Mass. commission calls for more oversight of healthcare private equity transactions
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50 Milk St. in Boston, home of the Massachusetts Health Policy Commission.
Concerned about poorer patient outcomes and steeper costs amid a sharp rise of private equity investments across multiple health care fields, policymakers next year plan to explore potential reforms aimed at expanding the state's oversight authority.
Out of 158 health care provider transactions, including mergers and acquisitions, between 2013 and 2022, 45 percent involved private equity firms. That includes 62 private equity acquisitions, with activity concentrated among home health and hospice, behavioral health, physical therapy and specialty medical providers, as well as dental practices, according to a new analysis from the Health Policy Commission.
"Private equity is unique and different from other for-profit health care entities, in that they are pursuing high returns in a short timeframe, using a variety of different strategies. But in particular, the aggressive use of debt is unique to private equity," Yue Huang, HPC's manager of research and cost trends, said during a Wednesday meeting. "And of course, in the pursuit of profits, their investments could have implications on spending, in quality of care, as well as the workforce."
Private equity investments have particularly accelerated in the commonwealth since 2020, Huang said.
But since the deals are private, their price tag is unknown, she said. Private equity firms may have gravitated toward specialty providers, such as dermatology, due to the prospect of private pay and increased revenues, Huang said.
Studies show that infections and patient falls increased at hospitals after they were acquired by private equity firms, and the volume of emergency departments deaths also climbed, said Dr. Zirui Song of Harvard Medical School and Massachusetts General Hospital.
Song said many private equity acquisitions involve practices that feature expensive yet "quick" procedures at outpatient facilities. Private investors also tend to focus on suburban or somewhat rural areas, where hospitals, nursing homes and other practices don't face the same competition compared to their urban counterparts, Song said.
Huang said she identified mostly one-off private equity transactions in Massachusetts, in which a private equity firm made just one acquisition. But in some cases, such as in the behavioral health space, those firms acquired several practices.
Huang cautioned that her analysis only examined acquired providers in Massachusetts, and therefore might have missed acquisitions in neighboring states as private investors potentially looking to establish a regional presence.
The data Huang shared with the commission, cobbled together manually from a mix of data sources, underscores the issue of transparency surrounding private equity firms, said David Seltz, the HPC's executive director.
"That just again demonstrates the lack of consistent reporting and transparency here," Seltz said. "We have a very robust process for having notice of material changes come before the HPC that we review and track, and many of the transactions that Yue identified in that analysis were never noticed to the HPC."
Seltz added, "There was no way that we could have ever known that they happened, but for being able to stitch together some of these proprietary data sets and being able to go back in time and look and see what has happened. That, to me, is an area that is calling out for some policy reform."
State law outlines a range of reporting requirements dealing with certain health care mergers, affiliations and acquisitions within 60 days of a proposed change. When the HPC receives a notice, it can decide to conduct a cost and market impact review, studying the provider's pricing compared to other entities in the area and assessing consumer concerns, among other topics.
The goal of the review, which will be made publicly available, is to "develop a more affordable, effective, and accountable health care system," according to the HPC. The HPC doesn't have the authority to deny a transaction, but other state agencies, such as the Department of Public Health or Attorney General Andrea Campbell's office, can use the commission's review for other options, like pursuing legal action to protect consumers, according to an HPC spokesperson.
In its 2023 health care cost trends report, the HPC recommended updating the notice requirement to ensure information would be submitted about private equity investments. Seltz said the HPC is working with the Legislature and Healey administration to make that statutory change.
"There is compelling emerging evidence of an association between private equity and health care and some negative impacts on pricing, utilization and quality of patient care," Seltz said, adding that those dynamics affect the health care cost growth benchmark and the stability of providers. "Private equity investment and arrangements may also affect the status of health care workers that are working in private-equity-backed providers."
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