Private equity watchdog raises concerns about joint ventures with nonprofits
A nonprofit watchdog is raising concerns about private equity funds’ pursuit of joint ventures with nonprofit healthcare organizations.
The Private Equity Stakeholder Project reported this summer that such partnerships are becoming “an increasingly important avenue” for private equity-backed healthcare companies to expand their reach. The project identified 13 nonprofit-private equity healthcare joint ventures in Wisconsin.
Its report includes four case studies, three of which have ties to Wisconsin: Lifepoint Health, which is partnering with nonprofits on rehabilitation hospitals; Ascension’s joint ventures with private equity; and Compassus Health, a home health, infusion, hospice and palliative care provider owned by Ascension and TowerBrook Capital Partners.
Matt Parr, communications director for the Private Equity Stakeholder Project, told Wisconsin Health News that nonprofits say they’re entering into such arrangements in pursuit of private investment or expertise in a type of service.
“What we’ve seen historically is that these private equity firms are going to be profiting more than the community is going to be seeing benefit from this private investment,” he said.
Compassus Health declined to comment on the report, while Ascension did not provide comment by deadline.
John Brand, Lifepoint senior vice president and chief marketing and communications officer, said their focus is on expanding access to high-quality care. That’s reflected in their new rehabilitation hospital near Green Bay with Hospital Sisters Health System and their rehabilitation hospitals in Waukesha with ProHealth Care and Madison with UW Health and UnityPoint Health-Meriter, which have received accolades for care quality, he said.
“We remain focused on investing in physicians, caregivers, technology, facilities and clinical services that improve access, advance quality and ensure our Wisconsin hospitals remain strong, sustainable healthcare resources for the communities they serve over the long term,” Brand said in a statement.
Parr spoke to Wisconsin Health News about the report. Edited excerpts are below.
WHN: What are your concerns with private equity in healthcare?
Parr: One of the things that we’re concerned about with private equity ownership and investment in healthcare is the reliability of services and the quality of patient outcomes. We’ve seen multiple instances where large private equity-backed health systems have shown poor patient outcomes, cut services and understaffed facilities, all in the name of trying to make certain profit margins from those investments. That’s what private equity firms are there to do. They have very aggressive profit goals when they buy and invest in companies.
You see this business model across sectors that private equity buys companies in, but it’s very much a life-and-death scenario when you apply it to healthcare. Our healthcare sector is supposed to be thinking long term. It’s supposed to be prioritizing care over profit.
WHN: Why are you looking at joint ventures?
Parr: Historically, we have tracked private equity’s purchasing of hospitals. There’s been a lot of headlines and evidence of some big hospital systems that have gone bankrupt or collapsed after being bought out by private equity.
What we saw, especially in the past year or two, is that more and more of these hospital operations were through not just traditional private equity buyouts, but through joint ventures. We saw private equity firms or private equity-backed companies partnering with nonprofit health systems to open or to run these hospitals. So now, 1 in 10 private hospitals currently are backed by private equity, and one-fifth of those now are through this new joint venture model.
We saw this new phenomenon pop up in our tracking. We wanted to just look broadly at: Where is this happening? What are all the joint venture facilities we could find, not just hospitals, but other types of care facilities across the 50 states? We started tracking that, and we found over 500 types of facilities in the U.S. It’s definitely a new and increasing type of investment that private equity is doing in healthcare.
WHN: What actions would you like to see taken?
Parr: When state regulators and legislators are considering trying to put guardrails on private ownership of these facilities, they need to consider this type of business model. We’ve seen some bills do that, where they explicitly include joint venture agreements in the list of different types of operational control that they’re regulating for, like a hospital takeover, a facility changing hands and things like that. It’s a very easy fix to make sure that states are future-proofing their laws so that the industry doesn’t get too creative in trying to skirt those things.
One of the big problems we see with private equity firms, especially in the healthcare space, is that when there are poor outcomes, when there are bankruptcies, when there is litigation because of problems that patients have seen, the private equity firm owners are not liable for the worst things that are happening at a facility. They are not liable for litigation happening at a hospital. They are not liable if that hospital goes bankrupt because of the way that that business model works. We would like to see regulators and state legislators include joint liability statutes in order to make sure that if there is a bankruptcy, that it’s not just the operating company that has to deal with that. The private equity firm that is the owner of that company also has some joint liability with what’s happening.
That would go a long way to make sure that they’re operating their companies in a way that is good long term because they know that if something goes bad, they will then also be liable for that. Or that they have to take care of patients because they know that they would be liable for any litigation that would happen if there’s patient harm. That’s another way, federally or at the state level, that legislators and regulators can look at trying to rein in at least some of the worst practices that we’ve seen in the industry.
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