Private equity-acquired hospitals saw higher margins, study finds

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Hospitals acquired by private equity firms had higher charge-to-cost ratios and higher operating margins than those not owned by a private equity firm, according to a study published May 3 in Health Affairs

For the study, researchers identified private equity transactions compiled by market intelligence firm Pitchbook and used data from the CMS provider cost reporting information system or the American Hospital Association annual survey. The researchers sought to compare the financial and operational differences between private equity-backed hospitals and facilities not backed by private equity from 2003 to 2017.

Five takeaways from the study:

1. A total of 42 private equity deals occurred during the study period, including 282 unique hospitals across 36 states.

2. Hospitals that were acquired by private equity firms had larger bed sizes, more discharges and more full-time equivalent staff positions in 2003 relative to hospitals that were not acquired by private equity firms.

3. Private equity-acquired hospitals also had higher charge-to-cost ratios. In 2003, the charge-to-cost ratio for private equity-acquired hospitals was 3.8, and for hospitals not acquired by private equity, the ratio was 3.1. By 2017, the charge-to-cost ratio rose for private equity-owned hospitals to 7.7, and rose to 4.8 for facilities not owned by private equity.

4. Private equity-owned hospitals also had higher operating margins. In 2013, private equity-owned hospitals had a 4.4 percent operating margin, whereas non-acquired facilities had minus 1.2 percent. In 2017, private equity-owned hospitals saw a 7.4 percent margin versus minus 1.2 percent for hospitals that were not backed by private equity.

5. "These findings certainly invite further examination of differences between hospital markets and the extent to which hospital operations are affected by the anticipation of private equity acquisition," the study authors said. 

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