Is high quality healthcare attainable underneath non-public fairness possession? | Invesloan.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The writer is a senior research scholar at the NYU Stern Center for Business and Human Rights

Ottumwa Regional Health Center, Iowa’s only for-profit acute care hospital, illustrates the perceived tensions that private equity ownership of healthcare facilities creates between profits and patient.

According to a bipartisan US Senate committee report released in January, entitled “Profits Over Patients”, the lesson of Ottumwa is that private equity debt can lead to a cycle of under-investment that is unhealthy both for patients and the businesses on which they depend.

Private equity fund Warburg Pincus bought the Ottumwa hospital in 2010 and sold it in 2015 to Apollo Global Management’s Fund VIII. In 2018, Apollo bought the hospital chain Lifepoint for $5.6bn and combined Ottumwa with other medical centres to form the US’s biggest operator of rural hospitals.

Apollo issued up to $5bn in new debt, then sold the property underlying the Ottumwa hospital and nine others in a $700mn sale-leaseback deal. In 2021, Apollo’s Fund VIII reaped a $1.6bn gain by selling Lifepoint to one of its sister funds, Fund IX, the report said.

In the process, Apollo loaded Ottumwa with rent and fees it could not afford, according to the Senate report, contributing to a $9mn operating loss in 2023 — and putting pressure on Lifepoint to cut corners in a sector where doing so can prove fatal.

In 2023, a study published in the Journal of the American Medical Association found that a private equity group buying a hospital was linked with a 25 per cent rise in the rate of in-hospital complications such as falls and infections.

In Ottumwa’s case, emergency room wait times for patients who were not admitted increased by half to over three hours between 2011 and 2023. Employees expressed concerns over a leaking roof, peeling wallpaper and ambulances with more than 300,000 miles on the odometer (the industry standard for replacement is 150,000 miles), the Senate report said.

The report noted that the hospital had some of the worst patient experience ratings in the US. “We are constantly understaffed, underpaid, have to work crazy hours, and deal with multiple patients,” read one employee survey response cited in the report.

In 2022, a nurse practitioner was found to have sexually assaulted nine female patients before fatally overdosing. The Senate investigation found that the assaults “may have occurred” because of an erosion in the hospital’s culture of safety.

It suggested that the assaults may have gone undetected because of a lack of adequate staff to monitor patients or supervise nurses, and that the hospital may have ignored warnings about the nurse because of the cost of replacing him.

Although Apollo told Iowa Senator Charles Grassley it was not liable for activities occurring at the hospital chain, Lifepoint’s 2022 annual report stated that “Apollo has the power to control us and our affairs and policies, including the designation of a majority of the members of our Board and the appointment of management”. Six Apollo employees were among Lifepoint’s 12 directors. Two more were linked to Apollo, with the three most powerful board committees comprised entirely of Apollo staff.

While Lifepoint was currently covering Ottumwa’s rent, the Senate committee said that if the chain ever struggled financially and needed to divest, it might be unable to find a buyer willing to keep the lossmaking facility open.

Serious problems have been seen at other hospital chains with a history of private equity ownership. Los Angeles-based Prospect Medical Holdings and Dallas-based Steward Health Care have closed multiple hospitals and entered bankruptcy. 

Meanwhile, other Lifepoint facilities have been caught up in scandals. New Mexico’s attorney-general is investigating a Lifepoint hospital for allegedly turning away “indigent” cancer patients. North Carolina’s attorney-general has investigated another Lifepoint hospital over the quality of patient care.

Lifepoint has said it was “dedicated to providing quality healthcare to people around the country, often serving as the only provider in many of our nation’s rural and underserved communities. In the face of many challenging industry and community circumstances, we have worked diligently to expand access to care and bring quality providers, caregivers, and technology to address our patients’ needs”.

Apollo rejected the Senate report’s findings, saying it had invested billions of dollars in Lifepoint hospitals, raising their quality-of-care ratings.

The Senate report calls for reforms to ensure that “PE-driven financial strategies in healthcare do not come at the expense of patient wellbeing or the sustainability of critical hospital services”. Strikingly for a bipartisan document, it questions the “compatibility of private equity’s profit-driven model with the essential role hospitals play in public health”.