Dive Brief:
- Private equity firms are increasingly utilizing joint ventures with nonprofit health systems in order to expand their investments in the healthcare system, according to a new report.
- More than one-fifth of private equity-owned hospitals are operated through joint ventures with nonprofit hospitals, according to a report published Monday from the Private Equity Stakeholder Project.
- While joint ventures with nonprofits allow PE firms and PE-backed healthcare companies to expand into new markets, the partnerships may exploit loopholes in regulations meant to prevent financial motives from overtaking patient care, the report found.
Dive Insight:
PE firms typically acquire companies with the aim of selling them within three to five years at a profit. But in healthcare, PE tactics to extract value from the deals — including laying off employees and engaging in controversial real estate transactions — have sparked concern from regulators, lawmakers and other stakeholders who say the companies are endangering patient care.
Heightened scrutiny hasn’t cooled the pace of activity. PE firms are increasingly investing in healthcare, pouring more than $1 trillion into the industry over the past decade.
And joint ventures between PE firms and nonprofit health systems have become an “increasingly important avenue” for the firms to expand, according to the PESP’s new report.
The PE watchdog identified over 500 facilities that were operated through joint ventures between PE firms and nonprofits. The number is likely an undercount, given that the PESP’s estimate relied only on publicly identifiable transactions, the report said.
In some cases, the partnerships can give nonprofits access to profits from PE or venture capital investments. But they may also provide a way for health systems to avoid complying with state laws that forbid non-doctors from owning medical practices, or help companies avoid some of the regulatory and financial risks when converting hospitals and health systems from nonprofits to for-profits during acquisitions, according to the report.
Examples of joint ventures include those between Lifepoint Health, which is owned by PE firm Apollo Global Management, and nonprofit systems Duke Health, Ascension and Mercy Health, among others. Lifepoint owns 61% of its hospitals through joint ventures with nonprofits and other providers, according to the report.
Some of Lifepoint’s joint ventures, including its partnership with Duke, have been the subject of controversy. State and federal regulators have claimed care quality has declined at some of its facilities, including Wilson Medical Center in North Carolina.
Federal regulators have issued numerous “immediate jeopardy” citations for the hospital and threatened to revoke its Medicare contract in 2022 based on numerous alleged deficiencies. Other Lifepoint hospitals cut obstetrics services, while one medical center was forced to pay back over $97,000 in wages after the Department of Labor found overtime pay violations for some workers, according to the report.
Lifepoint did not respond to a request for comment by press time.
The PESP said the federal government should strengthen its tax rules to more properly encompass joint ventures between PE firms and nonprofits, and scrutinize joint venture strategies that “accumulate market power through serial nonprofit partnerships.”
Research has also shown that generally costs increase and care quality degrades after PE firms purchase healthcare facilities. Other studies have found patients may be more likely to die in PE-owned hospital emergency departments.
Scrutiny of PE firms’ healthcare investments rose after health system Steward Health Care declared bankruptcy in 2024. The system, which owned 30 hospitals across eight states and was previously backed by a PE firm, was forced to sell its facilities after crumpling under hundreds of millions of dollars in debt.
