Laura Katz Olson Investigates Impact of Private Equity Investment in Health Care

“I don't think that you can understand the dangers of private equity without understanding how the playbook works,” Olson says.

Private equity owns a range of services in the health care industry, including autism agencies, alcohol and drug treatment centers, hospice care, home care and dental and physician practices.

Most health care businesses purchased by private equity through leveraged buyouts are already profitable, Olson explains. Private equity uses the capital from the profitable health care companies it acquires to purchase additional companies with more borrowed money as add-ons. One of their “tricks,” she says, is that the private equity firm doesn’t pay back the debt but rather the target establishment itself. Value is added by obtaining more companies and consolidating them to gain control over a market. In this practice, the private equity firm assumes almost no risk, while, at the same time, it “squeezes operations” to pay back debt, she says.

The frontline staff of health care services accounts for a majority of operating costs in health care, Olson says, so when private equity owners try to save money by cutting or not training the staff adequately, quality of care suffers. Communities also suffer when companies they depend on, such as those that provide home care or autism services, raise their prices, provide low-quality services or even go bankrupt, Olson explains. And with trillions of dollars in “dry powder”—available funds that haven’t been committed yet—private equity is going to take over more and more of our economy, she says.

Olson argues that private equity doesn’t care about the particular industry it invests in. Rather, those dealing in it simply “go where the money is.” The firms only care about supersized earnings for themselves and their investors, she says. Compounding the problem is the “revolving door” through which private equity managers leave private equity to run for office or hold high-level federal positions, including with the Securities and Exchange Commission or the Federal Trade Commission, and later return to private equity.

“That's a key to why very little has been done to stop them, in my opinion,” Olson says. “Some of them become billionaires from simply extracting value from businesses, including our health care system. And it is going to spread in the near future.”

Laura Katz Olson’s research interests include aging, health care and women’s studies. She has been a Scholar at the Social Security Administration, a Gerontological Fellow, and a Fulbright Scholar. Olson received her Ph.D. from the University of Colorado.