Does Private Equity Hurt or Improve Healthcare Value? New Evidence and Mechanisms

What is the impact of private equity (PE) investment on healthcare value? Does PE investment hurt or improve healthcare value, and if so, can its effect be mitigated through the use of health information technologies (IT)? Given the significant investments by PE firms in the healthcare sector in recent years, these are important research questions. Stakeholders, including policy makers, care providers, and patients, need to understand their likely impact and whether PE ownership is aligned with their interests. Drawing on resource-based view of the firm and stakeholder theory, we posit that PE investment can both positively and negatively influence healthcare value. More importantly, we argue that IT-enabled health information sharing can help align the interests of PE firms and hospitals with respect to the dual objectives of value-based care-cost reduction and care quality improvement. Using a staggered difference-indifferences approach and data from US hospitals from 2008-2020, we estimate changes in healthcare value following changes in ownership based on PE investment. In general, we observe that the overall value of healthcare delivered by hospitals declines after PE investment. However, our empirical evidence reveals that IT-enabled, health information sharing plays an important moderating role. Hospitals with stronger information-sharing capabilities exhibit greater cost efficiencies and improvements in care quality, leading to higher healthcare value after PE investment. In other words, health information sharing between providers mitigates the potential negative impact of hospital PE ownership on care value. Furthermore, we find that the type of health information sharing matters. Specifically, we observe that improvements in care quality are primarily driven by information sharing between hospitals and ambulatory care providers, instead of simply hospital-to-hospital sharing of patient health data. Our research also identifies the underlying mechanisms through which health information sharing improves care value by reducing hospitalacquired infections and readmission rates, thereby improving care quality, and enhancing labor productivity by reducing operating costs. Our results highlight the critical role of policies and common data standards needed to promote IT-enabled information sharing between healthcare providers, which, in turn, can align incentives of PE firms with the goals of value-based care.