Members of Congress on Thursday targeted the expanded role of private equity in the US healthcare system and addressed the issue during a special hearing for the House Ways and Means Subcommittee on Oversight and Resources.

Much of the hearing focused on the increasingly prominent role of PE in nursing homes as the COVID-19 pandemic has sparked heated debates about perceived differences in care between nonprofits and nonprofits. The discussion took place a little over a week after Sen. Elizabeth Warren (D-Mass.) promised to open an investigation into for-profit and PE-supported nursing homes in light of the recently announced restructuring of Genesis HealthCare (NYSE: GEN).

“The time has come to shed a bright light on how private equity investments in our healthcare system affect patient safety, costs and jobs,” said Rep. Bill Pascrell (DN.J.), Chairman of the Subcommittee on Ways and Means of House Supervision said at the start of the afternoon hearing. “The influence of private equity extends like an octopus.”

While nursing homes took over almost all of the limelight, the hearing participants also expressed concerns about the wider impact of private equity on the care continuum.

PE companies participated in a record number of transactions in 2020 despite an economic recession and other coronavirus-related challenges. By mid-November alone, PE investors had announced almost 4,100 deals, an increase of 5% compared to 2019. according to data from PricewaterhouseCoopers.

In total, around $ 66 billion was invested in PE across the healthcare sector over the past year, up 21% from 2019, according to statistics cited by Pascrell.

“The expansion of private equity into healthcare is worrying as private equity’s primary focus on profits is often at odds with what is best for patient care,” said the New Jersey Democrat. “The business model of private equity is to buy companies, saddle them up with mountains of debt, and then squeeze them like oranges for every dollar.”

Private investors have been particularly active in home health and home care in recent years, dealmaking experts told Home Health Care News.

Les Levinson, co-chair of the transactional health practice at Robinson & Cole LLP, noted that it is difficult to remember that he was part of a single PE-related business. By comparison, Levinson helped put together “six or seven” deals in 2020 where the buyer was either a PE company itself or a strategic home health company backed by a private investor.

“There has been private equity interest in the space for two or three years, and certainly longer,” Levison told HHCN. “But not at the level you see today.”

Rich Tinsley, president of M&A advisory firm Stoneridge Partners, also highlighted PE’s increasingly active role in the home health and home care industries.

In the past, Tinsley made a handful of calls a month from private investors and other entrepreneurs wanting to get into the room, he said. Now it’s closer to a handful of calls a week – sometimes even a day.

“Over the past several years I’ve had several calls from private equity firms who are not in the room but want to be in the room,” Tinsley told HHCN. “And this interest rate level comes from small, medium and large private equity firms – it spans the whole range.”

Reshaping the market

PE has long been active in the healthcare sector, particularly in connection with qualified nursing homes (SNFs) and the real estate companies that support them.

But as more Americans choose to age locally, investors have steadily migrated into the world of home care. This trend has only accelerated due to the COVID-19 pandemic and the corresponding decentralization of health care.

“The pandemic really shed more light on the fact that a lot of people want to be outside the community, that they’d rather be home,” Levinson said. “The desire and ability to be treated at home creates additional private equity interest in the area, in my opinion, especially among players who may not have been active before.”

The activity has been so robust that it is almost impossible to identify the busiest or most aggressive PE buyers.

“I don’t have a particular financial or strategic strategy that gobbles up the bulk of transactions each year,” said Tinsley. “I don’t have one that’s the prevailing example. That wouldn’t be the case if we returned 10, 15 years ago. “

One of the larger PE deals in recent times took place in November. when Centerbridge Partners and The Vistria Group partnered to buy Help at Home, a Chicago-based home and community services provider that operates in 13 states. Wellspring Capital Management – another PE firm – had previously owned the provider.

Vistria also invested in San Diego-based Mission Healthcare, a home health, hospice and palliative care provider, in December. The mission had previously been supported by HCAP Partners.

In some cases, PE buyers have invested in home care products to expand through acquisitions. For example, Bain Capital Double Impact has steadily expanded the provider it created through the merger of Arosa and LivHome back in 2018.

In other cases, PE companies target the best players in home health and home care right from the start. Two of the largest home health companies in the country – Elara Caring and AccentCare – are both supported by PE.

So many of today’s large, strategic home health providers are backed by private equity, Tinsley said that categorizing deals often becomes difficult.

“The blurring between strategic and financial buyers has grown a lot, right,” he said. “They are no longer those two separate buckets.”

Possible advantages and disadvantages

Thursday’s hearing was largely critical of PE’s involvement in health care.

Among the dangers discussed, legislators and experts often touched upon a lack of transparency, with PE-supported health organizations often being set up as a series of shell companies to minimize liability.

“I worry that private equity has moved from toy stores to hospitals, doctor’s offices and nursing homes, many of which rely on tax-funded programs,” said Pascrell. “Understanding the web of transactions is like a Russian nesting doll. A lack of transparency in private equity ownership makes proper oversight by regulators nearly impossible. “

Patient care was also in the foreground.

Sabrina Howell, assistant professor of finance at New York University’s Stern School of Business, explained during the hearing how some PE-assisted nursing homes have historically increased short-term profits by lowering patient care costs.

“As an example of how private equity can adversely affect health care, I have shown in recent research that visiting a PE-owned nursing home increases the short-term chance of death by about 10%, which translates into over 20,000 loss from PE -Owning nursing homes for a period of approximately 10 years, “Howell said.

However, the disadvantages of PE vary widely across the healthcare sector, even across different organizations.

“It could be very different in areas with different incentives like dermatology,” added Howell. “And there are likely examples where PE is good for patients in nursing homes as well.”

Although similar concerns have at times been expressed about PE in home health and home care, many have actually argued that private investment is helping to consolidate the space.

For starters, PE companies bring with them more resources and better access to capital. This can help home care providers when it comes to buying new technology or investing in employee training programs.

“You have far more resources than what I’ll call your entrepreneurial mom and pop,” Tinsley said. “In the industry we operate in – home and community care – there just aren’t a lot of assets to borrow against. Access to capital for most business owners or mom and pop providers is really difficult. “

Additionally, PE buyers can help providers become more efficient, which could help a company spend more time and energy on patient care.

One of the biggest reasons for PE in home care is a possible lack of property continuity. Most companies aim to exit between three and five years. In many cases, however, a vendor’s leadership team never changes, which keeps operations stable.

Figuring out what the ultimate role of PE in healthcare should be is a Herculean task for executives, regulators and lawmakers alike. However, one possible solution to alleviating concerns could simply be more publicly available information for consumers.

Terris King, founder and CEO of King Enterprise Group, advocated the idea that the US Centers for Medicare & Medicaid Services (CMS) would include the ownership structure on their Compare website.

“Even records our system [that information]? “Said King at the hearing.” And if so, if we put it on the Compare website … is that an ability through this process to expand the decisions we make? “

Mark Parkinson – President and CEO of the American Health Care Association and the National Center for Assisted Living (AHCA / NCAL) – has pushed back criticism of PE in a statement made after the hearing on Thursday.

“95 percent of nursing homes in the US have been affected by the COVID-19 pandemic, and less than 10 percent of all nursing homes are owned by private equity companies,” said Parkinson. “There are many factors that influence the quality of care in nursing homes. If you focus solely on the ownership structure, you will not get better results for residents and staff. “