METHODOLOGY

Private Equity State Risk Index Methodology

 

The Private Equity State Risk Index is a tool for the public, policymakers, and regulators to assess the impacts of private equity on different states and develop solutions to address those impacts.

The private equity industry has grown from less than $1 trillion in assets in 2004 to over $13 trillion today. Private equity firms control companies with more than 11 million workers across the US. Private equity firms are now some of the largest landlords in the country, owning millions of homes. Private equity firms have increasingly bought up US healthcare infrastructure, impacting millions of patients. Meanwhile, many state pension funds have increased their allocations to private equity.

The Private Equity State Risk Index seeks to assess how private equity firms are impacting each state and the relative risks that states face from private equity buyouts by looking at 16 indicators in four key areas: (1) Workers and Jobs, (2) Healthcare, (3) Housing, and (4) Pensions.

Private Equity Risk Score

Scores for workers and jobs, healthcare, housing, and pensions were normalized equal-weighted to produce a composite private equity risk score for each state. Underlying data used for these calculations is available here.

Thomas Economic and Data Consulting assisted with data collection and analysis for the Private Equity State Risk Index.

Workers and Jobs

Scores for each of the below metrics were normalized and equal-weighted to produce a composite workers and jobs score.

  • Share of private sector workforce at private equity-controlled companies (Average 2018, 2020, 2022): Share of private sector workforce at private equity-controlled companies (Average 2018, 2020, 2022): This metric was scored based on the average share of the private sector workforce at private equity-owned companies in 2018, 2020, and 2022. Sources: Ernst & Young, "Economic contribution of the US private equity sector," 2019, 2021, 2023 reports; US Bureau of Labor Statistics, State and Metro Area Employment, Hours, & Earnings.
  • Change in the share of the workforce controlled by private equity from 2018 to 2022: This metric was scored based on growth or decline in workforce at private equity-owned companies from 2018 to 2022. Source: Ernst & Young, "Economic contribution of the US private equity sector," 2019, 2021, 2023 reports. US Bureau of Labor Statistics, State and Metro Area Employment, Hours, & Earnings.
  • Layoffs at private equity-controlled companies (2015-2022): This metric was scored based on layoffs at private equity-owned companies as a share of a state’s private sector workforce. Sources: US Bureau of Labor Statistics, State and Metro Area Employment, Hours, & Earnings; WARN layoff data is collected from WARN Database, states’ open data portals, or via requests from a state’s rapid response coordinator. AK, HI, ND, and WY are excluded as those states prohibit disclosure of company names.
  • Employee deaths and hospitalizations at private equity-controlled employers (2018-2022): This metric was scored based on employee deaths and hospitalizations at private equity-owned companies as a share of a state’s private sector workforce. Sources: US DOL Data Enforcement, OSHA Enforcement Data; US Bureau of Labor Statistics, State and Metro Area Employment, Hours, & Earning AK, ND, NM, RI, NH, WY, MT, ND. were excluded due to lack of available data.
Health Care

Scores for each of the below metrics normalized and equal-weighted to produce a composite health care score.

  • Share of hospitals that are private equity-controlled: This metric was scored based on private equity-owned hospitals as a share of all hospitals in a state. Sources: PESP Private Equity Hospital Tracker; CMS Provider data
  • Average CMS patient survey rating of private equity-controlled acute care hospitals (1 = lowest, 5 = highest): This metric was scored based on the ‘average CMS patient survey rating’ at private equity-owned hospitals minus the ‘average CMS patient survey rating’ at all hospitals in a state (i.e. PE-owned hospital underperformance or outperformance versus all hospitals in state). Source: CMS Patient survey (HCAHPS) data
  • Rate of readmission after discharge from hospital (hospital-wide) at private equity-controlled acute care hospitals: This metric was scored based on the ‘rate of readmission after discharge from hospital (hospital-wide)’ at private equity-owned hospitals minus the ‘rate of readmission at all hospitals in state’ (i.e. PE-owned hospital underperformance or outperformance versus all hospitals in state). Source: CMS unplanned hospital visit data
  • Share of known private equity-controlled nursing homes: This metric was scored based on the share of nursing homes in a state with known private equity ownership. Source: CMS Nursing Home Provider Information and Ownership data.
  • Average CMS star rating of private equity-controlled nursing homes in the state (1 = lowest, 5 = highest): This metric was scored based on the average CMS star rating at PE-owned nursing homes in state minus the average CMS star rating for all nursing homes in a state (i.e. PE-owned nursing home underperformance or outperformance versus all nursing homes in state). CMS Nursing Home Provider Information and Ownership data.
  • Average number of substantiated complaints at private equity-controlled nursing homes: This metric was scored based on the average number of substantiated complaints at private equity-owned nursing homes minus average number of substantiated complaints at all nursing homes in state (i.e. PE-owned nursing home underperformance or outperformance versus all nursing homes in state). CMS Nursing Home Provider Information and Ownership data.
  • Share of state population in an MSA where single private equity firm controls more than a 30% market share of one or more physician specialties: This metric was scored based on the share of state population in an MSA in which a single private equity firm possesses more than a 30% market share of one or more physician specialties. Source: "Monetizing Medicine: Private Equity and Competition in Physician Practice Markets," American Antitrust Institute, University of California Berkeley Petris Center, 2023; U.S. Census Bureau American Community Survey population data
Housing

Scores for each of the below metrics normalized and equal-weighted to produce a composite housing score.

  • Percentage of homes purchased by medium, large and mega investors (2018-2022): This metric was scored based on average share of homes purchased by medium, large and mega investors 2018-2022. Source: CoreLogic, Pew Charitable Trust.
  • Change in share of homes purchased by medium, large and mega investors from 2018 to 2022 (increase or decrease): This metric was scored based on increase or decrease in share of homes purchased by medium, large and mega investors from 2018 to 2022. Source: CoreLogic, Pew Charitable Trust.
Public Pensions

Scores for each of the below metrics normalized and equal-weighted to produce a composite pensions score.

  • Share of state pension assets invested in private equity: This metric was scored based on weighted average share of state pension assets invested in private equity, 2021 fiscal year. Source: Public Plans Data, review of state pension fund financial reports.
  • Share of state pension assets covered by private equity fee disclosure (including carried interest): This metric was scored based on weighted average share of state pension assets covered by private equity fee disclosure (including carried interest), 2021 fiscal year. Source: Public Plans Data, review of state pension fund disclosures.
  • Share of state pension assets covered by a responsible contractor policy: This metric was scored based on weighted average share of state pension assets covered responsible contractor policies, 2021 fiscal year. Source: Public Plans Data, review of state pension fund responsible contractor policies.