A corporate watchdog group is calling for increased federal oversight of joint ventures between private equity firms and nonprofit healthcare organizations.
The Private Equity Stakeholder Project (PESP) released a report documenting more than 500 such partnerships across the United States, involving rural hospitals, hospice care providers, and major religiously affiliated health systems.
“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, titled “Private equity’s joint venture takeover of nonprofit healthcare,” examines the legal mechanisms enabling these arrangements and includes four case studies.
Data from New York University researchers shows that private equity funds have invested over $1 trillion into debt-financed healthcare transactions in the last decade.
PESP findings also note that 488 hospitals—8.5% of all private US hospitals—are fully owned by private equity.
“I don’t think it’s an irrelevant question to ask whether there’s some tension between a nonprofit hospital and a for-profit investor group joining forces,” said Erin Fuse Brown, a health policy professor at Brown University School of Public Health.
Nonprofits are “legally obligated to pursue their charitable purpose,” she added.
The private equity industry employs more than 13 million American workers and contributes an estimated $2 trillion to US GDP across multiple sectors, according to the Securities and Exchange Commission.
These funds typically consist of accredited investors, including institutional investors, university endowments, insurance firms, and pension funds.
PESP maintains that federal officials must step up monitoring of these hybrid ventures to ensure participating entities continue fulfilling their charitable mandates.
“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.
A study published by JAMA suggested that standard private equity buyouts can lead to higher rates of serious medical errors.
Current joint ventures are governed by two Internal Revenue Service (IRS) decisions from 1998 and 2004 allowing nonprofits to keep their tax-exempt status under specific structural rules.
The IRS ruled that tax-exempt status remains valid if the nonprofit retains organizational control and ensures the duty to community health overrides profit generation.
National scrutiny intensified following the bankruptcy of Steward Health, a former religiously affiliated nonprofit that converted into a for-profit chain backed by Cerberus Capital Management.
By 2024, Steward entered bankruptcy court facing $9 billion in debt after hundreds of millions of dollars in investor profit extractions, according to the Boston Globe.
The chain faced heavy criticism for failing to maintain buildings and lacking basic medical supplies, which ultimately forced hospital closures in Pennsylvania and Dorchester, Massachusetts.
A controversial industry mechanism highlighted in the report is the sale-leaseback, where a healthcare provider sells its property to a real estate investment trust (REIT) and leases it back.
PESP highlighted this regarding Apollo Global Management's 2018 acquisition of LifePoint Health, noting nine joint-venture hospitals subsequently sold their properties to REITs.
The report also details regulatory complications at Wilson Medical Center in North Carolina, where Duke LifePoint Healthcare bought a controlling stake in 2014.
The Centers for Medicare and Medicaid Services (CMS) investigated the facility following two patient deaths, while the North Carolina Department of Justice raised legal concerns over emergency care.
“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,” said Kimberley Sirk, director of marketing and communications for Wilson Medical Center.
She added that the hospital has undertaken “extensive efforts to strengthen process, accountability and oversight,” and cited the dedication of staff to improving care.
Some health economics experts argue that focusing entirely on private equity overlooks broader systemic issues like overall provider consolidation and rising medical prices.
“The so-called nonprofit 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,” said Lo Sasso.
Industry executives view these partnerships as vital, with Ardent Health chief financial officer Alfred Lumsdaine noting via Fierce Healthcare that roughly 40% of hospitals are losing money.
