The influence of private equity in the healthcare sector has become increasingly prominent, especially in recent years. From 2012 to 2021, the acquisitions of U.S. physician practices by private equity firms surged sixfold, highlighting the growing trend of financial investment in healthcare. This shift raises important questions about the implications for patient care and operational quality.
A recent report sheds light on the effects of private equity investments on a particularly vulnerable segment of healthcare: services for individuals with intellectual and developmental disabilities (IDD). Released earlier this month by the Private Equity Stakeholder Project (PESP), a nonprofit watchdog dedicated to monitoring the private equity sector, the report provides critical insights into the impact of these investments.
The report delves into several case studies of IDD service providers owned by private equity firms, such as:
- Sevita (owned by Centerbridge Partners and Vistria Group)
- Help at Home (also owned by Centerbridge Partners and Vistria Group)
- Broadstep Behavioral Health (owned by Bain Capital)
- Advoserv/Bellwether Behavioral Health (owned by GI Partners and subsequently by Wellspring Capital)
According to the findings, private equity firms typically aim to double or triple their investment over a period of four to seven years. Achieving such aggressive financial goals often necessitates significant cost-cutting measures that can inadvertently compromise the quality of care provided to vulnerable populations.
“The impact of major cost-cutting measures in these types of service providers can be truly devastating,” stated Eileen O’Grady, director of programs at PESP and the lead author of the report. “Such reductions often result in fewer staff members, which directly affects the safety and well-being of clients who are already in precarious health situations. Additionally, there are less visible consequences of these cuts, like limiting individuals’ autonomy and their ability to engage with their communities.”
Responses from the private equity firms mentioned in the report were sparse, as they either declined to comment or did not respond to inquiries regarding the findings.
Understanding the Findings: The Reality of IDD Care
Intellectual and developmental disabilities encompass a range of disorders that can adversely affect an individual’s physical, cognitive, or emotional growth. Conditions such as autism, cerebral palsy, and Down syndrome are included in this category. Access to IDD care can occur through various avenues, including residential facilities, home care services, independent living arrangements, fiscal intermediary services, adult day programs, as well as occupational therapy and physical therapy, as outlined in the report.
Historically, many of these facilities were managed by nonprofit organizations and religious institutions. However, PESP reveals a concerning trend: private equity firms have been stealthily acquiring companies that deliver IDD services. Between 2013 and 2023, over 1,000 acquisitions of disability and elder care providers by private equity were documented, though this figure may significantly underestimate the reality, given that many transactions remain undisclosed.
Moreover, numerous private equity firms possess IDD providers through subsidiaries that operate under different brand names. This obscures the true extent of consolidation and private equity influence within the IDD services landscape, complicating regulatory oversight and independent research efforts.
The attraction of private equity firms to the IDD sector is driven by several factors: a growing demand for services, escalating expenditures on care, and the sector’s perceived resilience during economic downturns. Demand has surged due to increased life expectancies for individuals with IDD, the aging of family caregivers who can no longer provide support, and the closure of many state-run facilities. Additionally, the fragmented nature of the market has created opportunities for private equity firms to consolidate providers through strategic roll-ups.
Upon acquiring a new entity, private equity firms often pursue aggressive financial strategies aimed at doubling or tripling their investment within a four to seven year time frame. This frequently involves rigorous cost-cutting tactics, such as reducing staffing levels, undercompensating employees, slashing services, and neglecting facility maintenance. Tragically, such measures can lead to severe consequences, including incidents of abuse and neglect in the care of individuals with IDD.
For instance, a patient under the care of Help at Home in Indiana tragically died due to neglect in 2019. Investigations revealed that the patient weighed only 71 pounds and suffered from 11 pressure sores, one of which had exposed bone, illustrating the dire ramifications of inadequate care.
Another case involves AdvoServ, a residential service provider for individuals with IDD. Initially owned by GI Partners, it was sold to Wellspring Capital Management in 2015 but ceased operations in 2019 following multiple investigations by state agencies that uncovered instances of abuse and neglect.
State investigators have also reported concerning findings regarding the improper use of restraints, medication mismanagement, and chronic understaffing at facilities owned by private equity in the IDD space. For instance, Florida regulators attempted to revoke the license of a Sevita subsidiary due to its failure to safeguard clients’ rights against physical abuse, which included the initiation of excessive restraints. Similarly, Illinois authorities shut down group homes operated by Bain Capital’s Broadstep Behavioral Health due to serious deficiencies in medication management, staff training, and safety protocols, as highlighted in the PESP report.
Cost-cutting measures can also create “subtler” challenges for residents. For example, understaffing may prevent a resident from participating in a weekly bowling night because a caregiver is unavailable to supervise. Additionally, a lack of transportation options may hinder a resident from accepting a job opportunity across town, as there may only be one van available for ten residents. Although these scenarios are hypothetical, they serve to illustrate the everyday struggles faced by individuals in IDD care.
