Private equity ownership of US hospice centers boomed in recent years – study

Private equity investors are increasingly buying up hospice centers – healthcare facilities meant to focus on pain relief and emotional support for people near the end of their lives.

The new study was published in the journal Health Affairs and provides more evidence of how private equity have acquired firms using often sophisticated and opaque ownership structures.

“Private equity is moving not just into hospice but every aspect of healthcare,” said Dr Vikas Saini, president of the Lown Institute, a thinktank that has been critical of private equity ownership in healthcare and who was not involved in the study.

The reason private equity has become interested in healthcare, Saini said, is the industry “smells of money”. He added: “Their business is making money – it’s not taking care of people.”

Private equity is a form of private, for-profit ownership that often involves asset management firms investing the money of wealthy individuals. Unlike publicly traded companies, private equity firms do not sell shares and are not required to report as much information.

Although for-profit ownership is not new in US healthcare, the surge of private equity ownership is. Such investment groups have spent an estimated $1tn over the last decade, buying up hospitals and doctors’ offices. During that time, the industry’s interest in purchasing previously non-profit hospice centers has also grown.

The new study published in Health Affairs found that private equity ownership in hospice facilities boomed over six years, with acquisitions growing from just a few in 2015 to nearly three dozen in 2021.

While most firms acquired only one or two hospice facilities, at least one firm acquired 22 hospice centers spanning 10 states. Another acquired 14 hospice centers across four states. Most acquisitions were in southern states.

Researchers were able to uncover the acquisitions by cross referencing a proprietary database of mergers and acquisitions used by investment bankers, called LevinPro HC, with federal government data on health facility ownership collected by Medicare, the public health insurance program for the elderly.

Medicare, which provides near-universal coverage for the elderly in the US, is also overwhelmingly the largest payer for such services. It covers about 90% of all hospice patient days, according to the National Association for Home Care & Hospice.

“That money is supposed to be spent providing the care and if you’re a for-profit entity you have every incentive to skimp on that care,” said Saini. “There is every reason to be very worried about this acquisition spree.”

The American Investment Council, a trade association for the private equity industry, argues the industry “plays a critical role supporting quality, affordable health care in the United States”. The group did not respond to a request for comment.

Research cited by Health Affairs’ new study found for-profit hospice centers are more likely to discharge patients before death, are more likely to transfer patients to hospitals and emergency rooms and have higher rates of complaints and deficiencies, research has found.

About 486 US hospitals are owned by private equity firms, representing 30% of all for-profit hospitals in the country, according to the Private Equity Stakeholder Project. Similarly, private equity firms have also bought up doctors’ offices, increasing their ownership stake, according to the Commonwealth Fund.

“Especially in the US, we have an ageing population with a chronic disease burden,” said Mary Bugbee, research and campaign director at the Stakeholder Project, which has also been critical of private equity’s actions in healthcare. “There’s a lot of demand and a lot of opportunities to make money.”

Critics argue private equity owners often pursue short-term strategies to boost profits that are anathema to good patient care. In some cases, to pay back investors, the firm sells off all of the assets of a company, such as land and facilities, to quickly pay back investors. Those facilities are then leased back to the company.

Other times, private equity firms may take out loans to pay back investors using the same assets as collateral. A third strategy is to boost profits and then flip the company to a larger healthcare player – often requiring cuts and price increases, according to the Commonwealth Fund.

Researchers at Harvard University recently found that when private equity takes over hospitals, key metrics of care, such as rates of preventable patient falls and infections, tend to worsen.

“It’s really excellent we have researchers who did a study like this, we need more research that just documents the extent and footprint of private equity in our healthcare system,” said Bugbee. “This, unfortunately, is needed because we don’t have enough required transparency around these transactions.”