Private equity firms are increasingly buying mental health clinics and substance abuse facilities across the country, but it isn’t clear whether the investments are resulting in better care or cost efficiencies, according to new research.
The study, “Geographic Penetration of Private Equity Ownership in Outpatient and Residential Behavioral Health,” found that 6% of mental health facilities and 7% of addiction treatment facilities nationwide are now owned by private equity firms. In Colorado, Texas, and North Carolina, private equity firms hold roughly 25% of those facilities.
“There is this dearth of treatment, and it seems like private equity has taken advantage of some of those opportunities and begun to really enter this space,” Wharton health care management professor Marissa King said to Wharton Business Daily. (Listen to the podcast.)
“There is this dearth of treatment, and it seems like private equity has taken advantage of some of those opportunities.”— Marissa King
Does Patient Care Improve When Private Equity Firms Buy Health Facilities?
King co-authored the study along with Jane Zhu, medicine professor at Oregon Health & Science University; Emmanuel Greenberg, also with OHSU; and Susan Busch, public health professor at Yale School of Public Health.
Private equity firms buy companies with the goal of maximizing returns to investors. That’s why the growing trend of private equity acquiring health facilities has sparked concern over the impact on patient care. In March, three federal agencies announced a joint probe into how the transactions are affecting free market competition, worker safety, and patient health.
King said whether private equity-owned facilities are better is “the million-dollar question.” The study did not delve into quality of care, patient outcomes, or profit. The efficiency-seeking strategies of private equity may boost profits for behavioral health facilities, which are known for low profit margins, she said.
The geographic concentration of private equity ownership is also a puzzle. She said it may reflect several factors, including Medicaid reimbursement and demand for behavioral health services.
“This makes a lot of sense from a financial perspective,” King said, noting that behavioral health facilities need integrated data, marketing, and administrative systems. “Because the industry at this point has been so fragmented, the consolidation in some ways makes a lot of sense. The flip side is there is some concern that the consolidation is raising prices.”
“Where we worry the most is where we are seeing costs increase, but we’re not seeing improvement in outcomes.”— Marissa King
Can Private Equity Solve the Health Care Staffing Shortage?
Another aspect the scholars want to study is the effect of private equity on the staffing shortage in health care, “which is extraordinary, especially in the mental health and behavioral health space,” King said. “They may be able to make some headway in that space.”
King said the cross-sectional study helps shed light on the increasing “financialization of health care” as investors also buy up nursing homes, emergency departments, labs, and other facilities.
“The next step is to understand costs but also quality and outcomes,” she said. “If costs increase, but you are getting better [patient] outcomes, that makes sense and may be a better approach. Where we worry the most is where we are seeing costs increase, but we’re not seeing improvement in outcomes.”
