Ask Me MD: Medical School for the real world
Ask Me MD: Medical School for the real world
Atul Gupta, PhD - Private Equity in Nursing Homes
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Atul Gupta, PhD discusses his research into private equity investment in nursing homes.
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Ask Me MD, medical school for the real world with the MD Dr. D.J. Verret
D.J. Verret, MD, FACS :Greetings, and welcome to Ask Me MD, medical school for the real world. I'm Dr. D.J. Verret, and this week we're featuring a series of interviews with researchers who've looked at the effects of private equity investments in health care. Today we'll be talking with Dr. Atul Gupta, an assistant professor in the Department of Healthcare Management at the Wharton School, University of Pennsylvania. Dr. Gupta has been looking at the effects of private equity investments in nursing homes, and has focused recently his research on private equity investment in the outpatient setting. We'll talk to Dr. Gupta, right after this.
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D.J. Verret, MD, FACS :Welcome back to Ask Me MD, medical school for the real world. Today I have the pleasure of being joined by Dr. Atul Gupta, assistant professor at Wharton to talk about private equity involvement in healthcare. Atul, thanks for joining us.
Atul Gupta, PhD :Good afternoon. Thanks for having me.
D.J. Verret, MD, FACS :Can you kind of give us a little bit of background on yourself and how you came to start researching private equity involvement in health care?
Atul Gupta, PhD :Yeah, sure. So I will have the economist. I'm an economist by training, I got my PhD in Economics at Stanford. And after that, I've been as an assistant professor at Wharton since 2017. And I studied various aspects of us healthcare, the economics of us healthcare. And, you know, some of my overarching research interest in health care is how we can improve productivity. It's, it's quite well known that us healthcare actually does a really good job of innovation and producing new treatments and services. What we don't do such a great job of is, you know, to do it at a low cost. And, and so that's really the focus of my research, you know, for various different angles. I had never looked into private equity before, but a couple of my friends who actually are in finance departments and business schools, you know, they've done some work on private equity. And I was vaguely aware that private equity actually has been quite a beneficial force in other industries. And then, you know, we, we sort of started talking and, you know, they were, they were interested on what people think of private equity in healthcare. And I said, I really don't know, because I haven't really seen that much work done on it. And that's how we decided to join forces and start looking at private equity in healthcare.
D.J. Verret, MD, FACS :I saw a couple of your papers, and that's kind of when I reached out to you. Can you tell us a little bit more about kind of what particular areas you're researching, in what resources one of the things that that I find difficult, and I think you would probably agree, is really getting information about private equity transactions and, and outcomes and that kind of thing, especially in outpatient settings. So maybe if you could tell us a little bit more about your specific research, and how you actually go about objectifying results of those entities that are involved in private equity.
Atul Gupta, PhD :Yeah, sure. So, you know, before I get into the private equity stuff, you know, I'll just talk a little bit about some of my other work, which will give you a flavor of the kind of stuff that I do. You know, funny one example of a paper that I worked on is I looked at the imposition of performance pay penalties on hospitals by Medicare, under this very large program called the hospital readmissions reduction program. And you remember modus operandi across projects is I'm sort of a, you know, data database, you know, empirical research type of person. And so I look for data. And, you know, it could be patient level data, for example, in this project on hrrp. I got Medicare claims data to look at patient level outcomes, you know, in terms of what happened after hospital started getting penalized for readmissions. And, and, you know, we try to be careful so that we can make causal inferences and causal claims as opposed to just estimating correlations. That's something that economists in general take very seriously. On the private equity project specifically, you know, as you rightly said, the most difficult aspect of the project was actually identifying which, in our case, we looked at nursing homes, which nursing homes got acquired by private equity firms. So we started with this market intelligence firm called pitch book, which I'm assuming you've and your listeners have probably heard of, if they're interested in private equity benchmark is a leading market intelligence firm, which aggregates data on private equity, buyouts. And then they sell this data to researchers and you know, basically anybody who's interested. So we have a confidential data use agreement with Pitchfork and, and so using that we got a list of all the private equity transactions. But that's really only the start of the process. Because this data is not in a form where you can easily link it to administrative data, let's say from CMS, on you know, exactly, exactly which nursing home was bought by the private equity firm, because in the pitchbook data, all you'll see is that in 2015, so and so firm spent, you know, x million dollars to buy, so and so nursing home chain, so they don't mention exactly which nursing home facilities were bought, oftentimes, the name that they mentioned in the