Does Private Equity Hurt or Improve Healthcare Value? New Evidence and Mechanisms

What is the impact of private equity (PE) ownership on healthcare value? Does PE ownership reduce healthcare value, and if so, can its effect be mitigated using health information technologies (IT)? Given the significant investments by PE firms in the healthcare sector in recent years, it is increasingly important for stakeholders, including policy makers, care providers, and patients, to understand their likely impact and whether PE ownership is aligned with their interests. Because PE firms seek to improve efficiency and generate short-term financial returns, the cost-cutting strategies used to achieve these goals may come at the expense of care quality, leading to competing hypotheses on the impact of PE ownership on healthcare value. We argue that IT-enabled health information sharing capabilities can help PE-owned hospitals to better manage this cost-quality tension and achieve higher healthcare value. Using a staggered difference-in-differences approach and data from US hospitals from 2008 to 2020, we estimate changes in healthcare value following PE acquisition and ownership. Overall, we find that PE ownership of hospitals reduces healthcare value. This decline is partially driven by reduction in clinical staffing following PE ownership. We further find that pre-existing, hospital health information sharing capabilities mitigate the negative impact of PE ownership on healthcare value. Specifically, such capabilities can strengthen the effect of PE ownership on cost reduction and, at the same time, mitigate PE-induced, care quality deterioration. Our results highlight the critical role of common data standards needed to promote IT-enabled information sharing between healthcare providers, which, in turn, can align the incentives of PE firms with the goals of value-based care.