A watchdog group is calling for greater government oversight of joint ventures between private equity firms and non-profit healthcare providers, arguing that the arrangements could present “risks” to “patients, payers and employees”.
In a new report, Private Equity Stakeholder Project (PESP), a vocal critic of the industry, detailed more than 500 joint ventures between private equity and non-profit healthcare providers – ranging from rural hospitals to major religiously affiliated health systems to hospice care providers. The group argued those risks could include extraction of profit and a decline in quality of care.
“This is the challenge with private equity – it’s private, so they don’t have to report what they own,” said Jim Baker, founder and executive director of PESP. “We think this just scratches the surface.”
The report, “Private equity’s joint venture takeover of nonprofit healthcare”, details the legal mechanisms that allow such partnerships and four case studies that the group argues represent how private equity investments can change non-profit healthcare.
Private equity funds have an increasing footprint in American healthcare, investing more than $1tn in debt-financed healthcare deals in the last decade, according to researchers at New York University. In healthcare, the industry has been the subject of increasing scrutiny from lawmakers and academics who say debt-fueled buying and short investment horizons are at odds with the practice of medicine.
The report also significantly expands on PESP’s work tracking hospitals wholly owned by private equity. PESP reports that 488 hospitals, or 8.5% of all private hospitals, are owned by private equity.
“I don’t think it’s an irrelevant question to ask whether there’s some tension between a non-profit hospital and a for-profit investor group joining forces,” said Erin Fuse Brown, a health policy professor at Brown University School of Public Health, and the author of a recent Stanford Law Review article on private equity in healthcare. Non-profits were “legally obligated to pursue their charitable purpose”, she said.
Private equity firms make up a vast industry, employing more than 13 million American workers and, by the industry’s account, contributing $2tn to US GDP across diverse industries, from housing to veterinary care. Such funds are typically made up of “accredited investors”, according to the Securities and Exchange Commission, including high net-worth individuals, institutional investors, university endowments, insurance companies and pension funds.
PESP’s report argues that government officials need to increase oversight of private equity-backed joint ventures with nonprofits to ensure they are indeed living up to their charitable purpose.
“While joint ventures may be advantageous for the businesses involved, private-equity backed joint ventures may still represent the risks associated with private equity buyouts in healthcare,” the report states.
One major Jama study suggested private equity buyouts (which are legally distinct from joint ventures) can lead to more serious medical errors. However, academics the Guardian spoke to are split on whether private equity poses a unique risk to healthcare, or if other factors are at play.
Joint ventures between private equity-owned healthcare companies and non-profit healthcare providers are governed by two Internal Revenue Service (IRS) decisions from 1998 and 2004. In broad terms, the IRS ruled that non-profit organizations could keep their tax-exempt status – an enormous benefit – as long as they maintain control over their mission, that their duty to promote community health overrides the duty to generate profits, and that non-profits could enter into joint ventures as long as the venture furthered charitable purposes, according to the report.
Scrutiny of private equity’s role in healthcare became particularly acute following the bankruptcy of Steward Health, a one-time religiously affiliated non-profit that transformed into a for-profit hospital chain with the backing of the private equity firm Cerberus Capital Management and the publicly traded real estate investment trust (REIT) Medical Properties Trust (MPT).
In 2017, Steward was the largest private for-profit hospital system in the US. By 2024, the company was in bankruptcy court and $9bn in debt, after hundreds of millions in profit was extracted for investors, including the company’s CEO, according to extensive reporting by the Boston Globe. The chain was also criticized for allowing buildings to fall into disrepair and lacking basic medical supplies. The chain’s bankruptcy also led to the closure of two hospitals, one in the south Boston neighborhood of Dorchester and another in Pennsylvania.
One of the most heavily scrutinized practices of healthcare investors, including in the case of Steward, is the sale-leaseback. In a sale-leaseback, a healthcare provider (often a hospital) sells the property to an REIT. The property is then leased back to the hospital. Sale-leasebacks provide a cash infusion to both partners in the venture, investors and the healthcare business, but have been criticized for saddling hospitals – many of which were built on the public dime – with added expenses.
PESP highlighted this practice among non-profit healthcare providers who had entered joint ventures with private equity-backed healthcare businesses. In one example from the report, the healthcare company LifePoint Health was acquired by private equity firm Apollo Global Management in 2018. Shortly after it was acquired, nine hospitals that were part of joint ventures with Lifepoint had sold property to REITs.
The report also describes quality-of-care issues connected to hospitals in joint ventures with private equity, including a non-profit joint venture at the Wilson medical center in Wilson county, North Carolina. The Wilson medical center was a county-owned facility until Duke Lifepoint Healthcare bought a controlling stake in 2014. Private equity firm Apollo Global Management then acquired Lifepoint in 2018, according to the report.
Wilson medical center experienced multiple issues beginning in 2022-23, leading to investigation by the Centers for Medicare and Medicaid (CMS), the federal regulatory agency and largest healthcare payor in the US, into two patient deaths. The North Carolina department of justice also wrote the hospital a letter, saying it was “concerned” about patient care and alleged violations of laws requiring hospitals to treat all emergent patients.
Kimberley Sirk, director of marketing and communications for Wilson Medical Center, said in an email: “The matters referenced in your inquiry relate to issues that were addressed years ago, and Wilson Medical Center has been in full compliance with Centers for Medicare & Medicaid Services requirements since 2024.” She added that the hospital has undertaken “extensive efforts to strengthen process, accountability and oversight”, and cited the dedication of staff to improving care.
The Guardian contacted Apollo Global Management but did not receive a response by deadline. A spokesperson for the American Investment Council, which lobbies on behalf of the private equity industry, could not be reached for comment.
Skepticism about private equity’s stake in healthcare is not universal. Some health economics researchers view criticism of private equity as a distraction from more fundamental problems, in which private equity may play a role but is not solely responsible, such as increasing healthcare provider and insurance consolidation and extraordinarily high prices.
“The so-called non-profit sector doesn’t in any way behave differently than the for-profit sector – so there’s mountains of evidence not finding any behavioral difference,” said Anthony T Lo Sasso, a professor in the La Follette School of Public Affairs at the University of Wisconsin–Madison who has studied private equity investment in healthcare.
“What we’re talking about here is investment capital that the provider can turn around and invest in patient care, invest in operations, invest in more and better staffing – all of this is something that becomes more feasible with more money coming into the operation,” said Lo Sasso.
Other law professors and conservative policy advocates have argued that “bad behavior” has “plagued the health care system for decades”.
The industry itself has said non-profit joint ventures could be an important growth strategy for private equity-backed healthcare businesses. Ardent Health’s chief financial officer, Alfred Lumsdaine, noted in an article by Fierce Healthcare that “about 40% of hospitals are losing money, and with some of the impending potential changes in regulatory policy, that could exacerbate that situation for a lot of nonprofit hospitals”.
Lumsdaine made the comments ahead of the Trump administration announcing mass cuts at the Department of Health and Human Services and later legislatively to Medicaid, the public health insurance program for low-income individuals.