Key facts
- A report identified over 500 joint ventures between private equity firms and non-profit healthcare providers in the US.
- The Private Equity Stakeholder Project (PESP) warns these ventures could risk patient care, payers, and employees.
- PESP argues these partnerships may lead to profit extraction and a decline in care quality.
- Private equity has invested over $1 trillion in debt-financed healthcare deals in the past decade.
- The bankruptcy of Steward Health, a former non-profit hospital chain backed by private equity, is presented as a case study.
- Sale-leaseback transactions, where hospitals sell property to REITs, are a scrutinized practice within these ventures.
A watchdog group is urging increased government oversight of joint ventures between private equity firms and non-profit healthcare providers, citing potential risks to patient care, payers, and employees. The Private Equity Stakeholder Project (PESP) detailed over 500 such partnerships in a new report, arguing that these arrangements can lead to profit extraction and a decline in the quality of care.
Private equity's presence in American healthcare has grown significantly, with over $1 trillion invested in debt-financed deals over the past decade. Critics argue that debt-fueled buying and short investment horizons are incompatible with medical practice. PESP's report expands on its previous work tracking hospitals wholly owned by private equity, noting that 488 hospitals, or 8.5% of private hospitals, are now under private equity ownership.
Experts like Erin Fuse Brown, a health policy professor at Brown University, question the inherent tension between a non-profit's charitable mission and a for-profit investor's profit motive. Non-profit organizations are legally obligated to pursue charitable purposes, a duty that may conflict with private equity's typical focus on financial returns.
The report outlines the legal framework for these joint ventures, which are governed by IRS decisions from 1998 and 2004. These rulings allow non-profits to maintain tax-exempt status if they retain control over their mission and ensure the venture furthers charitable purposes.
The bankruptcy of Steward Health, a former non-profit hospital system that became a for-profit chain with private equity backing from Cerberus Capital Management and support from Medical Properties Trust, serves as a prominent example of the potential pitfalls. Steward Health faced $9 billion in debt and criticism for profit extraction, property disrepair, and a lack of basic medical supplies, ultimately leading to its bankruptcy and the closure of two hospitals.
Practices like sale-leasebacks, where healthcare providers sell their properties to REITs and then lease them back, are a particular focus. This practice can provide immediate cash but saddles hospitals with additional expenses. PESP highlighted that after Apollo Global Management acquired LifePoint Health, nine hospitals in joint ventures with LifePoint sold their properties to REITs.
Quality-of-care concerns have also been raised, such as at Wilson Medical Center, a county-owned facility that became part of a joint venture with Duke Lifepoint Healthcare (later acquired by Apollo Global Management). The center faced investigation by the Centers for Medicare and Medicaid (CMS) into two patient deaths and received a letter from the North Carolina department of justice expressing concern over patient care.
However, not all experts agree on the unique risks posed by private equity in healthcare. Some researchers suggest that the criticism of private equity distracts from more fundamental issues like industry consolidation and high prices, noting that non-profit and for-profit sectors often behave similarly.