Hospitals bought by private equity more likely to lose assets

Private equity (PE) firms might make it rain cash for investors, but hospitals under their ownership are facing an asset drought, according to a research letter published in JAMA on July 30.

While fans of PE argue it can bring much-needed financial resources to struggling hospitals, the data disagrees.

“Private equity acquisitions appear to have depleted, rather than augmented, hospital assets,” the authors, a group of physicians from medical institutions across the US, wrote.

The analysis, which dug into the data of 156 hospitals snapped up by PE firms between 2010 and 2019, found that assets at these hospitals shrank from an average of nearly $88 million to just under $70 million in the two years before and after acquisition—a 24% drop.

Each hospital was matched to 10 controls—1,560 total—-based on year, region, bed size category, and capital assets such as land, buildings, equipment, and health information technology.

In contrast, hospitals not under private equity’s thumb saw their assets climb from an average of $95 million to $102 million in that same time.

The letter pointed fingers at PE’s habit of selling off real estate, turning a quick profit for investors while leaving hospitals with hefty rent bills for properties they once owned.

Getting déjà vu? Dallas-based Steward Healthcare has been criticized for doing exactly that in 2016.

At the time, PE firm Cerberus Capital Management had a controlling interest in the healthcare system. Under its leadership, Steward sold $1.2 billion in hospital real estate to Medical Properties Trust, a real estate trust that buys healthcare facilities then leases them back to their previous owners. The goal was to pay off corporate debt, help the company financially, and aid in future expansion, according to a 2016 press release.

Massachusetts officials such as Sens. Elizabeth Warren and Edward J. Markey have said the deal weighed down Steward’s hospitals with long-term leases and millions in rent payments, contributing to the debt that ultimately led Steward to file for bankruptcy in May.

Steward is currently being investigated by the Senate Health, Education, Labor, and Pensions Committee following its bankruptcy filing.