Private equity healthcare investments in 2022 were the second highest on record after 2021, in terms of disclosed deal value and deal count. Home health and hospice both made it into the top 15 categories in which deal activity occurred.
That’s according to a new report by the Private Equity Stakeholder Project. And it’s not necessarily a good thing, according to the authors.
“The common private equity strategy of pursuing outsized returns over relatively short periods of time can lead to cost-cutting efforts that negatively impact patients and workers,” the authors wrote. “Further, private equity firms are more likely to use debt to fund their investments, leading to unwieldy debt service obligations that can divert money away from patient care and fair compensation for employees.”
In home health and hospice, the shortcomings can be potentially problematic, as “for-profit home healthcare and hospice companies have been linked to lower standards of care compared with their non-profit counterparts,” as private equity firms sometimes are known to “target outsized returns over short time horizons” in addition to financing some acquisitions with high levels of debt,” according to the report.
The authors recommend greater government oversight over private equity mergers and acquisitions. Reviews would be handled by the Department of Justice and the Federal Trade Commission, they said, under an amended Hart-Scott-Rodino Act. That act established the federal pre-merger notification program, which provides the DOJ and FTC with information about large mergers and acquisitions before they occur.
Additionally, the authors advocate for Department of Health and Human Services involvement in healthcare mergers and acquisitions, “due to impacts private equity investment may have on quality of and access to patient care.”
State governments should be involved in transaction reviews as well, the authors contend.
“States should consider implementing multi-agency healthcare transaction approval processes for healthcare transactions,” they wrote. “This multi-agency process should include state attorneys general, administrative agencies and stakeholders such as patient advocates and labor organizations.”
Lastly, according to the authors, both federal and state governments should ensure adequate funding for oversight of private equity healthcare investments