How Private Equity Funds Can Increase Healthcare Costs for Patients

How Private Equity Funds Can Increase Healthcare Costs for Patients

Every American needs high-quality, inexpensive health care, but sadly this can be prohibitively expensive for many families. One of the reasons for this spike in healthcare costs is due to increased private equity purchases. Investor-owned physician practices, and their patients, are caught in a conflict between financial goals and delivering quality care. This is apparent in many ways:

Higher Administrative Costs

These administrative costs include typically increased salaries for executives, increased marketing expenses, and the service of a substantial debt burden incurred as part of the acquisition.

Increased Upcoding and Overbilling

While upcoding and overbilling can occur in any practice, it is more prevalent in investor owned practices. These are examples of scenarios where a practice may submit claims to health insurance companies for reimbursement but are being very aggressive on the codes and claim strategies with a goal of higher reimbursements. This can lead to increased audits and post payment demands for return of funds, because the service was not really entitled to the higher reimbursement.

Prioritization of Profit over Patient Care

 Investor-owned practices are for-profit businesses, and their primary goal is to generate profits for their shareholders. Often the private equity fund only has a lifespan of five to seven years, putting leadership on a hard deadline to substantially increase financial results to make the practice attractive to a new buyer by that deadline.  

Uncoordinated Care

Private equity firms can be less integrated than conventional healthcare institutions, which could lead to fragmented and discontinuous care. This can lead to inefficiencies, duplicate tests, and increased patient costs.

Physician Burnout

Physicians working in investor-owned practices may experience burnout due to high patient volumes, administrative tasks, and pressure to meet performance targets. Across multiple metrics, higher levels of physician and staff burnout will directly lead to increased costs for patients.

Limited Provider Networks

Investor-owned physician practices may have limited provider networks, which can restrict patient choice and drive-up healthcare costs. Patients may have to pay out-of-network fees for care or may be required to switch to a different provider to receive the care they need.

Limited Patient Access

Patient accessibility can be a concern, particularly for small practicesand low-income or uninsured patients. This can result in patients receiving suboptimal care or delaying necessary treatment, which can lead to higher healthcare costs down the line.

Lack of Preventive Care

Investor-owned practices may not have financial incentives to provide preventive services, which can result in lower rates of preventive care and higher healthcare costs in the long run.

Inadequate Quality Assurance

Private equity owners may not enforce or require a proper quality assurance system and infrastructure. Patients may require more treatments or procedures due to suboptimal care, which can drive up the cost of healthcare.

Limited Investment in Technology, Research, and Development

Competitive technology investment typically sees lower contributions from investor owned practices due to direct conflicts with the financial bottom line or needing a justifying payoff too quickly for the investor owners to care. Sometimes, due to the debt burden, the practice may not have the budget to invest in the latest medical technologies or equipment, which could lead to longer wait times for patients or a limited range of services offered. Patients may have to seek treatment at larger, more well-funded organizations, which could increase their healthcare costs.

Resistance to New Payment Models

 Investor-owned physician practices may resist new payment models that incentivize value-based care and penalize providers for poor quality or high costs. This resistance can limit the ability of healthcare organizations to control costs and improve care quality.


It is important to note that many investor-owned practices have successfully delivered high-quality care while employing more efficient internal processes and workflows. However, the ongoing conflict of profit vs. patient care has led to increased scrutiny and criticism of many business practices typical or more prevalent in these types of organizations.

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