S1E2: Does the Hospital’s Owner Affect What Services It Provides? (Dr. Marcelo Cerullo)

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In today’s episode we discuss how the acquisition of hospitals by private equity firms impacts the services they provide.

My guest is Dr. Marcelo Cerullo, a general surgery resident at Duke Hospital. Dr. Cerullo received his undergrad degree at Harvard College and completed medical school at Johns Hopkins. I’m especially excited to speak with him today because of his dual role as a physician and a researcher in the field of health economics.

The Health Affairs paper we discuss in this episode can be found here.

Dr. Cerullo’s latest paper on the effects of private equity acquisition on outcomes of acute medical conditions can be found here

In-depth show notes

00:00:31 – 00:11:59. Introduction to our guest Dr. Marcelo Cerullo, health economics researcher and fifth year surgical resident at Duke University Hospital. Dr. Cerullo explains how his clinical background and interest in understanding healthcare decision-making, particularly the decisions that go into creating different environments of care, led him to investigate the impact of private equity acquisitions of hospitals.

Introduction to how private equity works
Why private equity is getting involved in healthcare
How to evaluate the impact of private equity involvement in healthcare on a case-by-case basis, and why we can’t make a blanket value judgment about a net positive or negative impact

00:12:00 – 00:15:59. While PE firms have increasing participated in the healthcare sector, with deals totaling $750 billion dollars in the past decade, their impacts are not well understood. Marcelo walks us through the complex process of assembling a dataset that can answer his research question: how did being acquired by a PE firm impact the types of services that hospitals chose to provide?

They linked three datasets 1) a set of hospitals acquired by PE firms between 2000-2018, 2) hospital Medicare cost reports to filed in the Healthcare Provider Cost Reporting Information System (HCRIS), and 3) American Hospital Association (AHA) hospital-reported data regarding the facilities and services they provided.
They make an assumption that the “effect” of a PE acquisition happens in the 5-year period immediately after the acquisition, given PE firms tend to exit their position between 3-10 years.
Challenges: opacity around when PE hospital acquisitions occurred and, especially, when the exits occurred

00:16:00 – 00:28:48. After compiling their data, they used the difference-in-differences approach to tease out the impact on PE acquisition on hospital service-line provision. Marcelo describes this method, along with key adjustments and assumptions in their model.

Adjusting for hospital-level factors that were potential confounders, such as for-profit vs non-profit, number of beds, and regional location
The difference-in-differences estimator sought to compare baseline changes that occur in hospitals over time independent of hospital ownership vs the changes that can be attributed to hospital ownership
Key assumptions: parallel pre-trends, no exogenous events
Examining parallel pre-trends through plotting PE-acquired hospitals pre- and post-acquisition and visually inspecting for parallel lines
Controlling for exogenous events with fixed effects

00:28:49 – 00:37:56. Their analyses found that hospitals that were acquired by PE firms had a higher probability of adding profitable hospital-based services (e.g. cardiac catheterization, hemodialysis, labor and delivery) and technologies (e.g. robotic surgery, digital mammography) compared to nonacquired hospitals. We discuss other key findings and their significance.

Adding more profitable services appears to accelerate the shift towards technology-heavy services
Fewer shifts towards offloading unprofitable services were noted, suggesting it is challenging to get rid of services that hospitals already provide, especially those that fill a need in their communities
A rise in psychiatric emergency services and fall in outpatient psychiatric care were observed.
A notable shift away from a profitable service seen among PE-acquired firms was a shift from inpatient orthopaedic surgery towards outpatient/ambulatory orthopaedic surgeries, which allow patients spend less time in the hospital. This anomalous shift suggests that PE-acquired hospitals may be able to move faster or more aggressively to align with changing practice standards, even if they are less profitable.

00:37:57 – 00:49:45. Given the changes in service-line provision among PE-acquired hospitals revealed in this study, Daniel asks a critical but thorny question: Who drives profitability and the supply of services?

How units have been used to assign value to acts of medical care, determine compensation, and thus structure incentives
Confronting the reality that physicians and hospitals do respond to financial incentives

00:49:46 – 01:01:28. Finally, Marcello shares how he developed a health economics research skillset and advice for medical trainees interested in getting involved.

References