Private equity firms are sucking the resources out of America’s hospitals and nursing homes, and feeding on doctors to generate profits. These firms — which pool funds from wealthy investors and are exempt from many of the regulations and disclosure requirements that apply to other types of investments — have spent a half-trillion dollars since 2018 buying up medical resources.
Using dollops of investors’ cash and massive loans, private equity firms have taken over hundreds of hospitals, thousands of nursing homes, and tens of thousands of medical practices, leaving the hospitals, nursing homes, and practices — not the investors — on the hook to pay off the debt.
Private equity owners often compound that financial injury by selling off the hospitals’ land and buildings, handing the proceeds to investors and saddling the hospitals with unaffordable rents for facilities they once owned. Take the 33-hospital Steward system, which originated from the private equity purchase of a Catholic hospital chain in Massachusetts in 2010 by Cerberus Capital Management. When Steward sold its properties to a trust and then leased them back in 2016, some facilities were so cash-strapped they couldn’t afford artificial valves for heart surgeries, supplies for their ER trauma center, or repairs for broken elevators.
Steward eventually spiraled down to bankruptcy; several of its hospitals that provided vital care to nearby communities for decades look set to close. But private equity investors walked away with hundreds of millions, and Steward’s CEO still sails on his $40 million superyacht.
Steward isn’t an outlier. As we and other colleagues documented recently in JAMA, private equity firms routinely strip hospitals’ assets. Nationwide, in the two years after a private equity takeover, hospitals lost on average nearly one-quarter of their real estate, buildings, and equipment. That’s equivalent to a $28 million loss per hospital. And as others have found, after private equity takeovers of hospitals, patients experienced more falls and more bloodstream infections from their IVs, signals of deteriorating care quality.
These companies have followed a similar asset-stripping playbook for nursing homes. After the Carlyle group bought the Manor Care chain, leaving the nursing homes — not Carlyle — responsible for $5 billion in new debt, it extracted $6.1 billion for investors by selling off the nursing homes’ land and buildings. Under the lease-back arrangement dictated by Carlyle, the homes paid $470 million annually in rent, as well as all insurance, maintenance, and real estate taxes for their properties. Eleven years after the takeover, Manor Care declared bankruptcy, owing $7.1 billion. But, as in Steward’s case, the private equity investors walked away with healthy profits.
Nursing home takeovers harm more than finances. For Manor Care’s roughly 25,000 residents, care deteriorated as the chain struggled financially, staff were laid off, and code violations soared. In the wake of private equity nursing home purchases nationally, nurse staffing fell and resident deaths increased by 11%. Meanwhile, billings, mostly to Medicare, increased by 8%.
Since most doctors’ offices aren’t valuable as real estate, when a private equity firm buys a practice it relies on alternative profit-boosting strategies. For the private-equity-purchased emergency department staffing firms that employ tens of thousands of emergency physicians, “surprise bills” were the answer: the doctors were pulled out of insurers’ networks, which allowed the private-equity-owned companies to bill patients — even those seeking care at an “in-network” hospital — for far more than any insurer would pay.
For the 8% of dermatology practices now owned by private equity firms, profit boosts have come from ginning up follow-up visits and cosmetics sales, replacing dermatologists with lower-skilled workers, and pressing staff to perform more biopsies and unnecessary procedures. For other specialties, like gastroenterology and radiation oncology, the strategy involves cornering the market by buying up most of the practices in a city or region, which allows the firm to demand high prices from insurers and patients. When a private equity company buys a clinic or a doctor’s practice, their prices increase by 20% and the number of visits also rises sharply.
While mythological vampires have supernatural powers to control their victims’ minds, private equity firms use more mundane methods: doctors who resist their owners’ profit-driven modus operandi lose their jobs, and the ubiquitous non-compete clauses they often sign mean they have to move outside of the region to continue practicing medicine.
Like vampires, private equity investors in medicine despise the light: At least for now, they can keep secret their purchases and financial information (for a decade, Steward outright refused Massachusetts’ demands for that), as well as staffing and service changes such as closing obstetrical units.
The well-established harms of private takeovers of hospitals, nursing homes, and physicians’ practices call for strong action. Although 33 states ban corporations from practicing medicine, loopholes allow private equity firms to use financial levers to effectively control physicians. An outright ban on private equity ownership of doctors’ practices is the only surefire way to assure that these companies aren’t pulling medical strings. A similar ban should apply to hospitals and nursing homes, most of which were built with taxpayer dollars channeled through grants, tax exemptions, and capital payments that are folded into Medicare and Medicaid reimbursements. Mandating that private equity owners disclose their purchases, financial information, and service changes is also needed.
Communities, not investors, should control essential health resources.
Steffie Woolhandler, M.D., M.P.H., and David U. Himmelstein, M.D., are Distinguished Professors at the City University of New York’s Hunter College and lecturers in medicine at Harvard Medical School. Elizabeth Schrier, M.D., is an internal medicine resident at the University of California San Francisco. Hope Schwartz, M.D., is an emergency medicine resident at Highland Hospital in Oakland, California.
