When private equity firm Prospect Medical Holdings Inc. bought a cash-strapped hospital outside Philadelphia, it promised a return to profitability that would ensure the long-term sustainability of a facility that thousands of people counted on. Seven years later, Delaware County Memorial Hospital is closed, Prospect is in debt and a community group is suing, Bloomberg News reported. It’s a story playing out across the country as Wall Street’s recipe for making big bucks flipping hospitals collides with labor costs and surging interest rates. Combined with increased scrutiny on private equity tactics, ailing hospitals are finding themselves left without access to buyers of last resort. And that’s threatening to leave low-income communities without critical care such as emergency rooms. “Private equity is looking at some of these hospitals now saying, ‘I don’t know what my exit is. There’s too many unknown variables. And the one thing private equity guys don’t like is unknown variables,” said Jim Clayton, who leads the private equity advisory practice at consulting firm BDO USA. “They thought that they could pretty them up and sell them to a larger health system. But the larger systems aren’t buying them. Because they don’t want the headache either.” Private equity owns almost 400 of the approximately 5,100 hospitals — or about 30% of all for-profits — in the U.S., according to the Private Equity Stakeholder Project, with more than 100 in non-urban areas. Rural and other safety-net hospitals are most at risk of closure because they have fewer privately insured patients, and, in the case of rural facilities, lower patient volumes.
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The financially troubled healthcare sector, including the role of private equity, will be the focus of the ABI Healthcare Program, September 18-19, 2023, in Nashville, Tenn. For more information and to register, click here.
