Private equity firms have spent the last decade buying hospitals, physician practices and nursing homes directly. Increasingly, they’re taking a quieter route into nonprofit healthcare: the joint venture.
A July 6 report from the Private Equity Stakeholder Project, a nonprofit that tracks private equity investment, found more than 500 healthcare facilities — hospitals, inpatient rehabilitation centers, hospice and home health agencies, ASCs and behavioral health hospitals — are now operated through joint ventures between private equity-backed companies and nonprofit health systems. The group added that 500 facilities could be an undercount, since it relies only on publicly disclosed arrangements.
More than 21% of private equity-owned hospitals nationally are held through these partnerships, according to the report. Apollo Global Management-owned Lifepoint Health, based in Brentwood, Tenn., operates 61% of its hospitals through joint ventures with nonprofit and other healthcare providers, including St. Louis-based Ascension, Durham, N.C.-based Duke University Health System and Mercy, based in Chesterfield, Mo.
The appeal cuts both ways. For private equity, a joint venture buys instant credibility and referral relationships tied to a recognized nonprofit brand, along with a foothold in states with Corporate Practice of Medicine laws that restrict non-physician ownership of medical practices. For nonprofits, it offers capital and operational scale without the regulatory complexity of an outright conversion to for-profit status.
The report’s central argument is that federal oversight hasn’t kept pace. The IRS rulings that govern how a 501(c)(3) can share ownership and control with a for-profit partner date to 1998 and 2004 — before, the report notes, private equity had invested more than $1 trillion in U.S. healthcare and before today’s large private equity-backed hospital platforms existed.
“Private equity’s healthcare playbook is evolving,” Jim Baker, PESP’s executive director, said in a statement. “Our research documents how private equity has increasingly relied on joint ventures with nonprofits to expand its presence in healthcare. These arrangements have received far less attention than traditional private equity buyouts, even as they become more common across hospitals and other healthcare sectors.”
The report’s case studies point to where that gap in oversight shows up. Lifepoint’s joint venture with Duke, Duke Lifepoint Healthcare, owns 16 hospitals across four states, with Lifepoint holding a 97% stake. Several of those hospitals — including Wilson Medical Center in North Carolina — have drawn “immediate jeopardy” citations from CMS and threats to their Medicare contracts over care-quality deficiencies, according to the report.
Ascension’s arrangement with private equity firm TowerBrook Capital drew scrutiny of a different kind, over executive pay. Two former Ascension executives, Anthony Tersigni and Anthony Speranzo, saw their compensation jump 43% and 242%, respectively, in the year they moved from clinical leadership roles into managing Ascension’s joint investment vehicle with TowerBrook, according to tax filings cited in the report.
Not every deal has closed without pushback. When Compassus, jointly owned by Ascension and TowerBrook, sought to take over Providence’s home health and hospice operations in Oregon, the state’s nurses associations raised concerns about staffing and patient access during a yearlong regulatory review. Kathleen Thompson, chair of the Washington State Nurses Association’s local unit at Providence Visiting Nurses Association, said in the report she worried the arrangement would push nurses to take on more patients.
“When you look at the kind of cuts private equity organizations have made at other facilities, you can’t help but worry about the quality of care,” Ms. Thompson said. Oregon regulators approved the joint venture with conditions in May.
PESP’s policy recommendations center on closing what it describes as a structural blind spot. Joint ventures can hand a private equity-backed operator management authority, board seats and a share of the profits without the ownership change that most state and federal transaction reviews are built to catch. The report calls on the IRS to update its joint venture guidance, on the FTC and Justice Department to scrutinize serial nonprofit partnerships that add up to market power, and on states to extend attorney general review to joint ventures where a nonprofit contributes patient volume, brand or referral relationships without a formal sale.
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