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

TL;DR

This study examines the impact of private equity investment on healthcare value, revealing overall declines but highlighting the moderating role of health IT sharing, especially between hospitals and ambulatory providers, in improving care quality and efficiency.

Contribution

It provides new evidence on how health information sharing moderates private equity's impact on healthcare value, emphasizing the importance of IT-enabled collaboration and data standards.

Findings

Overall healthcare value declines after PE investment.

Health IT sharing improves cost efficiency and care quality.

Hospital-ambulatory provider data sharing drives quality improvements.

Abstract

What is the impact of private equity (PE) investment on healthcare value? Does PE investment hurt or improve healthcare value, and if so, can its effect be mitigated through the use of health information technologies (IT)? Given the significant investments by PE firms in the healthcare sector in recent years, these are important research questions. Stakeholders, including policy makers, care providers, and patients, need to understand their likely impact and whether PE ownership is aligned with their interests. Using a staggered difference-in-differences approach and data from US hospitals from 2008-2020, we observe that the overall value of healthcare delivered by hospitals declines after PE investment. However, our empirical evidence reveals that IT-enabled, health information sharing plays an important moderating role. Hospitals with stronger information-sharing capabilities exhibit greater cost efficiencies and improvements in care quality, leading to higher healthcare value after PE investment. Furthermore, we find that the type of health information sharing matters. Specifically, we observe that improvements in care quality are primarily driven by information sharing between hospitals and ambulatory care providers, instead of simply hospital-to-hospital sharing of patient health data. Our research also identifies the underlying mechanisms through which health information sharing improves care value by reducing hospital-acquired infections and readmission rates, thereby improving care quality, and enhancing labor productivity by reducing operating costs. Our results highlight the critical role of policies and common data standards needed to promote IT-enabled information sharing between healthcare providers, which, in turn, can align incentives of PE firms with the goals of value-based care.