Working paper
Private Equity in Public-Provider Markets: Cost Efficiency vs. Cream-Skimming
SSRN
04/14/2024
DOI: 10.2139/ssrn.4792828
Abstract
We examine the cost-cutting strategies employed by private equity (PE) firms in markets where public and non-profit firms also provide services. We use the ambulance industry as a laboratory as price and choice regulation limits other avenues of increasing profitability. We exploit the staggered acquisition of the two largest national private ambulance companies and detailed operations and cost data from all Arizona ambulance operators in a staggered difference-indifferences design to discern whether PE firms enhance profits through operational efficiencies or by selectively serving lower-cost consumers (cream-skimming). We find a 40% increase in profit among PE firms, driven entirely by cream-skimming from fire departments and non-profits. We identify the specific mechanism of cream-skimming-firing the paramedics required to operate high-cost runs, which are then shifted to fire departments. This cream-skimming behavior leads to a 7% increase nationally in fatalities from traffic accidents in areas serviced by PE-owned ambulances. We highlight the complex implications of PE investment in public services, where cost-cutting measures to increase profitability may compromise public health outcomes and public provider balance sheets.
Details
- Title: Subtitle
- Private Equity in Public-Provider Markets: Cost Efficiency vs. Cream-Skimming
- Creators
- Cameron Ellis - University of IowaMeghan Esson - University of Iowa
- Resource Type
- Working paper
- Publisher
- SSRN
- DOI
- 10.2139/ssrn.4792828
- Number of pages
- 80 pages
- Language
- English
- Date posted
- 04/14/2024
- Academic Unit
- Finance
- Record Identifier
- 9984649158702771
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