At least 568 healthcare facilities operate through nonprofit-private equity joint ventures, according to a new report calling for scrutiny into those arrangements.
The figure is likely an undercount, considering only public data were used. The report (PDF) was published by the Private Equity Stakeholder Project (PESP), a nonprofit that advocates for more disclosure about private equity deals.
More than a fifth of private equity (PE)-owned hospitals operate under joint venture arrangements with nonprofit health systems. Apollo Global Management-owned Lifepoint Health, for instance, runs nearly two-thirds of its hospitals through joint ventures.
Such joint ventures extend beyond hospitals, spanning subsectors such as inpatient rehab, hospice, home health, behavioral health, ambulatory surgery centers and urgent care, per the report. And regulations have not kept up with these evolving complex ownership structures.
“While joint ventures may be advantageous configurations for the businesses involved, PE-backed joint ventures may still represent the risks associated with PE buyouts in healthcare,” the report said.
The report identified several patterns related to such arrangements. First, joint ventures with a provider offer an opportunity for a PE-backed company to expand into new markets. Joint ventures may also help companies get around regulatory restrictions, like in some states that forbid non-doctors from owning medical practices. It may help avoid the challenges associated with converting a health system from a nonprofit to a for-profit. Joint ventures also grant access to private capital and may drive revenue from the sale of real estate, a practice critics have said fueled high-profile health system bankruptcies in recent years.
One negative pattern, the report cautioned, is patient and caregiver risks due to poor facility conditions, declining care quality, reduced services and higher prices. PESP gave as an example Lifepoint’s involvement in Duke, where associated facilities have seen poor quality of care and have cut services. Lifepoint was the subject of a recent bipartisan Senate investigation, supported by other PESP research, which found underinvestment has affected patient care.
Another example worthy of caution, per the report, is Ascension, which, in addition to having a joint venture with Lifepoint, also works with PE firm TowerBrook Capital to acquire healthcare companies. This case study shows how executives and PE businesses make outsized profits from entering healthcare markets, despite clinician concerns about future negative impacts to patient care.
While much of the public and an increasing share of policymakers have been wary of PE’s involvement in healthcare due to these cases and others, proponents contend that funds can help fill in gaps where public funding for healthcare falls short, such as by supporting services in underserved areas or providing resources and managerial expertise that would otherwise be out of reach.
PESP’s report said the examples it documented “expose significant gaps in federal and state oversight of private equity in healthcare.”
To address this, PESP recommends that the IRS update its joint venture guidance; that the HHS Office of the Inspector General update its guidance on anti-kickback statutes; and that CMS clarify whether exceptions to Stark Law—which protects medical decisions from financial conflicts of interest—apply in PE-backed joint ventures. PESP also called on the Federal Trade Commission and the Department of Justice to better scrutinize joint ventures that don’t trigger individual premerger review, but still amass market influence.
Additionally, the report was accompanied by a public searchable database of 568 nonprofit-PE joint ventures as identified by PESP. The database is embedded on PESP’s site.
“Patients, payers and employees need protection from the risks associated with PE ownership of healthcare systems and joint ventures expose significant gaps in oversight and regulation,” the report concluded.
(Editor’s Note: In May, Fierce Healthcare parent company Questex announced a definitive agreement to be acquired by funds managed by Apollo. The transaction is pending.)