Private equity may skirt oversight with nonprofit healthcare joint ventures

A new report from the Private Equity Stakeholder Project (PESP) reveals that private equity firms are increasingly using joint ventures with nonprofit health systems to expand their presence in the healthcare sector. These arrangements, covering at least 500 facilities, allow firms to navigate regulatory hurdles and state laws regarding medical practice ownership while providing nonprofits with access to investment profits. This strategic shift occurs as the industry faces mounting pressure from regulators and lawmakers following high-profile failures and concerns over the impact of private equity's $1 trillion healthcare investment on patient care.

Private equity firms have invested more than $1 trillion in the healthcare industry over the past decade, and joint ventures with nonprofit systems have become an increasingly important tool for market expansion. The Private Equity Stakeholder Project (PESP) identified over 500 facilities operating through these partnerships, a figure that likely undercounts the total due to the limited visibility of private transactions. These joint ventures offer a way for firms to bypass state laws that forbid non-doctors from owning medical practices and help avoid the regulatory risks associated with converting nonprofit hospitals into for-profit entities.

Lifepoint Health, owned by Apollo Global Management, is a prominent example of this strategy, owning 61% of its hospitals through joint ventures with nonprofit systems such as Duke Health, Ascension, and Mercy Health. However, these partnerships have faced significant scrutiny; for example, the Lifepoint-Duke partnership at Wilson Medical Center in North Carolina was issued 'immediate jeopardy' citations by federal regulators who threatened to revoke its Medicare contract in 2022. Other reported issues within the Lifepoint portfolio include the cutting of obstetrics services and Department of Labor findings regarding unpaid overtime wages for healthcare workers.

The push for greater oversight of these joint ventures follows the 2024 bankruptcy of Steward Health Care, which collapsed under debt after being backed by a private equity firm. Critics and researchers argue that private equity tactics, such as aggressive real estate transactions and staffing cuts, often lead to increased costs and lower quality of care. In response, the PESP is urging the federal government to strengthen tax rules to encompass these joint ventures and to scrutinize firms that accumulate market power through serial nonprofit partnerships to ensure patient safety and financial stability.