Variation In Hospital Salary Expenditures And Utilization Changes After Private Equity Acquisition, 2005-19

Private equity (PE) acquisitions of health care providers are often framed as a monolithic intervention, but firms' strategies for generating returns for investors may vary. In a difference-in-differences analysis using data from the 2005-19 Medicare hospital cost reports, we compared 242 US hospitals acquired by PE firms with 870 matched control hospitals not acquired by such firms. By firm, we examined changes in salary expenditures (reflecting staffing costs of delivering care) and cumulative charges (reflecting service utilization) associated with acquisition. On average, hospitals acquired by PE firms reduced salary expenditures, whereas control hospitals increased salary expenditures. At the firm level, salary expenditures declined between 12.9 percent and 27.3 percent of preacquisition levels. These reductions occurred across most clinical departments, although the specific departments and sizes of salary cuts varied across firms. Consistent with reduced staffing and capacity, most hospitals demonstrated a simultaneous decline in cumulative charges after acquisition-despite often raising their chargemaster rates (charges per service)-implying a reduced volume of services delivered. Some hospitals exhibited an alternative strategy of increasing cumulative charges without cutting salary expenditures. PE firms varied in management strategies, with most demonstrating cost cutting through salary expenditures.