in pitch book is the name of the corporate entity or the corporate parent, which might differ from the actual, you know, sort of business name of the of the nursing home chain itself. And so it really was a starting point where we then actually had to deploy a significant significant amount of time of our research assistance, to basically manually go online and then research these deals. And if we had a name of a corporate entity to go and figure out, you know, which was any other corresponding nursing home chain, and then, you know, piecing it together with various sources, for example, CMS has this nursing home ownership file, which goes back to about 2010. And then there are some other files which provide details of ownership. So it was a, it was a lot of time investment, an endless time to to sort of piece this together. And unfortunately, there is no benchmark, you know, there's there's no truth out there to tell us whether we've done a really good job or an okay job. That, you know, there is one study by the the government accountability office where they looked at private private ownership of private investments into nursing homes. And I and our numbers look fairly similar to their numbers. So that gives us some confidence that, you know, we've we've done a pretty good job. But, you know, I think we have to accept this caveat that since there is no truth, you know, it's possible that we is not accounted for all the nursing home facilities that were bought by parodic private equity firms. If once we had that then we linked it with administrative data from CMS, which managers nurse you know, which which manages Medicaid and Medicare, which are the largest payers for nursing homes in the US. And so they had detailed data on nursing home staffing, quality outcomes by way of these five star ratings, which we use in our paper. And then we also obtain patient level data. So Medicare claims data, and then also the the nursing home assessments, which are mandatory for all Medicaid and Medicare patients. And and then we use those to develop outcomes that we study. So the primary outcomes that we study are our patient health outcomes, you know, things both both hard objective things like mortality and rehospitalization. And also assessment based outcomes, like, you know, are they now more likely to be using anti psychotics, you know, are they having more difficulty and mobility and pain and then also spending which is obviously an important outcome of interest.
D.J. Verret, MD, FACS :That's, that sounds like a tremendous amount of legwork to come to any kind of conclusion, how many nursing homes were involved in the research that you were doing.
Atul Gupta, PhD :So we identified about 1700 nursing homes that were bought by private equity firms, or 2004, through 2015. And in total, you know, over this period, we found that there are about 15,000 odd nursing homes. So, so about 12% of all nursing homes were bought by private equity firms over this period. And if you only limited to the, you know, the for profit nursing homes, about 15, to 17%, of all for profit nursing homes are bought by private equity firms.
D.J. Verret, MD, FACS :And with once you were able to aggregate all of that information, what did you actually find in your research?
Atul Gupta, PhD :So, yeah, so that's very interesting. So there's two parts to it. So, you know, if you examine patient level outcomes, you know, so this just set this up, you know, why do we care about this, I guess, you know, healthcare is, you know, as everybody kind of intrinsically understands, and particularly our listeners who are physicians, healthcare is different from other sectors for various reasons. You know, one important reason is, is this idea in economics that we call information, friction, which is that patients don't, aren't able to assess the quality of the healthcare provider, because they're not experts, they don't really understand whether the physician is a good physician or not, and whether the physician is doing a good job or not. The other problem is that in healthcare particularly is that it's not a perfect competition sort of environment, you know, there's limited choice in several markets, and patients basically, very often and choose the provider that's closest to them. And then the third problem is there's extensive government intervention in the US healthcare sector. So you know, even though we sort of pride ourselves on having largely a privately run healthcare sector, that's actually not true. You know, Medicare and Medicaid are huge. And it's, it's most true of nursing homes. So about 80 85% of nursing home revenue comes from these two payers, the private sector, you know, private insurance is very limited in terms of long term care. And so more than any other part of the healthcare space, you might worry that with nursing homes, because Medicare and Medicare are not very nimble, they're not market oriented, you know, they don't really give incentives to nursing homes to do better show they have some compliance based stuff in the form of audits. But you know, there's no real incentive, by way of price to do a better job for a nursing home. So our worry was our concern was that, you know, in a, in a, in a space, like healthcare, and particularly in a space, like nursing homes, you might worry that private equity firms which have this high powered financial incentive, you know, they might get in. And, whereas in other industries, they try to improve the quality of the product, or the quality of the service, to get more revenue, to get more margins, and to do better in healthcare, because of all these challenges of the healthcare space, they might just cut back on costs, without actually improving the quality of care. And, you know, not pay a price for that, so to speak, continue