Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes
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.
We are grateful to Abby Alpert, Pierre Azoulay, Zack Cooper, Liran Einav, Matthew Grennan, Arpit Gupta, Jarrad Harford, Steve Kaplan, Holger Mueller, Aviv Nevo, Adam Sacarny, Albert Sheen, Arthur Robin Williams, and participants at the NBER Aging Summer Institute, American Economics Association, UBC Winter Finance Conference, Whistler Junior Health Economics Summit, Virtual Corporate Finance Seminar, ESSEC, Norwegian School of Economics, Oklahoma Price, PE Research Consortium (PERC) Annual Symposium, Tulane, NYU Stern, U Penn Wharton, Yale Health Policy, Oregon Lundquist, and Johns Hopkins Carey for their comments and suggestions. Jun Wong, Mei-Lynn Hua, and Sarah Schutz provided excellent research assistance. We thank Christianna Williams of Abt Associates for insights into CMS quality measures, Liz Liberman for industry information, and Mohan Ramanujan at NBER for assistance with the CMS data. Funding from the Wharton Dean’s Research Fund and the Mack Institute (Gupta), the Kauffman Foundation (Howell), and the Fama Miller Center at the University of Chicago (Yannelis) is greatly appreciated. We gratefully acknowledge funding through National Institute of Aging pilot grant P01AG005842-31. All remaining errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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