As acquisitions in US seniors housing and senior care continue at record levels, a new paper in an international medical journal finds such transactions typically bring about a rise in costs and a drop off in quality.

Public health and epidemiology researchers from five universities in three countries reviewed dozens of studies on private equity ownership and found that an escalation in private equity takeovers across healthcare settings has led to higher costs for patients and payers. Several studies also found more ensuing harmful health outcome impacts than beneficial ones, they reported in BMJ on Wednesday.

Of the 55 international studies reviewed, the most in any one setting occurred in nursing homes, where researchers noted an association between PE ownership and a decrease in nurse staffing or a shift to lower nursing skill mix, which they said “could be pursued as a means of keeping operating costs low.”

Among 27 studies that measured quality of care, a dozen reported worse quality scores associated with private equity ownership, nine showed mixed results, and three reported neutral results after acquisition.

“No consistently beneficial impacts of PE ownership were identified,” wrote the authors, led by Joseph Dov Bruch, an assistant professor at the University of Chicago.

The extensive review came in the same week as investment bank Ziegler’s mid-year, not-for-profit mergers and acquisition update for senior living and care, which reported continued “record-level activity.”

“Since 2015, roughly 46% of not-for-profit changes have been not-for-profits being acquired by buyers from the private sector,” Ziegler reported. “This pattern has been most notable among freestanding nursing homes. Only roughly 10% of not-for-profit nursing homes that look for a new sponsor/owner end up going to another not-for-profit.” 

Driving the trend

Pressures driving nursing homes to merge or sell, often with no nonprofit offers, include staffing, the complexities of the skilled nursing marketplace, CEO turnover, and for some, significant expenses.

Those conditions can leave facilities vulnerable to private equity takeover in the right markets. The BMJ review found that acquisitions and consolidation are most notable in the fragmented Northeast and the South. 

In total, 12 previous private equity studies identified some sort of harmful impact of PE ownership on nursing homes, while seven studies identified beneficial impacts. Privately held nursing homes, and PE-backed facilities, have been a recurring target of the Biden administration.

According to a related BMJ editorial, the Medicare Payment Advisory Commission recently estimated that private equity firms own 11% of US skilled nursing facilities and 4% of US hospitals. The American Health Care Association, however, has put such SNF ownership at less than 5%, with about 12% of facilities owned by a real estate investment trust.

Some proponents of private equity investment have argued that firms use their managerial expertise to “implement operational and financial changes and improve the acquired company’s value after an acquisition,” the study said.

But the authors said such changes are “often reflected in greater costs to patients and payers. The fact that no consistently positive effects of PE in healthcare were identified also provides an evidentiary basis to remain cautious about claims that PE ownership is a self-evident benefit to healthcare provision.”

“Unlike non-profit and government operators of healthcare institutions, private equity investors’ business plans are laser focused on selling investments at a large profit after three to seven years,” noted an accompanying BMJ editorial. “Critics of this short term orientation have focused most of their criticism on the financial implications for patients and healthcare employees.”

The editorial noted that new private owners often sell off real estate, leaving operators with burdensome lease structures, now a common practice in skilled nursing. In other sectors, such as safety net hospitals, that “led after just a few years to considerable redundancies [layoffs], service cuts and even closures.”