Private-equity firms are known for generating outsize returns for wealthy investors. They do it by acquiring struggling businesses, quickly turning them profitable, and selling them at a hefty profit. A favorite target industry in the past 20 years has been health care, and specifically nursing homes.

While PE investors have done well, the same can’t be said for patients at nursing homes acquired by such funds, according to University of Pennsylvania’s Atul Gupta, NYU’s Sabrina T. Howell, Chicago Booth’s Constantine Yannelis, and NYU PhD candidate Abhinav Gupta. After a nursing home’s purchase by a PE firm, residents’ short-term mortality rate jumped by 10 percent, the researchers determine through an analysis of Medicare and Medicaid data covering more than 18,000 US nursing homes between 2004 and 2019. During this period, 1,700 facilities were bought by PE firms.

“We crunched the figures to determine the main metric—mortality rates—over this 15-year period,” Yannelis says. “What we found is that in the private-equity-acquired nursing homes, this 10 percent hike in mortality translates to more than 20,000 additional deaths relative to other homes during this time frame. That’s more than 1,000 deaths every year, on average.”

The findings are all the more urgent as the COVID-19 pandemic has exposed flaws in the regulation and financing of long-term care facilities, which have, with nursing homes, been the location of nearly 40 percent of American deaths from the virus, the researchers write.

In the past two decades, PE acquisitions have ballooned in US health care to more than $100 billion in 2018, from less than $5 billion in 2000. Today, private-equity-owned businesses provide staffing for more than a third of America’s emergency rooms, and own large hospital and nursing-home chains across the nation, the researchers report. In the nursing-home sector, the industry’s investment is expected to jump to $240 billion by 2025, from $166 billion in 2017.

What’s behind the surge in death rates? It could partly reflect staff cuts. The researchers find an average reduction in staffing of 1.4 percent after PE companies bought nursing homes and a 3 percent drop in the number of hours that nurses and other staff were paid to provide basic services such as hygiene, infection management, and monitoring or bed turning. These routine tasks are critical to well-being and health outcomes, particularly of older patients, Yannelis says.

Another cause could be the use of antipsychotic medications. “We find that while these homes are cutting back on staff and staffing hours on the one hand, on the other they are administering far more antipsychotic medication to elderly patients,” Yannelis says. “The study demonstrates a full 50 percent increase in the use of these drugs in private-equity-owned care homes—most probably to offset the drop in nursing hours and availability.” Conventional antipsychotic drugs are known to increase mortality in older, institutionalized patients with dementia, the researchers observe.

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Fewer staff and more medication are a “lethal combination” that most likely account for the spike in deaths, the researchers write. They’re cost-saving measures that also point to a shift in focus from patient outcomes to profit margins when nursing homes are taken over by entities with a primary duty to shareholders, they note.

“It’s likely that PE firms are motivated more by a preoccupation with the bottom line and less by concerns around patient outcomes,” Yannelis says. And for patients and their families, this is a real worry, not least because they have little way of understanding how the ownership of a facility can affect the quality of care it offers.

With PE ownership of nursing homes rising, more needs to be done to align the welfare of patients with the profit motives of owners, Yannelis says. He argues that regulators and decision makers have a critical duty to address incentives so that the efficiency promises of private investment can be fully realized without causing trade-offs in people’s well-being.

The success of private equity in other sectors doesn’t necessarily translate to health care, Yannelis says. “The kinds of high-powered incentives that are in place to maximize profits are likely to lead to detrimental outcomes for a lot of patients. Until this is addressed, I wouldn’t perhaps tell people never to go to a PE-owned nursing home, but certainly to take ownership into consideration when they are making what are effectively life or death decisions.”

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