Axios: Hospitals Charge A Lot More When Wall Street Owns Them

Aug 26, 2020 | Private Equity

By Sam Baker

Hospitals owned by private equity firms rake in almost 30% more income than hospitals that aren’t, according to new research published this week in JAMA Internal Medicine.

Why it matters: Private equity is gobbling up more and more of the health care industry. Investors are buying up physicians’ practices, hospitals and the firms that negotiate prices with insurers.

  • Their ownership of ambulance operations and free-standing emergency rooms — two big sources of unexpected medical bills — has sparked plenty of patient complaints and political controversy, but that hasn’t affected investors’ appetite for health care providers.
  • It’s no big surprise that these providers’ profit margins would spike once they’re taken over by a private equity firm. That’s the whole point. But the JAMA study helps illuminate how big a difference Wall Street ownership makes.

By the numbers: Three years after their acquisition, private equity-owned hospitals were bringing in about $2.3 million per year more in income than a control group of hospitals that weren’t acquired, according to the study.

  • Their total charges per inpatient day were about $400 higher, on average, and they saw a bigger gap between their costs and the prices they charged.

Between the lines: Hospitals’ charges often don’t reflect the rates they actually get paid by insurance plans, but it’s safe to assume that higher charges typically translate into higher payments. And uninsured patients often have to pay the entire sticker price. Hospitals recorded a sicker overall patient population after they were acquired, which could suggest that they’re upcoding in search of higher reimbursements, the study’s authors wrote.

  • Acquired hospitals saw some improvement on certain quality metrics, though the authors say that may be a product of “better adherence to compliance standards or efforts to maximize opportunities for quality bonuses under pay-for-performance contracts.”

The bottom line: This is just one slice of the market forces driving up the cost of care. Hospitals are consolidating and snapping up doctors’ practices even when they’re not under private equity’s umbrella, and private equity is buying up far more than just hospitals.

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