The healthcare industry is facing a growing concern as private equity firms expand their influence, sparking a debate about the potential risks to patients and the quality of care. A watchdog group, the Private Equity Stakeholder Project (PESP), has raised alarm bells, warning of the dangers associated with joint ventures between private equity and nonprofit healthcare providers. These partnerships, according to PESP, could lead to profit extraction and a decline in the standard of care, posing significant risks to patients, payers, and employees.
The report, 'Private equity's joint venture takeover of nonprofit healthcare', sheds light on the legal mechanisms enabling these collaborations and provides four case studies illustrating the potential consequences. With private equity funds investing over $1 trillion in debt-financed healthcare deals in the last decade, the industry is under increasing scrutiny from lawmakers and academics. The concern lies in the potential conflict between the nonprofit mission and the for-profit nature of private equity investments.
One of the most alarming examples is the case of Steward Health, a religiously affiliated nonprofit that transformed into a for-profit hospital chain with private equity backing. The company's rapid decline, from being the largest private for-profit hospital system in 2017 to filing for bankruptcy in 2024 with $9 billion in debt, highlights the potential consequences of profit-driven investments. The sale-leaseback practice, where hospitals sell property to real estate investment trusts (REITs) and lease it back, has been criticized for adding expenses to hospitals, many of which were initially funded by public money.
The Wilson Medical Center in North Carolina serves as another cautionary tale. After Duke Lifepoint Healthcare acquired a controlling stake in 2014, followed by Apollo Global Management's acquisition of Lifepoint in 2018, the center faced multiple issues, including patient deaths and alleged violations of laws requiring hospitals to treat all emergent patients. This led to an investigation by the Centers for Medicare and Medicaid (CMS) and a letter from the North Carolina Department of Justice expressing concern about patient care.
However, not all voices are united in this skepticism. Some health economics researchers argue that criticism of private equity is a distraction from more fundamental problems, such as consolidation and high prices in the healthcare sector. They suggest that private equity may play a role but is not solely responsible for these issues. Additionally, the industry itself promotes the idea of nonprofit joint ventures as a growth strategy for private equity-backed healthcare businesses, citing the financial struggles of nonprofit hospitals.
Despite the concerns, the debate continues, and the future of healthcare in the age of private equity remains uncertain. As the influence of private equity grows, the need for increased government oversight and scrutiny becomes more pressing to ensure that patients receive the highest quality of care and that the nonprofit mission is not compromised by profit-driven investments.
