Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes

Atul Gupta (), Sabrina Howell (), Constantine Yannelis () and Abhinav Gupta ()
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Atul Gupta: University of Pennsylvania - Health Care Management
Sabrina Howell: New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)
Constantine Yannelis: University of Chicago
Abhinav Gupta: New York University (NYU) - Department of Finance

No 2021-20, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes. With administrative patient-level data, we use a within-facility differences-in-differences design to address non-random targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

Pages: 78 pages
Date: 2021
New Economics Papers: this item is included in nep-hea and nep-ias
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