“While these seemingly mundane examples may not capture headlines, they profoundly impact the autonomy and self-determination of individuals with IDD,” the report states.
As patients contend with these challenges, executives at private equity firms continue to enrich themselves. The report disclosed that Centerbridge Partners and Vistria Group have collectively drawn more than $600 million in debt-funded dividends from Sevita and Help at Home. Debt-funded dividends are disbursements to shareholders financed through borrowed funds, rather than generated from company profits or retained earnings.
Eileen O’Grady noted, “There have been significant, as well as smaller-scale investigations, into quality concerns at numerous providers associated with these firms, revealing truly horrific conditions for individuals under their care. Yet, these firms persist in extracting substantial sums through debt-funded dividends and other financial maneuvers.”
Quality concerns are not exclusive to the private equity impact on IDD services. A study conducted by Harvard Medical School in 2023 compared health outcomes for Medicare patients at hospitals acquired by private equity before and after the acquisitions. The results indicated that Medicare patients at these hospitals experienced a 25% greater increase in complications compared to their counterparts before the acquisition. Additionally, there was a 27% rise in falls and a 38% increase in bloodstream infections.
Another investigation led by researchers at the University of Michigan examined postoperative outcomes for patients undergoing esophagectomy at private equity-acquired hospitals, revealing higher rates of 30-day mortality and complications.
However, a trade association focused on private equity contends that these firms enhance patient care. A spokesperson from the American Investment Council stated, “Private equity strengthens essential services across America and facilitates greater access to the care individuals require.”
A representative from Sevita, one of the providers included in the PESP report, emphasized the positive influence of private equity. “For over 50 years, Sevita has delivered essential services to individuals with complex needs across the nation, supporting those who might otherwise lack access to necessary resources. Since our acquisition in 2019, we have made substantial capital investments to enhance and expand our services, improve facilities, implement comprehensive training programs, introduce new technologies, and strengthen our workforce—all aimed at better serving our individuals and communities.”
Addressing the Challenges: Recommendations for Action
It is crucial for stakeholders to be aware of the potential risks associated with private equity investment in the IDD sector, particularly as this population is already underserved and vulnerable, according to O’Grady. In response to the findings, she put forth several policy recommendations.
Currently, states have the authority to impose financial penalties for mismanagement by providers. However, these fines often lack a meaningful impact on large, privately-owned platforms, which can absorb such costs. To ensure compliance with care standards, states should consider increasing penalties and making it more challenging to appeal decisions. This strategy would create a scenario where the risk of financial penalties outweighs the profits derived from exploitative and harmful business practices, as suggested in the report.
O’Grady also advocates for the preservation of the Medicaid Access Rule, which mandates that at least 80% of Medicaid payments for home and community-based services be allocated toward direct support staffing. Unfortunately, some Republican lawmakers are pushing to roll back this critical regulation, including Reps. Kat Cammack of Florida and Erin Houchin of Indiana.
“It is disheartening that some members of Congress hail from states where, as evidenced in the report, individuals experience truly horrific conditions while under the care of these companies,” O’Grady commented.
Another healthcare expert expressed concerns regarding the potential impact of proposed Medicaid cuts on individuals with IDD. Many of these individuals rely on Medicaid coverage for their services.
“If Medicaid cuts become a reality, it could significantly reduce profit margins for private equity firms operating in this sector. My apprehension is that dwindling profits or reimbursements will compel these firms to implement even more rigorous cost-cutting measures,” warned Dr. Adam Brown, an emergency physician and founder of ABIG Health, who also serves as a professor of practice at the University of North Carolina.
Doba Parushev, head of Healthworx—the innovation division of CareFirst BlueCross BlueShield—noted that while states should ideally intervene in response to Medicaid cuts, the more likely outcome is that such reductions will lead to the closure of IDD providers, which would be detrimental for all parties involved.
Parushev highlighted the necessity of private investment in IDD services, emphasizing that it must be conducted in a manner that promotes a free, competitive market while prioritizing quality outcomes.
“The first step in this direction is ensuring transparency. Strengthening reporting requirements related to financial data, ownership structures, staffing levels, turnover rates, incidents, and quality-of-life metrics can significantly contribute to a more informed and competitive market,” he stated.
Brown echoed this sentiment, asserting that private equity is not inherently detrimental. In some instances, investment from private equity can drive innovation and enhance access. However, it is essential to implement specific safeguards.
“We must increase transparency regarding ownership structures and the identities of those who own entities or their subsidiaries, especially in sensitive areas like IDD care,” he emphasized. “Furthermore, accountability at both the federal and state levels is crucial to ensure that patient and provider outcomes are prioritized rather than merely focusing on profit margins.”
Improved oversight of patient care and investment in workforce development are also vital components that need to be addressed.
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