Responding to incentives

JAMA published an article looking at the potential impact of private equity investments on the quality of health care that is delivered. The concern is that as private equity funds buy hospitals and clinics, they might be more motivated by profit than say, traditional non-profit organizations, and might not adequately protect patient health. There seems to be particular concern about private equity funds exploiting unintended consequences of the more recent model of compensation (value-based care).

The article looked at two delivery systems that are owned by private equity firms, and found positive results from both. For example, screening increased for one institution while fewer hospital admissions were reported for the other. The article noted that both institutions were oriented around primary care (as opposed to the more lucrative specialty care organizations), and that in both cases, substantial investments were made to grow the customer base. The article also pointed out that the organizations did not seem to be cherry-picking wealthier and healthier patients.

Overall, the initial review seems positive, although these are only two examples, and behavior could change as the private equity firms prepare these business for a sale. An important point is that the private equity firms seem to respond to incentives (e.g. under the older fee-for-service model, observers might expect a higher prevalence of procedures), which means that choosing a good model of compensation is very important in driving behavior.