Why and How to Alleviate the Impact of Private Equity on Healthcare Service Prices
As part of the SIRI program at Columbia University, I had the opportunity to participate in a...
As part of the SIRI program at Columbia University, I had the opportunity to participate in a project with a real client. This project involved investigating the extent to which private equity (PE) ownership in the healthcare sector—including hospitals, clinics, nursing facilities, and medical device companies—has contributed to rising healthcare service prices. We also examined whether existing state-level policies are effectively curbing these impacts.
Although the client is a labour union composed of teachers and education professionals, it is a long-established organization with members across a wide range of age groups. Many of its members are enrolled in defined-benefit public pension plans, and these pension funds invest in private equity (PE) funds. From the standpoint that investments causing harm to the beneficiaries—such as increased out-of-pocket healthcare costs—are unjustifiable, this project was significant in terms of ESG considerations for pension fund management. Additionally, if healthcare costs increase at PE-owned hospitals and clinics, union members and their families may face higher insurance premiums and copayments, making this issue highly relevant to them from multiple angles.
As a medical doctor from Japan, I deeply understood how the financial burden on patients plays a critical role in treatment decisions. Recent reports have also shown that PE ownership has led to financial distress at healthcare facilities and contributed to rising costs, further worsening access to care. Therefore, in this project, we decided to study how much PE ownership affects healthcare prices and the management of healthcare facilities across various U.S. states.
Building on prior research into the factors affecting healthcare service delivery and management, our focus shifted to the impact of PE ownership. We systematically investigated different forms of PE ownership and examined whether state-level policies and regulations impose any controls on them.
One particularly compelling aspect of this research was the regulatory landscape. We found that many U.S. states do not have specific regulations regarding PE acquisitions. However, among those that do, the regulations generally fall under five categories derived from federal frameworks:
- Mini-HSR Acts
- Antitrust & Health System Integration Laws
- Certificate of Need (CON) Laws
- Health Insurance Market Regulations
- Public Notification & Transparency Requirements
Washington State, where we conducted a case study, was notable for its strict approach, combining Mini-HSR Acts, Public Notification & Transparency Requirements, and Certificate of Need Laws. Yet, despite this robust regulatory framework, our pricing analysis revealed clear increases in three out of four hospitals examined.
These findings suggest that current policy tools like the Mini-HSR Act or CON laws focus on evaluating the legitimacy of PE entry and structural concerns, rather than directly assessing the impact on service prices. In some cases, they may even reinforce the dominance of existing PE-controlled providers. Given the indirect nature of these tools, it is difficult to regulate price increases through policy alone.
To more effectively manage the impact of PE on healthcare pricing, it may be necessary to enhance price transparency and ensure that patients can make informed decisions based on cost. Additionally, expanding support for nonprofit healthcare providers to maintain competitive balance may be another viable strategy. Placing restrictions on profit-maximizing behaviour by PE firms could also be effective, although this is likely to provoke strong resistance from the investment community.
Curbing the rise in healthcare service prices is essential not only to secure patient access but also to ensure sustainability by maintaining the quality of care. Through this project, I strongly recognized the importance of attracting impact-driven investors by enhancing policy support. At the same time, I experienced firsthand how complex and difficult it is to develop effective policy proposals that can address these challenges.