to get government revenue by way of Medicaid and Medicare and improve their operating margins. So that was sort of our hypothesis going in. At the same time, you know, we were hoping to find positive effects because we know that private equity can have beneficial effects. So, you know, we were going open minded and if you read the introduction of our people, we say that marriage equity could be the great hope of us healthcare is they actually deliver operational improvements in efficiency. Now, what we find is, on the patient side, we find that first of all, nursing homes are able to charge higher amounts for nursing home patients, and they do it primarily by keeping them longer. So we compare patients had nursing homes that were private equity owned with patients and nursing homes or non private equity owned. And, you know, I, in the interest of time, I won't go into details or research design. But you know, people are free to sort of look at the paper and and And you read what we do, but basically compare before after the the acquisition by the private equity firm, and we compare two firms compared to nursing homes that were not owned by private equity firms. And we find that they, you know, they keep these patients longer, so length of stays go up. And nursing homes are paid on a daily rate basis. So it's a per diem sort of payment environment. And so if you keep patients longer, you get paid more. So private equity or nursing homes are able to charge about 15 to 18%. More. So we're paying more in that.
D.J. Verret, MD, FACS :And that's just from the patient staying longer, correct?
Atul Gupta, PhD :Yes, it's from the patient staying longer, we control for a rich, you know, for a lot of things that we observe, because we have patient claims data, you know, we can control for patient risk age, gender comorbidities, you know, it's obviously not perfect, but to the extent that we can observe it, we control for it. So we're trying to get as close to comparing apples to apples as we can. And, you know, we also do some other things where we also control, we also try to compare patients who are at a similar distance from the nursing home. Because it's well known that distance is a huge factor in in determining which nursing home or hospital you choose to go to. And so that allows us to also get closer to people who are from the same market who live in the same area. And so I'm more likely to be similar to each other. And so, the bottom line is, you know, we find that these private equity or nursing homes are able to get more money extract more revenue from Medicare, which is taxpayer money. But you don't find any evidence of improvements in health outcomes. In fact, on the contrary, we find that mortality rates go up. So we look at 90 day mortality one year mortality, and we find statistically significant increases in mortality rates. And economically meaningful increases in mortality is fear, talking about five to 10% increase in mortality rates. So it seems like they're not delivering better patient health outcomes. And at the same time, you know, taxpayers are paying more, then the question comes, why are we seeing a worsening of health outcomes? And so for the end, to answer this question, we turn to, you know, other data that CMS provides. CMS, you know, CMS in the States, they conduct these regular audits of nursing homes where state appointed auditors come in, and they get a wealth of information on whether the nursing home is in compliance with a variety of standards that the states have set for the nursing home, as well as they also get information on on staffing availability. So how many nurses are available of different types per patient. So we use that data to look at nurse availability. And what we find is very striking, we find that after private equity firms acquired nursing homes, they cut back on our nurses. Specifically, they cut back on the on the less skilled nurses. So nursing aides and LPN licensed practice nurses, which are typically the know the lower than the less skilled and lower cost nurses. So we find that they actually don't cut back on registered nurses who are the most senior nurses who can do care planning and sort of act relatively, you know, operate relatively independently of physicians. But since the vast majority of nurses in nursing homes are these lower skilled nurses on the whole, there is a there is a decline in costs, which is being driven by this cutting of nurses. And, you know, the cost structure of nursing homes is such that the vast majority, you know, a substantial chunk of operating costs, by some estimates as large as 50 to 60% of operating costs, is basically nursing staff. And so cutting back on nursing staff actually leads to substantial reduction in operating costs for nurses for these facilities, which would directly go to their operating margins. At the same time, we also find that they are more likely to be cited by these auditors for being in violation of the standards that have been set by the states and the federal government. And you know, these compliance issues can range across a variety of domains. It can you know, it can be on how they treat their patients, it can be on the quality of their physician. Ladies. And so we also find evidence that they're more likely to be out of compliance once they get acquired by these private equity firms. So we believe that these are the mechanisms which are leading to this worsening of patient health. Another thing that tells us that, you know, these stories are kind of interlinked is when we look at. I said earlier that we find mortality effects, we find that there's an increased mortality of about five to 10%, not percentage points percent. And where is this coming from? So, you know, to look at this more closely, we sort of divide the