Private Equity in the Hospital Industry

Our research sheds light on this debate by examining the survival prospects, employment outcomes, and patient outcomes at hospitals acquired by PE firms. Our findings show that PE-acquired hospitals did not close at higher rates than non-acquired hospitals. These hospitals did experience substantial cost-cutting, but this was focused on administrative expenditures rather than core medical functions. Our analysis reveals no changes in the average price of inpatient procedures, patient demographics, or rates of patient mortality and readmission. However, patient satisfaction declined, possibly due to the reduction in the number of administrative staff.

We compiled data on 1,218 merger and acquisition deals in the hospital industry between 2001 and 2018. Our study focuses on 281 deals involving 610 hospitals where the acquirer was a for-profit organization: either a PE firm, a PE-owned hospital, or a hospital with no PE ownership. We compared PE-acquired hospitals with non-acquired hospitals that share several key characteristics. Furthermore, we compared hospital outcomes in the four years preceding an acquisition with those in the four years following the acquisition (the short run) and with those in the eight years following the acquisition (the long run). We considered both time horizons because hospital restructuring often involves large-scale transformations that take a long time to implement. Focusing solely on the short-run effects could obscure effects that appear only in the long run.

We began by analyzing the survival and profitability of acquired hospitals. Contrary to concerns raised in the popular press that PE firms tend to close hospitals, our research finds no evidence that PE-acquired hospitals closed excessively. Instead, these hospitals became significantly more profitable, though this effect dissipated in the long run. Additionally, employment at PE-acquired hospitals declined by 6 percent in the short run and remained at that level in the long run. Consequently, total wage bills decreased by 7 percent in the short run and 9 percent in the long run.

Although employment cuts can improve profitability, cutting essential medical workers can compromise the quality of health care and the long-term viability of acquired hospitals. Therefore, we examined employment outcomes separately for administrative workers and core workers (i.e., nurses, pharmacists, and physicians). Our findings reveal that the number of core workers at PE-acquired hospitals dropped in the short run but bounced back in the long run. This temporary reduction may have occurred due to some workers leaving in response to the disruption of corporate restructuring or because of their dissatisfaction with the work environment of a PE-owned hospital. Additionally, hospitals may have refocused their operations after acquisitions, causing their labor needs to shift. In contrast, the number of administrative workers fell by 17 percent in the short run and, unlike core workers, declined by 20 percent in the long run. Moreover, the wage paid to core workers did not change, but the wage paid to administrative workers fell by 7 percent in the long run, consistent with the notion that PE acquirers trim administrative spending.

One objection is that these effects may have occurred because PE firms chose to acquire hospitals that already showed signs of improving operational performance. However, changes in profitability and employment happened only after acquisitions. Another objection is that these effects are not specific to PE acquisitions but would have occurred following acquisitions by any for-profit firm. We explored this possibility by comparing the effects of PE acquisitions with acquisitions by non-PE, for-profit firms. This is a useful comparison because non-PE, for-profit firms also have profit motives but may not possess the same level of operational expertise, financial engineering capability, or governance discipline as PE firms. Thus, we expect hospitals acquired by non-PE, for-profit firms to exhibit less improvement in efficiency.

Indeed, our research finds that hospitals acquired by non-PE firms had a 16 percent chance of closing within eight years following their acquisitions, whereas PE-acquired hospitals had a 2 percent chance of closing during that period. Hospitals acquired by non-PE firms also reduced their total employment, but the reduction was relatively small. There was no decline in administrative workers in the short or long run, and though there was a significant reduction in core workers, these workers accounted for a small fraction of total employment in hospitals. These findings suggest that the operational changes we estimated for PE-acquired hospitals were unique to these hospitals and did not occur for hospitals acquired by any for-profit firm.

Next, we studied how PE acquisitions affected nonprofit hospitals compared with for-profit hospitals. In the short run, total employment declined more at formerly nonprofit hospitals than at for-profit hospitals. In the long run, administrative workers at formerly nonprofit hospitals fell by 33 percent while core workers returned to their original level. In contrast, for-profit hospitals experienced significantly smaller reductions in administrative workers. Formerly nonprofit hospitals may have experienced larger reductions in administrative staff because they previously faced no investor scrutiny and thus may have operated with less administrative efficiency. Additionally, these hospitals may have prioritized patient satisfaction over profitability and thus maintained substantial administrative functions.

Next, we examined whether PE acquisitions increased prices at hospitals. We focused on the prices of inpatient procedures, which are the most expensive procedures and accounted for 58 percent of patient charges for the hospitals in our data. The average price of inpatient procedures did not increase after PE acquisitions. We also separately examined the prices of seven common procedures and found that only one became more expensive: colonoscopies, which increased by 29 percent. Additional analyses show that PE-acquired hospitals did not shift toward more profitable operations (such as C‑sections over vaginal births).

Our research also studies changes in patient satisfaction using data from the Hospital Consumer Assessment of Healthcare Providers and Systems survey. Our findings show that patient satisfaction declined across multiple dimensions at PE-acquired hospitals. However, hospitals acquired by non-PE firms also experienced similar declines in patient satisfaction. We conclude that this effect likely resulted from the interruption in services inherent in any takeover by a for-profit firm.

Finally, we analyzed the effects of PE acquisitions on patient health outcomes. Our research finds no evidence that mortality rates increased at PE-acquired hospitals. Moreover, readmission rates did not increase for heart attacks, heart failures, or pneumonia. The lack of deterioration in patient outcomes, combined with evidence that patient demographics did not change, suggests that health care quality did not decline at PE-acquired hospitals.

Note
This research brief is based on Janet Gao et al., “Private Equity in the Hospital Industry,” Journal of Financial Economics 171 (September 2025).