Private equity financiers (I described them as “vulture capitalists” in a previous post) have done extensive damage to individual firms (e.g., Toys R Us and Sears) and whole industries (e.g., food supermarkets and local newspapers). (See this previous post for more detail.) Private equity investing (i.e., “vulture capitalism”) is financial manipulation used to extract profits from companies without regard to the health or survival of the companies, or the welfare of their workers, customers, and communities. Vulture capitalism fails to produce benefits for anyone other than the rich private equity financiers.

Vulture capitalists, driven by profits and greed and nothing else, have taken a truly scary step: they are invading our health care system. The main focus has been on smaller community and rural hospitals.

Perhaps the most dramatic case to-date is the closing of Hahnemann Hospital by its private equity owner. The hospital was a 171-year-old institution in central Philadelphia that primarily served low-income patients of color. It closed in September 2019, 18 months after it was bought by a private equity vulture capitalist who apparently was only interested in harvesting some short-term cash and then closing it to sell the valuable downtown real estate to a developer. The land’s redevelopment will presumably further the gentrification of the area. [1]

Even without the entry of private equity money into the hospital industry, the industry has been consolidating, resulting in growing concentration and monopolistic power as has happened in so many industries in the U.S. in recent years. (See this previous post on the growth of monopolistic power in the U.S. economy.) By 2016, 90% of hospital markets were deemed to be highly concentrated. Nonetheless, in 2017, 115 more mergers and acquisitions were announced. Hospital executives tell antitrust regulators that their mergers and acquisitions will improve quality and increase efficiency (as executives do in other industries).

The result has been increased concentration and reduced competition. Even if costs do decline, consumers do not benefit from lower prices or reduced health insurance premiums. Increased concentration and monopolistic power allow hospitals to increase their profits by negotiating higher prices with health insurers. There is some evidence that with increased concentration health outcomes are worse and the quality of care is more inconsistent. [2]

The pattern of the vulture capitalists in the hospital industry is just like their mode of operation in other industries: buy hospitals using lots of borrowed money (i.e., a leverage buyout) and then make the hospitals pay off the loan and interest. Often the hospital’s real estate or facilities are sold to a separate entity (usually controlled by or affiliated with the vulture capitalist) and then leased back to the hospital, requiring it to pay rent. In addition, the private equity firm often takes large dividend payments and significant management or monitoring fees from the hospitals. (These actions are routine in private equity deals.)

Typically, these vulture capitalists plan to take their profits in 3 to 5 years and then sell off the hospitals or put them into bankruptcy. Rarely is there any commitment to making investments in technology, workers’ skills, or quality. Moreover, the costs the vulture capitalists load onto the hospitals (i.e., debt, rent, and other payments) often require them to cut costs elsewhere, such as through staff reductions or pay cuts, and the termination of services that aren’t the most profitable ones.

One somewhat unique feature of private equity firms’ purchases in the hospital industry is that the hospitals are usually small ones often in geographically dispersed areas. This means the mergers and acquisitions often fall under the radar of antitrust regulators. In some cases, the vulture capitalists will buy a bigger hospital first and then add several smaller ones.

When a private equity firm closes a whole hospital or specific services of a hospital, it can create real hardship for patients in the area. If the hospital, let alone a group of hospitals, is in a rural area, the result may be that hospital services are simply not available to residents without traveling substantial distances. For example, in 1996, the private equity firm Forstmann Little & Co. began building a portfolio of dozens of hospitals. In 2016, amid a series of restructurings and sales, it created Quorum Health Corp. that consisted of 38 small, mostly rural hospitals, 84% of which were the sole provider of acute-care hospital services in their areas. Quorum was saddled with roughly $1 billion in loans to repay. In the next three years, Quorum closed or sold 11 of these rural hospitals, often leaving area residents with no or limited access to acute medical care. [3]

The private equity industry’s model of vulture capitalism, where profits supersede any consideration of the well-being of companies’ workers, customers, communities, or the economy as a whole, might arguably be okay in retail businesses for non-essential goods, but in essential businesses vulture capitalism should not be allowed. It reduces the financial stability and resiliency of companies so they don’t have the resources to invest in innovation or quality and often are so financially stressed that they cannot survive.

In health care, this literally becomes a matter of life and death. The rules that govern our financial system must be changed to rein in the private equity industry and prevent its vulture capitalism from doing serious harm to individuals, communities, and our economy.

[1]      Applebaum, E., 10/7/19, “How private equity makes you sicker,” The American Prospect (

[2]      Applebaum, E., 10/7/19, see above

[3]      Applebaum, E., 10/7/19, see above


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