patients into different types of groups, you know, young patients, all patients. I mean, in this context, since they're Medicare patients, they're all old. They're all older than 65. But you know, within that group, we divide them below 80 and above 80. And we find that the mortality effects are coming entirely from the older group, people who are older than 80. But very interestingly, within this older group, the mortality effects are actually coming from lower risk patients, they're not coming from the sickest patients, in fact, of the sickest patients, there are actually no adverse effects. It's actually from the less sick patients where you're getting these adverse effects. And, you know, if you think about the fact that they're actually not cutting back on the experienced and senior nurses, the RNs, but they're actually cutting back on on the frontline staff. You know, at least we think it sort of makes sense that, you know, first of all, older patients are more likely to be more sensitive to cut to worsening of quality of care. So so it kind of makes sense in that sense. And within the older patients, it's not the sickest patients who probably still get the attention that they need. But it's actually the less sick patients. Because when you cut back on resources, it's probably the less sick patients, you know, who are simply lower priority, and they don't get the routine things that will help them you know, like helping them move in their bed, or bats or, you know, other types of sort of routine activities of daily living that these types of patients need. So that's in a nutshell, what we find now, all of this, you know, seems to be sounds very morbid and negative, there are some positive effects of private equity firms as well. And I'd like to talk about that as well. First of all, we find that private equity firms are somehow able to drive up occupancy rates at nursing homes, so they don't seem to do any capacity expansion, but they are able to increase the number of patients that go through the nursing home. Now, you may say that, you know, this is also of course, a profit motivated sort of thing. And, you know, the more patients they go through, obviously, that helps their revenues and their profit margins. You know, that may be true, but still, from society's perspective, the fact that now you're able to deploy these nursing homes at higher occupancy rates is an improvement. And it's not just true of, you know, because, you know, the second question might be, are they just stealing patients from their competitors? Or are they genuinely increasing access to nursing home care for patients? So to look at this, we actually looked at, you know, whether the total number of patients in the whole market increased their private equity own form, entered that market, and he actually find that they're doing it, you know, at the market level. So obviously, some of it is they're stealing patients from their competitors. But there, but there seems to be a neck increase in the number of patients who are already nursing homes. And so we believe that there is a positive aspect to this, which is that, you know, perhaps driven by the financial incentives, they are expanding access to nursing home care for patients. And, you know, one part that we've not yet done our analysis, but you know, we're sort of working on that. Next is, how do you compare the positive effect, which is that they've expanded access to nursing home gain to the negative side, which is that, you know, the patients are worse off in terms of higher mortality rates. And so that's about a bit all working on you in terms of attaching some dollar values to both sides of the equation and seeing how they stack up.
D.J. Verret, MD, FACS :And it sounds like from that, since you have some kind of positive and negative effects, maybe it's a story to be told of how to do the positives, and leave it to other operators to avoid the negatives as well.
Atul Gupta, PhD :Yeah, no, it's fascinating. You know, I often get this question of what's the So you know that so what, you know, what do we do about this? I think it's fair to say that we're still thinking about, you know, if there are any policy prescriptions that come out of this. You know, I think that certainly private equity firms need more oversight. But then, you know, people might come back and say that nursing homes already have a lot of oversight. You know, no other health. No others know that part of the health care sector has so much oversight as nursing homes, do, you know, hospitals and outpatient physicians don't have these surveys that come in every three months or every six months. And they don't have to provide all this wealth of information. They don't have to do patient assessments. So, you know, you could, you could argue that there's already a lot of oversight. But at the end of the day, it's not really done in a way that allows the government to sort of enforce quality in a real time way. So that, you know, I think that limitation will probably remain. We, you know, some some of our results suggest that the negative effects of private equity acquisitions seem to be concentrated in markets where there is less competition. So my negative effects, I'm talking mainly about the mortality effects. And so maybe you could make a case that there should be a hurdle to acquiring nursing homes, you know, for for private equity firms, in markets, which are already concentrated, because it seems like their worst instincts get enhanced in these markets. You know, if there's relatively less competition, patients don't have much of a choice. It seems like those are the places where they really cut back on costs. And patients are really worse off. So maybe that's one way of thinking about, you know, what policymakers can learn from this.
