When private equity buys hospitals: efficiency without compromising care

Private equity firms have become major players in American healthcare, investing an estimated $200 billion in the sector over the past decade alone. This surge has sparked fierce debate. Critics warn that profit-driven investors will harm hospital services, lay off essential workers, and ultimately close facilities to maximize returns.

Until recently, this debate has been long on rhetoric and short on evidence. Now, a comprehensive new study provides the clearest picture yet of what actually happens when private-equity firms acquire hospitals – and the results challenge conventional wisdom on both sides.

A data-driven investigation

With fellow researchers Janet Gao of Georgetown University’s McDonough School of Business and Yongseok Kim of Tulane University’s Freeman School of Business, we undertook one of the most comprehensive examinations of private equity’s role in healthcare to date. Between 2001 and 2018, we analyzed more than 1,200 hospital acquisitions, using sophisticated matching techniques to compare acquired hospitals with similar non-acquired facilities and facilities acquired by non-private-equity buyers, and tracking outcomes for up to eight years.

The scale and timeframe make this study uniquely powerful. The dataset encompasses 610 unique hospitals acquired by private equity, providing sufficient scale to detect patterns that smaller studies might miss, while revealing both immediate disruptions and longer-term adaptations.

Four key findings

Hospital survival: no evidence of excessive closures

Our study’s first major finding directly contradicts fears about private-equity-driven hospital closures. Over an eight-year window, private-equity-acquired hospitals maintained survival rates indistinguishable from similar non-acquired facilities as well as facilities acquired by non-private-equity buyers – a crucial insight for communities worried about losing local healthcare access.

Staffing: strategic cuts, not wholesale reductions

The employment picture reveals strategic rather than across-the-board reductions. While private-equity-acquired hospitals reduced total employment by approximately 6 percent over four years, the composition of these cuts matters.

Our study distinguishes between “core medical workers” – physicians, nurses, and pharmacists essential for patient care – and administrative staff. Core medical employment fell initially by 16 percent but largely recovered, returning to pre-acquisition levels within eight years. Administrative employment, by contrast, dropped by 17 percent initially and continued falling to 20 percent below pre-acquisition levels.

By the numbers:

• Total employment: 6% reduction (sustained)
• Core medical staff: initial 16% drop; recovered by year 8
• Administrative staff: 20% reduction (persistent)
• Nonprofit hospitals: 33% administrative cuts vs. minimal cuts at for-profit facilities

This pattern suggests that private-equity firms target operational inefficiency rather than medical capability, with the most dramatic efficiency gains occurring at formerly nonprofit organizations that previously lacked investor oversight.

Financial performance: improved profitability

Private-equity-acquired hospitals achieved meaningful improvements in financial performance. Operating margins increased by approximately 4 percentage points in the four years following acquisition, with similar gains in return on assets.

These improvements appear closely tied to the staffing changes described above. By reducing administrative overhead while preserving core medical capacity, hospitals could deliver similar services at lower cost. The fact that revenue did not increase significantly suggests that profitability gains came from cost control rather than price increases – an important distinction for assessing patient impact.

Patient outcomes: quality maintained, satisfaction declined

Perhaps the most policy-relevant findings concern patient welfare. Across multiple measures of clinical quality, our research found no evidence that private-equity ownership compromised care. Mortality rates for heart attacks, heart failure, and pneumonia showed no significant changes. Readmission rates remained stable. Patient demographics did not shift toward wealthier populations, and inpatient prices did not increase significantly.

However, one consistent negative emerged: patient satisfaction declined across multiple dimensions, including communication with staff and overall hospital ratings. This decline likely reflects reduced administrative and support staff, revealing where efficiency gains create trade-offs.

Implications for practice and policy

These findings carry important implications for multiple stakeholders. For policymakers, the results suggest that blanket restrictions on private-equity hospital ownership may be misguided, as the evidence does not support fears of widespread closures or compromised clinical quality. For hospital administrators, the study highlights that dramatic reductions in administrative overhead are possible, though efficiency gains must be balanced against service quality in areas that matter to patients.

For private-equity firms, the findings provide a roadmap for value creation that aligns investor returns with broader healthcare objectives by focusing on operational efficiency rather than clinical cuts. The research clarifies where private-equity strategies work effectively and where they fall short – precisely the kind of evidence-based insight that can inform better practice.

The practical power of research

Our study demonstrates how rigorous empirical research can cut through polarized debates to reveal underlying realities. Rather than relying on anecdotes or ideological assumptions, we assembled comprehensive data, employed sophisticated analytical methods, and tracked outcomes over meaningful time horizons – creating an evidence base that challenges simplistic narratives on all sides.

The practical power of this research lies not just in its specific findings about private equity, but in its model for evidence-based policy analysis. By tracking multiple outcomes over extended periods, comparing similar facilities under different ownership structures, and acknowledging both benefits and costs, our study provides a template for evaluating healthcare interventions and reforms.

Healthcare represents one of the economy’s largest sectors, yet debates about its organization often proceed with limited empirical grounding. As our research shows, careful and rigorous research can inform more productive discussions about healthcare delivery, financing, and regulation. The evidence reveals a complex reality, i.e., operational improvements that benefit hospitals’ financial sustainability, with clinical quality generally preserved but some dimensions of patient experience potentially compromised.

In an era of healthcare cost pressures and access challenges, evidence-based insights become invaluable for crafting effective solutions. The practical power of research lies precisely in its ability to move beyond assumptions and uncover what actually works – and what doesn’t.