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The author is a senior researcher at the NYU Stern Business and Human Rights Center.
Otanwa Community Health Center, Iowa’s only for-profit acute care hospital, recognizes the tension that private equity ownership in health facilities creates between benefits and patients.
According to a bipartisan US Senate committee report entitled “Patient Benefits” in January, Ottamwa’s lesson is that private equity debt can lead to an unhealthy cycle of underinvestment for both patients and the companies they rely on.
Private equity fund Warburg Pincus purchased Otanwa Hospital in 2010 and sold it in 2015 to Apollo Global Management Fund VIII. In 2018, Apollo purchased Hospital Chain LifePoint for $5.6 billion, combining Otumwa with other medical centers to form the operator of the largest rural hospital in the United States.
Apollo issued new debts of up to $5 billion, then sold the Ottumwa Hospital and nine others in a $700 million sale leaseback transaction. In 2021, Apollo’s Fund VIII earned $1.6 billion in profits by selling LifePoint to one of its sister funds, the report said.
Along the way, Apollo loaded rent and commissions into Otumwa, putting pressure on life points to cut corners in the sector where it proved to be deadly, according to a Senate report that contributed to a $9 million operating loss in 2023.
Test it yourself
This is part of a series of regular business school-style educational case studies dedicated to business dilemmas. Before considering the questions raised, read the text and article that was last suggested (or click on the article link) and the article. The series forms part of FT’s extensive collection of “Instant Education Case Studies” that explore business challenges.
A study published in the Journal of the American Medical Association in 2023 found that private equity groups buying hospitals were associated with a 25% increase in the rate of in-hospital complications, such as falls and infectious diseases.
In the case of Ottumwa, emergency room waiting times for unrecognized patients increased by half to more than three hours between 2011 and 2023.
The report noted that hospitals have some of the worst patient experience assessments in the United States. “We need to be constantly understaffed, low wages, have crazy hours and deal with multiple patients,” read one employee survey response cited in the report.
In 2022, it was discovered that nurses sexually assaulted nine female patients before a fatal overdose. Senate investigations found that attacks could have “occurred” as hospital safety cultures were eroded.
The attacks may have been undetected due to a lack of appropriate staff to monitor patients and oversee nurses, suggesting that the hospital may have ignored warnings about nurses due to the cost of replacing him.
Apollo told Iowa Sen. Charles Grassley that he is not responsible for the activities occurring in the hospital chain, but LifePoint’s 2022 annual report stated that “Apollo has the authority to control us and our operations and policies, including the designation of members of our board and the appointment of management.” Six Apollo employees were one of LifePoint’s 12 supervisors. Two more were linked to Apollo, with the three most powerful board committees made up entirely of Apollo staff.
LifePoint was currently covering rent for Ottumwa, but the Senate committee said that if the chain struggles financially and needs to sell, it may not be able to find it happy to leave the loss-making facility open.
Other hospital chains with history of private equity ownership have seen serious problems. Los Angeles-based Prospect Medical Holdings and Dallas-based Steward Healthcare have closed several hospitals and went bankrupt.
Meanwhile, other Life Points facilities are caught up in a scandal. The New Mexico Attorney General is investigating Lifepoint Hospital, where the allegedly lost a “poor” cancer patient. The North Carolina Attorney General has looked into another Life Point hospital for the quality of patient care.
LifePoint said, “We are dedicated to providing quality healthcare to people across the country, and often dedicated to serving as the only provider in many rural and underserved communities in our country. In the face of many challenging industry and community situations, we have been committed to expanding access to care and meeting the needs of our quality providers, caregivers and patients.
Apollo rejected the findings in the Senate report, and said it invested billions of dollars in LifePoint Hospital and increased its ratings for the quality of care.
The Senate report calls for reforms to ensure that “PE-driven financial strategies in healthcare should not be at the expense of patient well-being or the sustainability of critical hospital services.” Surprisingly, the bipartisan document challenges “the profit-driven model of private equity and the important role and compatibility of hospitals in public health.”
Questions for discussion
Read more:
Bitter Medicine: Private Equity moves to hospital
US doctors fear patients at risk as cost reductions follow private equity transactions
Consider these questions:
Should public pension funds continue to invest with PE companies that own healthcare facilities? If so, how would they protect their citizens through stewardship or responsible PE policies?
What kind of legal reform could be challenged to challenge the separation of control from responsibility in this environment and to hold private equity owners accountable when necessary?
What regulatory measures can federal or state legislators implement to ensure PE ownership delivers quality healthcare?
Should the government consider banning ownership categories for PE hospitals?
