On December 7, 2023, the Senate Budget Committee (the “Committee”) launched a bipartisan investigation into the reality of private equity ownership of hospitals in the United States. This investigation stems from concerns around negative patient outcomes associated with hospitals under private equity ownership, and key committee members have sent letters to the CEOs of major private equity firms outlining the Committee’s concerns about how these entities own and operate hospitals.

The Committee’s investigation is the latest signpost of the government’s growing scrutiny of private equity in health care. As highlighted in our earlier blog post, the Biden Administration has raised concerns about private equity investments in health care, and a series of False Claims Act enforcement actions have targeted private equity firms in the health care sector. Moreover, the Centers for Medicare & Medicaid Services (CMS), with its current focus on private equity in the long-term care sector, has publicly criticized private equity owned and operated entities, and increased provider enrollment requirements to require full disclosure of private equity ownership (and control). CMS has also indicated that concerns with private equity operations were part of the reason for its revised requirements for increased scrutiny for Medicare participation approvals for nursing facilities. 

The State of Private Equity in Health Care

The health care industry has experienced a surge in private equity investment in recent years, culminating in a record-breaking 515 deals valued at $151 billion in 2021. At least 386 hospitals are owned by private equity firms in the United States. Notably, these hospitals are largely owned by a handful of private equity firms with a keen focus on rural populations, accounting for over a third of for-profit hospitals. 

The Senate Budget Committee’s Concerns

The Senate Budget Committee’s press release associates private equity ownership of hospitals with:

• Significant staffing reductions
• Substandard health care
• A stripping of valuable assets (including real estate)
• Unmanageable leveraged debt
• Facility closures
• The prioritization of profits over patients

Senate Budget Committee Chairman Sheldon Whitehouse elaborated on what he said was a common practice observed in hospitals under private equity ownership. In this routine, private equity firms acquire a hospital, amplify its debt while implementing substantial cost-cutting measures, and subsequently divest the hospital. The Committee’s concern is that this practice frequently leaves the hospital in a precarious state, devoid of essential operating resources, and functioning with minimal staff. Significantly, nearly 90% of health care companies classified as financially distressed by a leading credit agency are under the ownership of private equity firms. 

Scope of the Senate Budget Committee Investigation

Hospitals that are or were formerly owned or operated by private equity companies will be investigated. Currently, the scope of this investigation includes hospitals in California, Pennsylvania, and Rhode Island. However, the scope and reach of these investigations will likely expand beyond the named states, and even beyond hospitals into other health care entities, given the Committee’s interest and the growing government scrutiny of private equity in health care.

In the letters by the Committee to the CEOs of these private equity firms, the Committee requested documents and detailed answers to color concerns about the impact these firms have on the delivery of health care.

Implications for Private Equity and Health Care Entities

As the investigation unfolds, it serves as a critical warning to private equity firms to reassess their strategies in health care investments, both as acquisitions and as ongoing operations. All investors and operators, especially private equity which is currently under especially strict scrutiny, must pay close attention to the myriad of regulatory risks and requirements, many of which are unique to health care. The Committee’s investigation emphasizes the need for heightened compliance efforts to mitigate deemed potential adverse impacts on patient care and the broader health care landscape. In an environment of constantly changing regulations, a heightened focus on compliance with both state and federal law is crucial to navigate potential health care regulatory pitfalls and (perhaps) avoid unwanted scrutiny.

Additionally, private equity owned health care entities must be vigilant in addressing concerns related to patient outcomes, staffing levels, and the overall quality of care, as these factors could become focal points under increased scrutiny. These concerns may be especially acute if distressed facilities are acquired by private equity.

Daniel S. Costandy, Law Graduate, also contributed to this article.