It’s well known that private equity has been staking its claim in healthcare. Private equity acquisitions of U.S. physician practices increased six fold from 2012 to 2021.
A new report reveals private equity’s impact on a more vulnerable area of healthcare: intellectual and developmental disability services (IDD). The report released last week is from the Private Equity Stakeholder Project (PESP), a nonprofit watchdog following the private equity industry.
It examines several case studies of private equity-owned IDD providers, including:
- Sevita (owned by Centerbridge Partners and Vistria Group)
- Help at Home (owned by Centerbridge Partners and Vistria Group)
- Broadstep Behavioral Health (owned by Bain Capital)
- Advoserv/Bellwether Behavioral Health (owned by GI Partners and later Wellspring Capital)
The organization found that the private equity firms typically try to double or triple the value of their investment in four to seven years, which usually requires cutting costs in a way that reduces the quality of care.
“Major cost cutting in these kinds of providers can be really horrific,” said Eileen O’Grady, director of programs at PESP and lead author of the report. “It means that there are fewer staff to ensure the safety of the clients that they’re supposed to be caring for, people who are often in pretty vulnerable positions in their health. But I also think there are these more mundane ways that cost cutting can impact people’s lives, [like] people’s ability to have autonomy [or] access to the community.”
The private equity firms mentioned in the report either declined to comment or did not respond to a request for comment.
The findings
Intellectual and developmental disabilities are disorders that can negatively affect a person’s physical, intellectual or emotional development. Examples include autism, cerebral palsy and Down syndrome. Care for IDD can be accessed through a variety of sites such as residential facilities, home care, independent living services, fiscal intermediary services, adult day programs, occupational therapy and physical therapy, according to the report.
While many of these facilities have historically been run by nonprofits and religious organizations, private equity firms have been quietly acquiring companies that provide IDD services, PESP stated. Between 2013 and 2023, there were more than 1,000 private equity acquisitions of disability and elder care providers. And this is likely an underestimate as many deals aren’t disclosed publicly.
In addition, many private equity firms own IDD providers through subsidiaries with different branding, making it difficult for regulators and researchers to know the “true scope of consolidation and private equity penetration within the IDD services market,” the report noted.
Private equity firms are setting their eyes on the IDD space because of a growth in demand, increases in expenditures on care and its “recession-resistant nature,” the report stated. There’s been a rise in demand because life expectancies for people with IDD have gone up, family members caring for people with IDD are aging and are unable to continue providing care, and many state-run facilities are shutting down. And the fragmentation of the market has provided PE firms with an opportunity to consolidate the providers through roll-ups.
After acquiring a new company, PE firms typically try to double or triple their investment over four to seven years, which usually requires using cost-cutting tactics like reducing staffing, underpaying employees, cutting services and not maintaining facilities. In some cases, these cost cutting strategies can lead to situations like abuse and neglect in IDD care.
For example, a patient of Help at Home (owned by Centerbridge Partners and Vistria Group) in Indiana died of neglect in 2019, the report said. Doctors found that he weighed 71 pounds and had 11 pressure sores, one of which exposed bone.
AdvoServ, a provider of residential services for people with IDD, is another example. It was first owned by GI partners and then was sold to Wellspring Capital Management in 2015. It ended operations in 2019 due to several investigations from state agencies that found abuse and neglect.
State investigators have also undercovered reports of improper use of restraints, medication mismanagement and understaffing at PE-owned IDD facilities. Florida regulators tried to revoke the license of a Sevita subsidiary (also owned by Centerbridge Partners and Vistria Group) due to a failure to “protect the rights of its clients to be free from physical abuse by initiating inappropriate and excessive restraints.” In addition, Illinois regulators shut down Bain Capital’s Broadstep Behavioral Health group homes due to issues in medication management, staff training and safety measures, the PESP report noted.
Cost cutting can also lead to “subtler” challenges, the report said. For example, understaffing could mean a resident isn’t able to attend a weekly bowling night because a caregiver isn’t available to chaperone. In addition, a resident may not be able to take a job across town because there is only one van for 10 residents. Both these examples in the report are hypothetical.
“While these mundane examples do not make the news, they represent the everyday impact of how certain kinds of profit-seeking can erode the autonomy and self-determination of people with IDD,” the report stated.
While patients struggle, some executives at PE firms are deepening their pockets. The report found that Centerbridge Partners and Vistria Group have paid themselves more than $600 million in debt-funded dividends from Sevita and Help at Home. Debt-funded dividends are dividends paid to shareholders using borrowed money, rather than the company’s profits or retained earnings.
