Nonprofit and Private Equity Joint Ventures in Healthcare: A Call for Scrutiny
A recent report by the Private Equity Stakeholder Project (PESP) has shed light on nonprofit joint ventures with private equity in the healthcare sector, revealing significant implications for the industry. According to the report, at least 568 healthcare facilities operate through these joint ventures. However, this number is likely underestimated as it relies solely on public data.
Understanding the Scope of Private Equity in Healthcare
More than a fifth of private equity (PE) hospitals are engaged in joint ventures with nonprofit health systems. For instance, Lifepoint Health, affiliated with Apollo Global Management, conducts nearly two-thirds of its operations through such arrangements. These joint ventures are not limited to hospitals; they also encompass sectors like inpatient rehab, hospice, home health, behavioral health, ambulatory surgery centers, and urgent care.
As healthcare ownership structures grow more complex, regulatory frameworks have struggled to keep pace, raising concerns about the potential risks associated with PE acquisitions in the sector.
The Benefits and Risks of Joint Ventures
Joint ventures offer PE-backed companies opportunities to expand into new markets and circumvent regulatory restrictions, such as state-specific bans on non-doctor medical practice ownership. This structure can also facilitate access to private capital and increase revenue through real estate sales. However, critics argue that such financial maneuvers have contributed to healthcare bankruptcies in recent years.
The report highlights several negative impacts of these arrangements, including risks to patients and caregivers stemming from poor facility conditions, declining quality of care, reduced services, and higher prices. For example, Lifepoint’s investment in Duke resulted in compromised patient care due to underinvestment, prompting a bipartisan Senate investigation.
Case Studies: Lifepoint and Ascension
The report also examines Ascension, which collaborates with both Lifepoint and TowerBrook Capital to acquire healthcare companies. This case illustrates how executives and PE firms can generate substantial profits in healthcare markets, despite physician concerns about potential adverse effects on patient care.
While public sentiment and policymaker concerns about PE involvement in healthcare are growing, advocates argue that private funds can bridge gaps where public financing falls short, particularly in underserved regions. They also highlight the potential benefits of management expertise and resource provision that might otherwise be unavailable.
Recommendations for Improved Oversight
In response to the findings, PESP recommends that several agencies update their guidelines to better manage these joint ventures. The IRS should revise its joint venture guidance, the HHS Office of Inspector General should update its anti-kickback laws, and CMS should clarify Stark Law exceptions in PE-backed contexts. Additionally, PESP calls on the Federal Trade Commission and the Justice Department to scrutinize joint ventures that accumulate market influence despite not triggering individual pre-screening.
The report is accompanied by a publicly searchable database of the 568 identified nonprofit PE joint ventures, accessible on the PESP website.
Concluding, the report stresses the need to protect patients, payers, and employees from the risks of private equity involvement in health systems, emphasizing significant oversight and regulatory gaps in these joint ventures.
Here is the source for further reading.
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