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.
Report details more than 500 joint ventures
In a new report, the 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.”
Private equity's growing footprint in 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.
Legal framework and case studies
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 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.
One of the most heavily scrutinized practices of healthcare investors is the sale-leaseback. In a sale-leaseback, a healthcare provider sells the property to a real estate investment trust (REIT) and then leases it back. This practice has been criticized for saddling hospitals with added expenses.
Quality-of-care concerns
The report describes quality-of-care issues connected to hospitals in joint ventures with private equity, including at Wilson Medical Center in Wilson County, North Carolina. The facility was county-owned until Duke Lifepoint Healthcare bought a controlling stake in 2014, and private equity firm Apollo Global Management acquired Lifepoint in 2018. Wilson Medical Center experienced multiple issues beginning in 2022-23, leading to investigation by the Centers for Medicare and Medicaid Services (CMS) into two patient deaths. The North Carolina Department of Justice also wrote the hospital a letter expressing concern about patient care.
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.
Mixed views on private equity's impact
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, 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 at the University of Wisconsin–Madison. “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.”
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 that about 40% of hospitals are losing money, and regulatory changes could exacerbate that situation for many non-profit hospitals.
