Private Equity in the Hospital Industry – Healthcare Economist

That is the title of a recent paper by Gao, Kim, and Sevilir (2025). The authors examine 1218 hospital merger and acquisition (M&A) deals in the hospital industry between 2001 and 2008. The authors focus solely on M&A deals with for-profit entities as they argue that they want to examine whether private equity (PE) specifically impacts outcomes compared to other types of for-profit acquisition as both PE and non-PE for profit firms have a profit motive. They stratify the sample based on whether the acquirer was a for-profit organization or not (i.e., private equity (PE) firm, PE-owned hospital or a hospital with no PE ownership).

Based on this approach, the authors find that:

Target hospitals maintain their survival rates while significantly reducing employment and wage expenditures. The number of core medical workers drops temporarily, but returns to its pre-acquisition level in the long run. However, administrative job and wage cuts persist over the long term, particularly at previously nonprofit hospitals. Using proprietary insurance claims data, we find no significant changes inpatient demographics or inpatient prices at PE-acquired hospitals. While patient satisfaction declines, there is no evidence of increased patient mortality or readmission rates at PE-acquired hospitals.

Note that in this analysis, “survival” means whether the hospital survived (i.e., remained open) or not.

What data did the authors use reach these findings?

The authors approach to identify M&A deals follows Cooper et al. 2018, and the authors basically replicate this and extend it into future years. Overall, the data used include: use data from

• M&A deals: American Hospital Association (AHA)’s Annual Survey of Hospitals to identify the changes in ownership of individual hospitals.
• PE ownership determined through data from Preqin, CapitalIQ, and descriptions in Becker’s Hospital Review.
• Hospital characteristics. CMS’s Healthcare CostReport Information System (HCRIS) system. These characteristics include: total assets, and returns on assets, hospital size (# of beds) gross and net sales, number of patients, and complexity of operations based on case mix index, employment (number of full-time equivalent employees), and employee wages.
• Patient characteristics. Identified from Health Care Cost Institute (HCCI) data. This is used to create a risk-adjusted inpatient price index.
• Patient outcomes. Mortality and readmission rates are collected from CMS’s Hospital Compare Outcome Measures. The key quality outcomes include 30-day mortality rates from heart attack (AMI), heart failure (HF), and pneumonia(PN), as well as 30-day readmission rates following treatment for the same conditions.
• Patient satisfaction. From Healthcare Providers and Systems (HCAHPS) survey.

What empirical methodology was used?

The authors used a matched sample analysis (a.k.a. nearest neighbor) to conduct the analysis. The acquired hospitals are matched to non-acquired hospitals and both are required to have at least two years of data prior to the event year. Within this pool, the authors find one ‘‘nearest neighbor’’ hospital based on a Mahalanobis matching method with replacement. Changes in outcomes are measured in the short run (comparing 4 years pre acquisition to years 1-4 post acquisition) and in the long-run (comparing 4 years pre acquisition to years 5-8 post acquisition). This approach follows the methodology developed by Schmitt 2017 and Prager and Schmitt 2021.

You can read more details about their results and methodology in the full paper here.