The PE model then aims to sell acquired businesses for a profit within three to six years. To do this, firms must dramatically increase the market value of their portfolio to produce the return on investment sought by the industry, typically around 20 percent, all while also paying off large levels of debt needed to finance the acquisition.^2,6 At the same time, most PE firms engage in common practices that increase costs and overhead for acquired companies beyond the debt incurred in the acquisition. PE firms typically pay the firm and its investors first, often by borrowing additional money in a strategy called dividend recapitalization.¹⁰ Secondly, PE firms also charge the entities that they own for the oversight they provide in the form of management fees.^2,6 Companies acquired with these high debt burdens and saddled with increased costs and are later at a much higher risk for bankruptcy: 20 percent compared with 2 percent for propensity-matched companies with similar size and risk that were not acquired.¹¹

The playbook to quickly grow margins enough to meet these new financial obligations can start to feel familiar, according to emergency physician Ellana Stinson, MD. In her congressional testimony this year, she described working for PE-owned and publicly traded entities including Envision, Team-Health, Steward Health System, and Tenant as following a familiar script. “I began to realize how resources were being dwindled down and pulled from each facility … and Quincy Hospital was taken down to bare bones before its ultimate closure. Not having blood products, respiratory therapy on certain days, or certain specialty services no longer felt like I was able to provide safe or quality care.”¹²

A common first move is often staffing cuts, since labor amounts to more than half of costs for many health care companies.¹³ Cost cutting may also include, as in the case of Hahnemann, postponing maintenance on existing equipment, decreasing inventory or cost of supplies, and shuttering departments. It also frequently includes substituting the physician labor force with advanced practice practitioners (APPs) such as physician assistants and nurse practitioners. Studies have found that while both physician and non-physician staffing turnover occurs at significantly higher rates at PE-owned firms, APPs are also hired at much higher rates, implying replacement of physicians with other types of clinicians.¹⁴

Dr. Stinson remembers what it was like to work for a PE-owned hospital early in her career. “I walked into a hospital and [the APP] was fresh out of nurse practitioner school, had never worked in the ER before as the primary caregiver of a patient, had no training or anything, they just threw her out there. It was my first week in the facility, and I’m still trying to just figure out where the bathroom is, and I’m like ‘This can’t be safe that we’re the only two people here!’ But they needed bodies, and they’re putting NPs and PAs also in very challenging positions.”