When Profits Trump Patients: The Growing Risk and Complex Reality of Private Equity in U.S. Hospitals

In October 2023, Sungida Rashid, a 39-year-old mother, died after giving birth at St. Elizabeth’s Medical Center in Massachusetts. The cause wasn’t a rare condition or a clinical error—it was a missing embolization device repossessed due to unpaid vendor bills. The hospital, owned by Steward Health, was part of a private equity (PE) acquisition by Cerberus Capital Management. Her tragic death has become a stark symbol of a broader crisis in American healthcare: the expanding influence of private equity, and the life-threatening consequences that can follow when clinical priorities are subordinated to financial returns.

The Rise of Private Equity in Healthcare

Over the past decade, private equity firms have poured more than $750 billion into healthcare, acquiring hospitals, nursing homes, outpatient clinics, and physician practices. Their model is simple: buy low, optimize operations, and exit within 3–7 years with a profit.

This often involves: - Sale-leasebacks: Selling hospital real estate and leasing it back, creating upfront cash but long-term rent burdens. - Cost-cutting: Including layoffs, supply rationing, and service consolidations. - Delayed vendor payments: Which may lead to supply shortages.

While these tactics can temporarily stabilize finances, they frequently compromise patient care, infrastructure, and clinical morale.

While these tactics can temporarily stabilize finances, they frequently compromise patient care, infrastructure, and clinical morale.

Case Studies: When Financial Engineering Fails Patients

1. St. Elizabeth’s Medical Center (MA) Sungida Rashid’s death was not a clinical failure—it was a financial one. The critical embolization coil had been repossessed due to unpaid bills. 2. Hahnemann University Hospital (PA) Once a critical safety-net institution, Hahnemann was shuttered in 2019 by its PE owner, displacing thousands of patients. 3. Prospect Medical Holdings (Multi-State) Flagged for underfunding and neglect, including sewage leaks and staff shortages. 4. PE-Owned Nursing Homes (Nationwide) A 2021 NBER study found 10% higher mortality rates in PE-owned nursing homes due to reduced staffing and poor reinvestment.

Financial Strategy vs. Clinical Integrity

Financial tools like sale-leasebacks and revenue-focused performance reviews may look sound on paper—but they: - Deplete hospitals of emergency resources - Shift clinical decisions toward profitability - Undermine trust between providers and patients

The Ethical Dilemma at the Heart of PE in Healthcare

Private equity has a fiduciary duty to maximize investor returns. Clinicians, on the other hand, are ethically bound to prioritize patient care. This creates a structural contradiction that threatens the integrity of care delivery when hospitals are treated as portfolio assets rather than community institutions.

A More Balanced View: When PE Works in Healthcare

Not all PE investment has been harmful. In several cases, PE has helped modernize healthcare operations when aligned with long-term goals: - HCA Healthcare (U.S.): Expanded and improved services after a major PE acquisition. - Medanta (India): PE funding helped expand access and maintain high clinical standards. - Circle Health (UK): Used capital to develop innovative care models. Success factors included long-term horizons, ethical governance, and clinical collaboration.

What Ethical Investment in Healthcare Should Look Like

1. Prioritize Long-Term Outcomes Over Short-Term Profits Ethical investors focus on preventive care, workforce development, infrastructure, and community health metrics. Success is measured in outcomes and equity, not just EBITDA. 2. Empower Medical Leadership Clinicians must have decision-making authority, shared governance, and autonomy to make care-based decisions without financial interference. 3. Reinforce Community Trust Hospitals must engage local stakeholders, report on community outcomes, and protect essential services even when unprofitable. 4. Promote Value-Based Care Encourage coordinated care, population health management, and incentive systems that reward better outcomes, not higher volumes.

Proposed Reforms: Building Guardrails for Responsible Investment

1. Mandatory Disclosure of Hospital Ownership Requires transparency about ownership structures and financial arrangements, empowering patients and regulators. 2. Pre-Acquisition Financial and Clinical Risk Audits Mandates independent audits before acquisitions to assess financial and clinical risks and protect service continuity. 3. Operational Safeguards Minimum staffing ratios, vendor payment timelines, and supply continuity rules to ensure clinical stability. 4. Financial Penalties for Avoidable Harm Links preventable harm to enforceable financial penalties, holding PE firms and executives accountable. 5. Moratoriums on Sale-Leasebacks Protects critical access hospitals by requiring strict oversight or banning sale-leasebacks that could destabilize operations.

Call to Action

·      Policymakers: Enact laws protecting patients and monitoring financial practices.

·      Providers: Advocate when standards are compromised.

·      Patients: Demand transparency in hospital ownership.

·      Investors: Adopt ethical, patient-centered investment models

Conclusion

Private equity in healthcare is not inherently harmful, but unchecked investment strategies can have devastating consequences. With regulation, transparency, and values-based governance, we can ensure that healthcare serves people—not just profits.