D.J. Verret, MD, FACS :Did you look at or were you able to look at any correlation between size of the private equity fund and the outcomes and operations?
Atul Gupta, PhD :Well, that's a great question. No, actually, we've not, we've not looked at that. Look at that aspect, yet. Some of these deals are really enormous. You know, during this period, you had the Genesis healthcare deal, which was about 350 facilities. You had him, you know, minor healthcare. So some of these deals are really enormous. And they tend to, you know, the top 10 deals in our sample actually account for about half the facilities. So you could argue, in a manner of speaking that perhaps a lot of these results are driven by the largest deal of the largest funds.
D.J. Verret, MD, FACS :When we're approaching the end of the half hour here, can you kind of give us some insight into where you're turning your research efforts next?
Atul Gupta, PhD :Yeah, absolutely. So, you know, we are actually currently looking at the outpatient side, so we're looking at has been, you know, a lot of private equity action on physician practices. So we are looking at for specialties in particular, surgeries, kidney, kidney failure, or sort of dialysis clinics, if you will, cardiology, and orthopedics. And, you know, we've we've gone through the, the, you know, sort of manual and, and back breaking work of identifying practices that were bought by private equity firms. And now we're sort of linking it to the administrative data, both on patient outcomes as well as on quality and other things. And, you know, hopefully, we'll have some results soon on that.
D.J. Verret, MD, FACS :Any early indications, you might want to give us a scoop on?
Atul Gupta, PhD :Um, yeah, it seems pretty consistent across the board. So we haven't looked at quality yet. But what we have looked at is, you know, basic effects on revenue and volume. And we find pretty consistently across the board that private equity firms are able to, you know, once they, once they, once they acquire practices, they are able to, they are able to help the practice increase rep both revenue and patient volume. You know, that's a result that we get consistently across all four specialties that we looked at. So they definitely have the magic sort of secret sauce on on, you know, driving patient volume and revenue per patient as well.
D.J. Verret, MD, FACS :It'll be interesting to see what those results pan out. You know, I'm in outpatient medicine and I've seen a lot in dermatology. And then in my specialty in otolaryngology EMT, private equity seems to be creeping in and It'll be interesting to see the results you get. And longer term more of more research hopefully comes out into what what the quality looks like in these more outpatient and less regulated settings. Because if if you saw the quality issues in such a tightly regulated setting, the question I would have is, is, is it going to be even more even more disparate or more pronounced in the outpatient setting? That's not quite as as regulated?
Atul Gupta, PhD :No, that's a very important concern that we also share. On the other hand, you know, you could argue that nursing homes, were also a case where you are likely to find bad effects, because, you know, those patients oftentimes don't have much choice, they don't do much due diligence before choosing that provider, they can sort of walk out and do over, you know, so you may think that in these other outpatient facilities, for example, dermatology, you know, the patient actually has plenty of time to do due diligence and go to a provider that they really feel comfortable with, they can also switch midstream. And I see all of this to basically make the point that perhaps, you know, the physicians have enough incentive to do a good job, you know, both in terms of the how they treat the patients, you know, clinically as well as how they treat them just as in terms of giving them good service. And so perhaps these parts of healthcare might actually be closer to other industries, you know, like restaurants or, or, or, you know, retail, where, where Customer service is important. And patients are a little bit more well informed. So I think it's I think it's not easy to predict in advance. And you know, that's why we are very excited to work on this.
D.J. Verret, MD, FACS :I look forward to the research when it comes out. Dr. Atul Gupta, thanks for joining us today.
Atul Gupta, PhD :Thanks for having me.
D.J. Verret, MD, FACS :We've been talking with Dr. Atul Gupta, assistant professor at Wharton on findings he has in his research on private equity involvement in health care. You're listening to Ask Me MD, medical school for the real world. Thanks for joining us. Until next time, make it an awesome week.
Announcer :Thank you for joining us for another episode of Ask Me MD, medical school for the real world with Dr. D.J. Verret. If you have a question or an idea for a show, send us an email at questions at ask me Md podcast.com.