Date of Award
Doctor of Philosophy (PhD)
This dissertation consists of two chapters that relate private equity and health care. In the first chapter, coauthored with Xuelin Li and Lucian Taylor, we study how common ownership affects innovation. We explore this question using project-level data on pharmaceutical startups and their venture capital (VC) investors. We find that common ownership leads VCs to shut down lagging drug projects, withhold funding from lagging startups, and redirect those startups' innovation. These results support theories dating back to Loury (1979): By coordinating R&D efforts across competing firms, a common owner can reduce duplication of R&D. Consistent with common ownership improving innovation efficiency, common ownership rates are positively correlated with the ratio of R&D output to funding. Though we highlight gains in innovation efficiency, common VC ownership can also impose social costs.
In the second chapter, I use proprietary health insurance claims data covering over 60% of privately insured individuals in the United States to study the impact of private equity (PE) hospital buyouts on hospital-insurer price negotiations, health spending, and patient welfare. I apply a novel structural approach that exploits state-level regulation changes as PE entry shocks. I find that PE buyouts lead to an 11% increase in total healthcare spending for the privately insured in affected markets, driven mostly by higher bargained prices at PE-backed hospitals and price spillovers to local rivals. PE investors' superior bargaining skills account for 43% of the price and spending increases, while financial engineering and bankruptcy threats contribute 40%, changes in patient demand contribute 10%, and reduced focus on social objectives contributes 8%. Operational efficiency gains reduce spending, but only by 1%. A counterfactual ban on PE hospital buyouts would increase patient surplus by an amount equivalent to 10.7% of health expenses. If antitrust regulators who conduct merger reviews ignore PE-backed acquirers' unique features, they risk greatly underestimating the impact of hospital mergers.
Liu, Tong, "Essays On Private Equity And Healthcare" (2022). Publicly Accessible Penn Dissertations. 5232.