Private Equity

Consolidation of Hospitals During the COVID-19 Pandemic: Government Bailouts and Private Equity

By Richard M. Scheffler and Laura M. Alexander | Published July 20, 2021 in The Milbank Quarterly | Link to Full Article

On May 19, 2021, Senator Amy Klobuchar (D-MN), chair of the US Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights, held a hearing on hospital consolidation and the subsequent increase in hospital prices observed across the U.S. Most hospital markets meet the FTC/DOJ guidelines definition of being highly concentrated and, as a result, are not likely to exhibit competitive levels of prices, quality, or innovation. Yet, the COVID-19 pandemic is shaping the financial outlooks of large and small hospital systems in a manner that is expected to further fuel this consolidation trend. Coming out of the COVID-19 pandemic, private equity funds are sitting on enormous stores of “dry powder,” money they have amassed from investors and are required to spend or return within the next several years. Widespread expectations are that much of that dry powder will be deployed in health care, ultimately leading to vertical integration.

The article explores the harmful effects of post-COVID-19 consolidation through private equity in the healthcare space, emphasizing the damaging effects on local health care markets.

Modern Healthcare Interviews Richard Scheffler Regarding Growing Private Equity Investment in Healthcare

Modern Healthcare interviewed Richard Scheffler for an article discussing the growing trend of private equity investment in the healthcare sector. They also cite his recent report on the topic. The interview took place after the noteworthy buyout of medical supply company Medline by a trio of private equity firms—Blackstone Group, Carlyle and Hellman & Friedman. As Dr. Scheffler puts it, this may be “the start of an explosion of private equity deals in healthcare.”

Read the full article here.

U.S. Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights Cites Petris Center’s Richard Scheffler, Private Equity Report

The Petris Center and American Antitrust Institute (AAI)’s joint report on rising private equity investment in the healthcare industry was cited during the May 19 hearing of the U.S. Senate Committee on the Judiciary’s Subcommittee on Competition Policy, Antitrust, and Consumer Rights as part of the discussion about hospital consolidation and competition. The Petris Center’s Richard Scheffler and AAI’s Laura Alexander were recognized by name as the authors of this report.

Senator Blumenthal (D-CT) expressed concern over the impact of private equity investment on hospital consolidation and quality of patient care. He asked witness Professor Martin S. Gaynor of Carnegie Mellon University for his assessment of the role of hospital debt burden in necessitating hospital closures or mergers. Professor Gaynor then cited Richard Scheffler and Laura Alexander’s recent private equity report, noting that there is significant concern about private equity activity leading to consolidation and potentially diminishing quality of care due to misaligned incentives between private equity investors and patients and physicians.

Hear Senator Blumenthal and Professor Gaynor’s discussion of hospital consolidation and the private equity report during the May 19 hearing, beginning at about 1:25.