Private Equity (Again) and an Update

Hi everyone. This will be short because I've been busy reporting a story for this little publication, financed, in part, by those of you who've seen fit to pay for a subscription. Thank you. When the story finally appears, it'll go behind the paywall. I want you to feel you're getting some value here.

I'm telling you this because my reporting for this upcoming story – I swear – did not start out to involve private equity at all. But as I have found over and over again, including while reporting for The Mayor (out in December! Pre-order it from your favorite local bookstore!), even when I'm not looking for PE, it finds me. This is because it is everywhere, now, into every part of our lives, from birth to death, its grasping tentacles slithering into places you wouldn't expect. PE will go wherever there is money to be extracted, and there is no bigger mountain of money in America than healthcare, which accounts for roughly 19 percent of the total economy.

The other day, I ran across the mention of an economic study while reading a book review. The study struck me immediately for a couple of reasons. First, in my book, The Hospital, I briefly discuss nursing homes, nursing home ownership, and the effects of profit seeking. Second, in my own life, I have run across the effects of private equity's push into healthcare. Two of my own doctors, knowing a little about my work, have complained to me about the takeover of medical practices by PE. "It's like, what?" one said to me of his fellow docs who sold out, "A BMW wasn't good enough? You need a Ferrari?"

The study is called "OWNER INCENTIVES AND PERFORMANCE IN HEALTHCARE: PRIVATE EQUITY INVESTMENT IN NURSING HOMES," and was conducted by a team of researchers led by Atul Gupta of the University of Pennsylvania's Wharton School, and Wharton Healthcare Management. It's a big, powerful (in research terms) study. The team looked at about 12,400 nursing homes from 2000 to 2017. They examined many kinds of data, including revenues, revenue source, ownership structure, staffing, patient deaths.

The study's conclusions, published in 2023, were unambiguous, at least as I read it. Private equity ownership of nursing homes kills people. Nursing homes in this country are pretty bad, no matter who owns them – it's a national scandal, in my opinion – but private equity ownership makes things worse.

In part this is because revenues to nursing homes are largely fixed because most of their income comes from Medicare and Medicaid payments. That makes nursing homes a small-margin business. PE wants to show profit. So it often sells the land on which the facilities sit, loads them with debt, cuts costs like staffing, and starts taking healthier patients that require less attention while turning away sicker patients.

"...the average Medicare patient in our sample would also experience an 11% increase in the chance of short-term mortality if she goes to a PE-owned nursing home," the authors conclude. Importantly, "the coefficients remain intact when we restrict our attention to PE acquisitions of the largest chains, in which chain size remained constant over the sample period, implying that the effect captures the nature of ownership rather than consolidation or corporatization."

"PE ownership leads to a 3% decline in hours per patient-day supplied by the front line nursing assistants who provide the vast majority of care giving hours
and perform crucial well-being services such as mobility assistance, personal interaction, and cleaning to minimize infection risk."

"If PE ownership affects mortality by leading to a lower quality of care, we expect negative effects on measures of patient well-being. To investigate this third channel, we consider three measures of patient well-being that are key standards for CMS [Centers for Medicare and Medicaid Services].... we find a decrease in mobility of 6.2% (3%), increase in ulcer development of 8.5% (0%), and increase
in pain intensity of 10.5% (8.3%)."

Now for a little update. Two weeks ago I wrote about Chester, Pennsylvania's charter schools in the context of the nationwide push for school charters and school vouchers. I also mentioned West Virginia and Ohio.

Now a group of parents, teachers and local school officials in West Virginia, Together for Public Schools WV Coalition, is begging the state to stop closing public schools. The coalition reports that 139 public schools, most of them elementary schools, have closed in the state over the past 15 years. Closing a community's public school can have severe effects on that community and the people in it, not least by turning a walk or a short drive to school into an expensive trek. Poor people with unreliable transportation suffer.

A report by RAND, a non-profit policy think tank, urged the state to stop taking money away from public schools to subsidize private ones through the state's voucher program, the so-called Hope Scholarship. The vouchers, RAND said, "inefficiently subsidize private school tuition for many families who would have chosen private schools regardless.” It also subsidizes the corporations that run many private and charter schools.

Meanwhile, in Ohio, David Dewitt, the editor of Ohio Capital Journal, a great independent news source in that state, published a blistering editorial demanding oversight of the more than $2 billion (yes, billion) in school vouchers taxpayers will be buying to send kids to private schools, including religious schools, which would seem to be a rather obvious violation of the First Amendment.

"These are private families using public Ohio taxpayer dollars to pay a private business or religious institution," DeWitt writes. "The use of public money demands public accountability far beyond the personal views of the parent using the public’s money at the public’s expense.

"And privacy against public oversight for the business or religious institution stops when they dip their hands in the public honey jar."