This article was originally published on healthydebate.ca on July 23, 2024. It is re-published under the creative commons license.
Around the world, private equity firms have become more active in owning health-care companies. In Canada, they own long-term care facilities and increasing numbers of for-profit surgical centres. The largest national network of independent surgical centres – made up of 53 operating rooms spread across 14 cities in Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and B.C. – are owned by a single private equity firm, nearly a monopoly.
As Canadians, we should be asking questions about why private equity investment firms are so interested in owning parts of our health-care system.
So, let’s take a look at private equity firms and health care.
Private equity investment firms are investment management companies that buy other businesses with the intent of increasing the value of these assets and maximizing profits for their investors. They often do this through restructuring these businesses, cutting costs and/or taking on debt.
Private equity firms are, as the name implies, privately held, meaning shares are not available to most individual “retail investors.” Instead, shares are sold only to larger investors, such as institutional investors, insurance companies, university endowments, pension funds and high net worth individuals.
Instead of being privately held, companies can also be publicly traded on one or more of the global stock exchanges, such as the Toronto, New York and London stock exchanges. Publicly traded corporations include some of the largest and most recognized, like Apple, Microsoft, Amazon, Shopify and Walmart.
Shares in these companies are sold to individual “retail investors” who invest their money through brokerage firms managed either by professionals or by individual investors themselves. Unlike private equity firms that are available only to certain clients, retail investors can buy shares in publicly traded companies.
Publicly traded corporations are bound by certain laws and regulations intended to create transparency for investors and the public. For example, they hold annual shareholders’ meetings, deliver audited financial statements and disclose the compensation of company executives and board directors. In contrast, privately held companies have greater privacy over their data and don’t have to abide by the same transparency rules about disclosing information to the public. This difference does not suggest malfeasance on the part of privately held companies, but rather that they are simply less transparent to the public.
As well as the surgical centres noted above, private equity has also bought up long-term care homes. Tragically, the consequences of private equity ownership were mostly acutely felt during the heights of the COVID-19 pandemic. Although for-profit long-term care homes generally had higher rates of mortality than those owned by not-for-profit entities, long-term care homes owned by private equity firms and large chains had the highest rates of mortality. As of 2021, financialized firms (private equity firms, real estate investment trusts and institutional investors) owned 22 per cent of all long-term care beds, and 42 per cent of retirement units in Canada.
What motivates private equity investment firms to buy these companies, if not the potential for shareholder profit?
Evidence from other countries tells us that it does. Private equity ownership of health-care services is associated with higher costs to payers and patients along with mixed or worse patient outcomes, particularly in the U.S. where ownership by private equity firms has become mainstream. Their focus on quick re-sales and short-term returns may come at the expense of the long-term health of the businesses they buy. Some U.S. critics have gone so far as to describe private equity firms as vulture capitalists.
Some U.S. critics have gone so far as to describe private equity firms as vulture capitalists.
Indeed, the U.S. Federal Trade Commission (FTC) has also taken notice: “Some private equity firms take a more long-term view and focus on creating real operational improvements to generate value in ways that provide broader benefits. But we’ve also seen some private equity firms take a different approach, where they load up companies with enormous amounts of debt, strip valuable assets and sell them off to enrich the private equity owners, and pursue financial engineering tactics that leave the underlying firm weaker and worse off. This approach is focused on extracting value rather than generating it, and – as we’ve seen in health care – can have devastating consequences for patients, doctors, nurses and the broader public”.
In an unprecedented move, the FTC launched a lawsuit against a medical group and its private equity backers, alleging that anti-competitive practices are driving up the cost of health care and exerting pressure on health-care professionals to “subordinate their own medical judgment to corporate decision-makers’ profit motives at the expense of patient health.”
Medical communities around the world are paying attention, too. As one study noted: “Critics argue that PE ownership could jeopardize patient safety by prioritizing profits, overburdening health-care companies with debt, impeding care delivery through ongoing management changes and sellouts, and over-emphasizing profitable service lines in place of less profitable ones.”
An increasing number of health-care workers, observers and critics worry that the growing financialization of health care is inserting corporate values into treatment, raising questions about the corporate practice of medicine.
Similar concerns have been expressed in Europe, which some have called “a golden opportunity for private equity.” A recent World Health Organization report notes that private equity firms own nearly 20 per cent of ambulatory health-care centres in Germany; a third of primary care centres in Sweden are reportedly managed by international private equity funds.
Some countries have begun to take action to mitigate the potential consequences of private equity ownership.
Legislation is taking shape in Germany to limit funding for primary care centres operated by investors without a medical background. In the Netherlands, both left- and right-wing political parties want to empower regulators to assess, and if necessary, block private equity takeovers of health-care organizations.
The FTC has partnered with the U.S. Department of Justice and the Department of Health and Human Services on a cross-government investigation. Launched as an “Inquiry on Impact of Corporate Greed in Health Care,” it has a particular focus on private equity firms. Beyond this inquiry, draft legislation calls for private equity firms and other for-profit providers to disclose financial and operational details like debt, political spending and wages, and to set aside up to five years of operating and capital costs in case of closure, and pay fines should they violate any of the legislation’s provisions.
In Canada, the Canada Health Act (CHA) is often the first place many look when questions of equitable access to care arise. The act, however, offers no protection from the potential harms of private equity ownership of our health-care facilities. Although the CHA prohibits extra billing and user fees for medically necessary care delivered by enrolled physicians or in hospitals, it is silent on who owns the facilities that provide our care. In other words, so long as the conditions of the CHA are met, provinces and territories will receive their share of federal money to fund publicly funded health care, which can be delivered in facilities owned by either for-profit or not-for-profit entities.
Canada’s Competition Bureau recently announced changes to the federal Competition Act that strengthen the bureau’s ability to protect competition and prevent anti-competitive mergers and conduct. As far as we are aware, the Competition Bureau has yet to wade into health care. When a single private equity firm has a near monopoly on our surgical centres, some think it’s time they do so.
Fuelled by international private equity funds, dental practices, veterinary clinics and pharmacies in Canada offer a preview of what may be in store for health care more broadly.
Some have warned, “I’ve never seen anything like it, I’ve been practicing law for 37 years. It just became a frenzy among the consolidators.”
Canadian economist Armine Yalnizyan noted in a recent acceptance speech for the Galbraith Prize in Economics that we may be closer to this frenzy then we realize: “Private equity-backed companies are the new giants of capitalism and are now extending their reach into care…There is growing incidence of private equity-backed owners driving successful operations into bankruptcy; but in the care economy, the consequences of failure are starkly different than in retail or restaurant chains.”
Like proposed regulatory and legislative changes in the U.S. and Europe, experts in Canada have proposed a series of measures for corporations that receive public funding to at least provide some guardrails for public investments.
Whether or not policy makers learn from the experiences of other countries, while listening to advice at home, remains to be seen.