“There have been major, as well as smaller scale investigations, into quality concerns at a number of these providers for really horrific conditions for people under these companies’ care,” O’Grady said. “And they have continued to extract large amounts of money through debt-funded dividends and other tactics.”
Issues about quality aren’t specific to the impact of private equity operating in the IDD space. For example, a Harvard Medical School study published in 2023 compared patient health outcomes for fee-for-service Medicare hospitalizations before and after hospitals were acquired by private equity. It found that Medicare patients at hospitals acquired by private equity experienced a 25% greater increase in complications compared to those at the same hospitals prior to the acquisition. Additionally, there was a 27% rise in falls and a 38% increase in bloodstream infections.
Another study led by researchers at the University of Michigan examined the impact of private equity on postoperative esophagectomy outcomes. It found that patients at private equity-acquired hospitals had higher rates of 30-day mortality and complications.
However, a trade group focused on private equity argued that PE firms improve patient care.
“Private equity strengthens essential services across America and helps more people access the care they need,” said a spokesperson from the American Investment Council.
A spokesperson from Sevita, one of the providers in the PESP report, emphasized that value of private equity.
“For more than 50 years, Sevita has provided essential services to people with complex needs in homes and communities across the country who otherwise may go without the support they need,” the spokesperson said. “Since 2019, when new ownership acquired the company, there has been significant capital investment to improve and expand our services, enhance facilities, implement robust training and new technologies, and strengthen our workforce – all with the goal of better serving our individuals and communities.”
What needs to be done?
It’s important for people to understand the risks of private equity investment in the IDD space, particularly because its a population that is underserved and already vulnerable, according to O’Grady. She made several policy recommendations in the report.
Currently, states can impose financial penalties for provider mismanagement, but for large, private equity-owned platforms, these fines often don’t have a significant impact. To incentivize compliance with care standards, states should raise penalties and make it harder to appeal. This way, the “the risk of penalty is higher than the profit made from extractive and harmful business practices,” according to the report.
O’Grady also recommends protecting the Medicaid Access Rule, which would require that at least 80% of Medicaid payments for home and community based services be spent on direct support staffing. However, some Republican members of Congress are lobbying to roll back this rule. This includes Reps. Kat Cammack of Florida and Erin Houchin of Indiana.
“I think it’s kind of depressing that multiple of those members of Congress are in states where, like we saw in the report, there are really horrific conditions for people under the care of some of these companies,” O’Grady argued.
Another healthcare expert is concerned how the proposed Medicaid cuts could affect patients with IDD. Many people with IDD are covered under Medicaid.
“If we start to see cuts to Medicaid significantly, that could also start to compress some of the profit margins that private equity firms are seeing with some of these organizations. My concern is that seeing those profits dry up, or those reimbursements dry up, is going to make it harder for some of the PE firms to meet their margins that they’ve been wanting to meet. And so they would have to have more cost cutting,” said Dr. Adam Brown, an emergency physician and founder of healthcare advisory firm ABIG Health, as well as a professor of practice at the University of North Carolina.
Doba Parushev, the head of Healthworx, the innovation arm of the payer CareFirst BlueCross BlueShield, noted that in the case of Medicaid cuts, states will ideally intervene. However, more realistically, the cuts will result in some IDD providers going out of business — “a horrible outcome for everyone involved.”
Parushev added that there is a need for private investment in IDD, but it has to be done in a way that “benefits a free, competitive market and does not sideline quality outcomes.”
“The first step towards this is transparency – strengthening reporting requirements across financial data, ownership structures, staffing levels and turnover, incidents, and quality-of-life metrics can go a long way in driving a more informed, and thus competitive market,” he said.
Brown echoed this, noting that private equity isn’t inherently bad. In some cases, capital from private equity can drive innovation and expand access. However, there need to be certain safeguards in place.
“We do need to increase transparency around who actually owns the entities and/or who may own the sub entities, and this is particularly important in areas that are sensitive and as vulnerable as the IDD care space,” he said. “The second [thing] is we have to have accountability. Regulators on both the federal and the state level need to ensure that patient outcomes, provider outcomes, are being met. And it’s not just the margins that are the only thing that are measured.”
There also needs to be better oversight of patients and an investment on workforce, he added.
Photo: santima.studio, Getty Images
