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.
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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.
