Private Equity Ownership of Rural Hospitals is Growing, Report Finds

Private equity firms own at least 130 rural hospitals, raising concerns about care quality, staffing levels, and financial pressures at these facilities, according to a report from the Private Equity Stakeholder Project (PESP).

Nearly 30 percent of all rural hospitals in the country are at risk of closing, exacerbating care disparities for rural residents who already face barriers to healthcare access. Like most healthcare facilities, rural hospitals are facing significant staffing shortages.

While there is a critical need for investment in rural healthcare, private equity investment may create more problems for rural facilities.

“Healthcare systems in America’s rural communities are experiencing an escalating crisis,” Eileen O’Grady, healthcare director of PESP, said in a press release. “Rural hospitals are closing at a dangerous rate. Chronic staffing shortages plague providers, and the health of people living in rural areas is, by most measures, significantly worse than in non-rural areas. Despite these challenges, private equity appears to still find opportunities to profit off this struggling industry, thereby adding to the strife.”

The “Private Equity Descends on Rural Healthcare” report examines the extent to which private equity has invested in rural health, the financial drivers of these investments, and the potential risks posed by private equity’s involvement.

Private equity firms typically seek high returns and aim to double or triple their investment over a short period of time. As rural hospitals already face financial challenges, increasing their cash flow may come at the cost of reducing staffing levels or minimizing access to less profitable services.

In addition, sale-leaseback transactions, which are common among private equity-owned hospitals and generate cash quickly, may leave rural facilities with fewer assets and higher monthly payments.

The report found that private equity firms own at least 130 rural hospitals. Eighty-five of the hospitals had a rural payment designation from CMS, including sole community hospital, Medicare-dependent hospital, rural referral center, and critical access hospital.

Three private equity firms appeared most frequently: Apollo Global Management (LifePoint Health, Scion Health), GoldenTree Asset Management and Davidson Kempner (Quorum Health), and Equity Group Investments (Ardent Health Services).

Texas has the most private equity-owned hospitals at 17, followed by Kentucky and North Carolina with 12 each.

The case studies in the report revealed that rural hospitals acquired by private equity firms experienced care quality issues. The report also noted how private equity firms owned three of the six rural hospitals that closed in 2021 and 2022.

“Private equity’s influence extends far beyond the hospitals they own. In addition to providing a list of PE-owned rural healthcare companies across a variety of specialties, our research digs into several key sectors, including emergency care and transport, travel nursing, and behavioral health,” O’Grady added.

Two private equity firms control almost two-thirds of the national market for air ambulances, according to PESP. Private equity acquisitions of air ambulances have led to higher payments and larger, more frequent surprise medical bills.

Two of the largest healthcare staffing companies are owned by private equity firms, raising concerns about staffing shortages in rural areas, particularly travel nurse shortages.

Private equity firms have also been increasingly acquiring behavioral health companies. Previous PESP research found that private equity acquisitions have led to staff layoffs, reliance on unlicensed staff, and poor patient outcomes at behavioral health practices.

“There are a number of factors that may contribute to private equity’s interest in rural healthcare, including opportunities to profit from real estate sales, management and consulting partnerships that allow firms to reap substantial profits from nonprofit hospitals, regulatory flexibilities specific to rural health providers, and rural payment models and hospital designations that have the potential to be lucrative if exploited,” researchers wrote.

PESP offered several policy recommendations to ensure private equity firms cannot exploit rural healthcare providers at the cost of care quality. Policymakers should increase oversight of changes in hospital ownership, establish limits for sale-leaseback transactions, and increase public investment in rural health initiatives.