Does Private Equity Hurt or Improve Healthcare Value? New Evidence and Mechanisms

Abstract

What is the impact of private equity (PE) investment on healthcare value? Does such investment hurt care value, and if so, can this effect be mitigated through the adoption of health IT systems? These are important questions given the growing presence of PE firms in the healthcare sector. Stakeholders, including policy makers, care providers, and patients, need to understand the likely impact and whether PE ownership aligns well with their interests. This study examines the impact of PE investment on healthcare value, focusing on the complex interplay between cost reduction and patient care quality. Using hospital-level data in the U.S. from 2008-2020, we estimate changes in healthcare value, defined as the balance between clinical resource use and patient outcomes, following PE acquisition. We find that overall healthcare value declines after PE investment. However, our empirical evidence also reveals that IT-enabled health information sharing plays a mitigating role. Hospitals with strong information-sharing capabilities experience both greater cost efficiencies and improvements in care quality, ultimately leading to higher healthcare value after PE investment. Moreover, we find that the type of information sharing matters: improvements in care quality are primarily driven by hospital-to-ambulatory provider information sharing.