The bankruptcy of Steward Health has become the latest cautionary tale about private equity’s involvement in health care. Cerberus Capital Management’s purchase in 2010 of several Massachusetts-based nonprofit hospitals was meant to be a life preserver for the struggling chain, but instead its woes deepened, compromising patient care. The PE firm saddled the business with debt before making $800 million in profit when it sold the chain in 2020, according to reporting by Bloomberg.
How many other Stewards could be out there? We don’t know. As private investors move into new corners of health care, studying the impact of the trend remains frustratingly difficult because so many of the details don’t need to be disclosed. It’s too hard today to even figure out who owns your doctor’s office — let alone whether their influence is good or bad.
The Steward Health story adds a dramatic data point to the growing body of evidence showing that private investors can hurt the care hospitals provide. Research has shown that patients experience more complications, like infections or falls, in hospitals bought by PE firms. PE-backed care can also come with a higher price tag and more-aggressive debt collection for poor patients. And the shift in ownership can deprive some areas of care altogether, including basic services like delivering babies or performing surgeries.
One review of all the academic studies of the influence of private equity in health care concluded: “No consistently beneficial impacts of PE ownership were identified.”
But health care continues to be an attractive target for private equity firms, with physician practices becoming particularly alluring since 2016. Such deals are hard to track because the price usually falls below antitrust reporting thresholds.
From what we know, the first wave of acquisitions were centered on dermatology, ophthalmology and gastroenterology. Those specialties all have something in common: They perform a lot of procedures, whether that’s colonoscopies, skin biopsies or cataract surgeries. The steady demand for those services and how they are reimbursed (at a reasonably high level per service) means there’s an incentive to do them at high volumes, giving investors a clear path to a return.
The last four years have brought a second wave of investment in primary care and behavioral health practices, two areas that have suffered from doctor shortages. The financial motivations behind these deals differ from the earlier ones — money isn’t made by grinding out more procedures, but by growing the number of people covered by a health care system.
A recent study is, for the first time, putting some data around one important aspect of the first wave of deals: What’s the end game for acquirers? Everyone buys with an exit strategy in mind. A private investor typically holds onto a health care asset for 3-8 years, says Yashaswini Singh, a health care economist at Brown University. She found that dermatology, ophthalmology and gastroenterology practices acquired by a private equity firm were typically rolled up into larger networks before being quickly sold again — and that 97% of the time, they were sold to larger PE firms. Meanwhile, over half of the deals occurred within 3 years of the initial transaction, meaning another sale is likely just a few years away.
To be clear, this rapid consolidation isn’t inherently good or bad for patients and doctors. And these deals aren't happening in a vacuum — a lot of physician practices, hospitals and nursing homes are struggling financially and see a deal as the only way to get needed capital into their business. If private investors see an opportunity there, they’re just doing what investors do.
But it’s critical to understand what happens to patient care after a practice is acquired. One key component of that is what life is like for doctors afterward: Can they provide the same level of care, or are they pushed to see an unsustainable number of patients each day? If they’re unhappy, can they move to different practice nearby?
Singh’s paper hints at where problems could crop up. Doctors selling their practices might think they’re doing their due diligence in choosing a financial partner, but that only applies to the first stage. It’s unclear how much influence they’ll have in picking any subsequent buyers, Singh says. Future ownership changes could have a significant impact on how happy doctors are in their practices — and ultimately on the health of people in their community.
Understanding that dynamic is essential. Unhappy doctors often can’t jump to another practice — at least not one anywhere near their current job. Private equity firms acquiring physician practices typically require physicians to sign noncompete agreements. The only way around them is to move outside of a certain radius.
That’s bad for the doctor and bad for their patients. When doctors are forced to move, patients lose access to that trusted provider, and in some communities, there might not be another specialist to fill the void. (Although the Federal Trade Commission recently banned noncompete clauses, those new rules are subject to legal challenges that could take years to wind through the courts.)
On a more basic level, PE’s 3- to 8-year churn is disruptive. Each new investment team that takes over a practice is going to make changes to the business. And while those changes might help the bottom line or streamline operations, the turmoil exacts a toll. It’s unclear whether doctors have the power to preserve the aspects of their practice that maintain high-quality care.
Opacity seems to be a feature, not a bug of private equity’s involvement in health care. But without a window into the details, health economists will struggle to study PE’s impact on care and regulators can’t protect patients. And the public may assume that Steward Health is the norm rather than the exception.
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