capital remain an importantconsideration. So there's a lot
(20:18):
of nuance in thinking about howto encourage and nurture more of
the potential good of theseinvestments while protecting
patients and clinicians fromsuffering or experiencing the
known bad outcomes.
Rob Lott (20:34):
You, describe the the research or the science as being
in its infancy. And I'm curious,what has changed in this area of
study, and how has yourunderstanding of the field
changed?
Zirui Song (20:47):
What we've learned over the years is that private
equity activity has not sloweddown. In fact, it has
accelerated quite a bit,especially in outpatient
acquisitions. If we look atphysician practices across the
specialties, acquisitions ofoutpatient procedural
specialties has really picked upspeed. Gastroenterology,
dermatology, ophthalmology,urology, orthopedics are among
(21:10):
the early types of physicianpractices to be acquired. And
more recently, we've learnedthat primary care and behavioral
health have also undergone quiterapid acquisitions.
And what this tells us is thatthe health care delivery system
as a whole, you know, firstexperienced by hospitals, then
by nursing homes, and now byoutpatient facilities, still has
(21:34):
a lot of inherent fragmentationin it such that private equity
activity or private equityinvestment rather is one way to
consolidate these facilitiestogether to increase their
market power or bargaining powerrelative to commercial insurers
and garner higher prices, butalso stitch the care together
across geography, acrosscommunities, and hopefully a
(21:56):
coordinated way. And so thespeed or the pace at which these
activities have, or theseacquisitions have increased in
recent years, has been quitestriking to us. And when we
learn about staffing cuts, likethis paper partially
demonstrates, it suggests to usthat these short term strategies
(22:17):
for generating revenue, reallycould be at odds with what we
typically think about asintrinsic health care delivery,
which is a very human centeredendeavor, a face to face
interaction that requires, alevel of trust, a level of
presence, hands on deck,resources, supplies, and time,
(22:40):
and that cutting those inputs toto care delivery may be quite
antithetical to the inherentnature of delivering high
quality care.
So many of us in this communityare practicing clinicians, and
we sometimes bring a clinicalhat to interpreting these these
results. They're not justnumbers, in terms of dollars or
(23:01):
FTEs from a staffingperspective, but there are also
implications for patientoutcomes that we worry about.
Rob Lott (23:08):
Well, perhaps a great spot for us to wrap up. Doctor
Zaresong, thank you so much fortaking the time to chat with us
today. Really fascinating stuff.
Zirui Song (23:18):
Thank you very much, Rob. I really appreciate your
time.
Rob Lott (23:21):
And to our listeners, thanks for tuning in. Please
share this podcast with afriend. Smash that subscribe
button and, tune in next week.
Zirui Song (23:35):
Thanks for listening. If you enjoyed
today's episode, I hope you'lltell a friend about a healthy
policy.
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