by The halls of Crozer-Chester Medical Center, a hospital in Upland, Pennsylvania, are eerily quiet. Peggy Malone, a registered nurse who has worked there for 35 years, describes it as a ghost town. Once a bustling hub with nearly 500 licensed beds, the hospital now faces empty units, reduced staff, and limited supplies. The story of Malone’s hospital serves as a cautionary tale for the effects of private equity on healthcare institutions.
Private equity firms pool investments from various sources to acquire controlling stakes in companies. In recent years, their foray into hospital ownership has raised public outcry and legislative scrutiny. When private equity steps in, hospitals often experience financial strain as the firms saddle them with debt, cut services and staff to reduce operating costs, and then sell and leave, leaving communities to deal with the aftermath.
Crozer-Chester Hospital, owned by the for-profit chain Prospect Medical Holdings, was majority-owned by private equity firm Leonard Green & Partners from 2010 to 2021. During this period, Prospect accumulated massive debt while paying shareholders over half a billion dollars in dividends. As a result, the hospital and others owned by Prospect, mainly serving economically vulnerable communities, slashed services, laid off hundreds of workers, and even permanently closed some facilities.
However, the impact of private equity ownership can be influenced by state laws and their enforcement. In Rhode Island, where Prospect also operated hospitals, robust legislation and aggressive regulators offered some temporary protection to Prospect-owned hospitals. Other states, such as Connecticut and Pennsylvania, are now considering legislative solutions to safeguard communities from exploitative financial transactions. About half of the states implemented related laws last year, and more are pursuing bills this year.
Approximately 400 U.S. hospitals are currently owned by private equity investors, accounting for one-third of all for-profit hospitals. Proponents argue that private equity investments fill critical gaps in the healthcare system by providing capital for technological upgrades and process streamlining. They highlight the positive benefits private equity brings to healthcare businesses.
Still, the complexity of private equity’s financial transactions and business structures often perplex state lawmakers, judges, and others tasked with protecting the public interest. To some, it feels like a shell game. Private equity firms, specializing in healthcare investments, have been purchasing physician practices, dialysis clinics, hospitals, and nursing homes. Private equity’s reach extends from conception to end-of-life care, including fertility clinics and hospice services.
Research on the impact of private equity in healthcare is in its early stages. While some studies show that private equity improves efficiency without compromising quality, others indicate increased costs for patients and insurers. Private equity ownership has been associated with negative outcomes, such as increased likelihood of patient falls and infections. Moody’s Investors Service reported that nearly 90% of financially stressed healthcare companies are owned by private equity.
Despite growing pressure, private equity’s involvement in healthcare continues to expand, albeit with some cooling enthusiasm. Prospect Medical Holdings, for instance, sold the real estate of three of its hospitals to pay off debts, leaving the hospitals to now pay rent on properties they once owned. The financial distress of Prospect and its hospitals prompted Leonard Green to sell its majority stake. However, the proposed sale hit hurdles in Rhode Island, where state legislation allowed for a thorough review of the transaction to protect the public interest.
Rhode Island Attorney General Peter Neronha launched an investigation into Leonard Green and Prospect, uncovering questionable recapitalization transactions that burdened hospitals with debt while benefiting shareholders. Neronha approved the sale but imposed conditions, including setting aside $80 million in escrow for the hospitals’ expenses for the next five years. Leonard Green contributed $34 million before exiting the investment, ensuring accountability.
Similar efforts are underway in Connecticut and Pennsylvania to extend protections to their own communities in the face of private equity’s predatory practices. Physicians, nurses, and legislators have rallied for prompt review and intervention to safeguard their hospitals. The hope is that nonprofit systems will step in to acquire struggling hospitals and restore them as community assets.
Malone, the nurse from Crozer-Chester, remains committed to fighting for her hospital and community. She believes that through collective effort, they can rebuild the hospital to serve the best interests of the community once again. While the long-term implications of private equity ownership in healthcare remain uncertain, the need to protect patients and communities from exploitative financial practices persists.
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1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it
